Can Digital Music Files be Resold?

Walking into a used music store is akin to embarking on a treasure hunt. Whether the shopper is looking to bulk up her CD collection or find vintage vinyl—an original pressing of Pearl Jam’s Ten!—or a cheaper way to fill in the gaps, music resellers are a cost-effective way to get new material while providing the previous owner a way to create some shelf space for new additions.

The reselling of physical media, whether books, movies or music, is permissible under Section 109 of the US Copyright Act. The First Sale doctrine, as it is known, says a person who has paid for an album (vinyl or CD or, in yesteryear, a cassette) can resell that album without any legal problem. The First Sale doctrine “generally provides that once a copyright holder authorizes the distribution of a copy of a work, that copy can be further leased or transferred or otherwise disposed of by the purchaser or whoever has lawfully acquired it,” confirms Mike Keyes, an intellectual property and copyright attorney with the Seattle-based law firm of Dorsey & Whitney LLP.

Digital music files, however, are a whole different story. Back in 2011 or so, a company called ReDigi Inc. set about creating a system and website in which people could sell their digital music files on the company’s website in exchange for other music files placed on the company’s exclusive cloud-based system by other users. Shortly after the company launched, it was slapped with a lawsuit from Capitol Records claiming ReDigi was infringing the company’s copyright protections by allowing users to resell digital files obtained through iTunes.

The way ReDigi worked was its downfall, according to a 2013 judgment in Capitol’s favor: A ReDigi user would download the company’s Media Manager software, which would scan the user’s computer for legally obtained music files, in particular songs purchased via iTunes or other similar services. Those files could then be uploaded via the Media Manager to a cloud server, based in Arizona, a process which involved “’migrating’ a user’s file, packet by packet, from the user’s computer to the cloud locker so that the data does not exist in two places at any one time,” the lawsuit says. The digital files were then erased from the user’s computer, but because the files were moved to the cloud server, and later, if purchased, reproduced on the next purchaser’s computer, the service allowed for the creation of a wholly new reproduction of the digital recording, a violation of the Copyright Act.

ReDigi argued at the time that what it allowed users to do was no different from selling a physical copy of an album, but the US District Court for the Southern District of New York disagreed and sided with Capitol Records in March 2013. It’s a really interesting case, and apparently it’s not over.

Last month, The Hollywood Reporter noted that ReDigi and Capitol were facing another court date to discuss damages in the case, quickly approaching its fifth anniversary. The two sides were slated for an April 11 appearance with ReDigi looking at possibly having to pay millions to Capitol Records, but before that could happen, the two sides told the court they had reached a deal.

“According to those involved in the case, ReDigi has agreed to a stipulated judgment that avoids a trial,” THR reports. “The financial consideration involved has not been made public.”

Of course, that only addresses the damages in the case, because ReDigi “is still contesting its liability in the case—and the resolution of penalties allow the company to make an appeal to the Second Circuit. (Previously, the company asked the judge for permission for an interlocutory appeal, but the judge wanted the case to proceed to trial first.) As such, the four-year-old case will finally reach a higher authority on the question of the possibility of legal second-hand digital works,” THR says.

By the way, Redigi.co is still an active, live website. A visit to the site now says the company is “heading to appeal.”

Will this mean consumers have no way or legal option to “sell” their digital music libraries when they tire of their collections? Will the only option be deleting files that probably cost a pretty penny to acquire? What about the files that ReDigi users moved to the company’s cloud server but never resold? Capitol asked in a recent legal brief whether ReDigi “have the court enjoin only actual consummated sales, but permit Defendants to continue to offer illegal reproductions of Plaintiffs’ sound recordings? Such a distinction leads to absurd consequences, whereby merchants could try to sell pirated copies but could never actually consummate those sales.”

Ultimately, this case poses more questions. How big is the market for “used” digital music? What kind of verification measures are, or could be, in place to ensure someone who sells their digital music files hasn’t retained a copy of those same files on a separate, second cloud-based file system or external hard drive? Does the Copyright Act need to be further modified to address digital music sales? Does the sale of digital music files constitute piracy, in addition to, or instead of, violation of copyright protections?

“The court found the First Sale doctrine didn’t apply to the works at issue” because, once the file were uploaded to ReDigi’s cloud storage, that constituted a new reproduction, Keyes says. Everything else, unfortunately, is unsettled.