Music platform hits a sour note

July 10, 2019
Patterson Thuente IP

Resale of digital music violates Copyright Act

The introduction of digital works has raised a variety of questions about how the Copyright Act applies in the modern age. But one thing is now clear: Neither the first-sale doctrine nor the fair use defense allows the resale of copyrighted digital music files.

The original score

Capitol Records, Capitol Christian Music Group and Virgin Records IR Holdings (the “record companies”) own copyrights or licenses in sound recordings of musical performances. They distribute the music as licensed digital files through authorized agents such as Apple iTunes and other methods. Purchasers download the files onto their own devices. ReDigi is an online marketplace that brokers the sale of legally purchased digital music files through an online platform, including files with the record companies’ music. 

The record companies sued ReDigi for copyright infringement. The trial court found that ReDigi had infringed the plaintiffs’ copyrights by unauthorized reproduction and distribution of their copyrighted music. It awarded the plaintiffs $3.5 million in damages and permanently blocked ReDigi from operating its system. The company appealed to the U.S. Court of Appeals for the Second Circuit for relief.

The remix

ReDigi argued that its system lawfully enabled the resales of its users’ digital files under the first-sale doctrine. The doctrine provides that a copyright holder’s control over the distribution of any particular copy or phonorecord is distributed to its first recipient. The right to control reproduction, however, remains with the copyright holder.

ReDigi claimed that, from a technical standpoint, its process didn’t make a reproduction. Because its system removed blocks of data (known as packets) from the file that remains on the user’s computer as the packets are copied and transferred to its server, the complete file never exists in more than one place at the same time. The file on the user’s computer shrinks as the file on the server grows, and the sum of the data never exceeds the size of the original file. Thus, ReDigi asserted, no reproductions are made during the process.

The appeals court wasn’t convinced. The fact that the amount of data remained constant throughout didn’t rebut or nullify the fact that the eventual receipt and storage of a file in ReDigi’s server, as well as in the new purchaser’s device, involved the making of new phonorecords.

The creation of such phonorecords, the court said, involved unlawful reproduction, unless justified by the fair use defense. Under the Copyright Act, fair use of a copyrighted work for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship or research isn’t an infringement of copyright. After considering the statutory fair use factors, the appeals court found that fair use didn’t save these reproductions.

ReDigi made no “transformative” change to the sound recordings and was motivated purely by a commercial purpose. It also made identical copies of the recordings, copying them in their entirety. Most important, the court said, ReDigi made the reproductions to resell in competition with the copyright holders — it sold the reproductions to consumers whose objective was to obtain the copyright holders’ music. The primary difference between the originals and the reproductions was the lower cost of the reproductions.

Unsung verse

Because it found that ReDigi’s system infringed the copyright holders’ rights of reproduction, the appellate court made no ruling on whether the digital files it resold were subject to the first-sale doctrine. It remains undetermined whether such resales also infringe the copyright holder’s right of distribution. 

Capitol Records, LLC v. ReDigi Inc., No. 16-2321, Dec. 18, 2018, 2d Cir.

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