Capitol Records v. ReDigi is a 2018 decision of the United States Court of Appeals for the Second Circuit on whether lawfully purchased digital music files can be resold under the first sale doctrine. The court held that ReDigi’s system version 1.0 infringed the record companies’ exclusive right under 17 U.S.C. § 106(1) to reproduce their works, because each resale fixed the file in a new material object, and that the reproductions were not fair use.[1] The Supreme Court denied review in June 2019.[2]
Background
ReDigi was founded in 2009 to provide a marketplace for the resale of digital music files lawfully purchased from Apple’s iTunes store.[1] In its version 1.0, ReDigi’s Music Manager software verified that a file had been bought from iTunes, then moved it to ReDigi’s “Cloud Locker” server by “data migration”: the file was broken into blocks of about four thousand bytes, and each block was deleted from the user’s device as it was sent, so that the complete file never existed in two places at once. After resale, the buyer could stream the file from the Cloud Locker or download it to a device.[1] ReDigi’s software also scanned connected devices for duplicates, but the court noted, and ReDigi did not dispute, that these precautions did not prevent a seller from keeping copies on unconnected media or re-downloading from iCloud.[1]
The dispute
The record companies sued on 2012-01-06. The district court (Judge Richard J. Sullivan) granted partial summary judgment for them on 2013-03-30, and on 2016-06-06 entered a stipulated final judgment awarding $3,500,000 and permanently enjoining ReDigi from operating its system, with ReDigi reserving its right to appeal liability.[1] ReDigi argued that its system transferred the particular file the user had bought, that the file was a “phonorecord” the owner could resell under 17 U.S.C. § 109(a), and that data migration did not make a reproduction.[1]
Decision or outcome
The panel (Judges Newman, Leval and Pooler; opinion by Judge Leval) affirmed. It noted that § 109(a) limits the distribution right but “says nothing about the rights holder’s control under § 106(1) over reproduction”.[1] When the file is received and stored on ReDigi’s server, and again on the new purchaser’s device, “the digital file is fixed in a new material object” for more than a transitory duration, and that fixing “creates a new phonorecord”, which is an unauthorized reproduction.[1] The court did not decide whether a digital file can itself be a phonorecord, nor whether ReDigi also infringed the distribution right, and it did not rule on ReDigi’s version 2.0.[1]
It held that the reproductions were not fair use, and said its conclusion was supported by the Copyright Office’s 2001 report, which concluded that § 109 does not apply to unauthorized digital transmissions because the recipient obtains a new copy. It ended: “If ReDigi and its champions have persuasive arguments in support of the change of law they advocate, it is Congress they should persuade.”[1] The Supreme Court denied ReDigi’s petition for certiorari on 2019-06-24.[2]
Significance for software licensing and SAM practice
ReDigi concerned music files, but its reasoning addresses digital resale generally: under United States law, transferring a digital copy over a network creates a new copy, so the first sale doctrine does not authorize it.[1] The European position for software differs: as the Court of Justice restated in Tom Kabinet, the Software Directive assimilates tangible and intangible copies of computer programs so that exhaustion of the distribution right covers downloaded copies, a rule the Court declined to extend to e-books.[3] See UsedSoft v Oracle and NUV v Tom Kabinet.
Lessons learned
- Digital first sale does not exist in the United States by default. The court held that the resale transfers made unauthorized reproductions, and § 109(a) protects only distribution of a particular copy.[1]
- Forward-and-delete does not change the analysis. ReDigi’s block-by-block deletion meant the whole file never existed twice, but the court still found a new phonorecord on each receiving device.[1]
- Resale claims need a legal basis. The court left any change to Congress, so a transfer of downloaded content in the United States depends on the rights holder’s permission.[1]