In Capitol Records v. ReDigi, the U.S. District Court for the Southern District of New York was called upon to resolve a dispute arising out of the sale of digital music files and the protections afforded the relevant copyright owners. In particular, the court was tasked with deciding, as a matter of first impression, whether copyright infringement occurs where one party transfers a pre-owned digital music file to another party, such that no two copies exist at the same time. The court ultimately ruled that defendant ReDigi Inc.’s transfer of such files violated plaintiff Capitol Records LLC’s copyright protections and that the first-sale defense was generally inapplicable to the transfer of digital music files.

While the court’s holding is a setback for the digital music industry, the court’s analysis addresses broader concerns. It highlights the strain placed on intellectual property laws by rapid advances in technology coupled with the public’s desire to share creative works. The court expressly acknowledged this clash of interests. In fact, U.S. District Judge Richard J. Sullivan of the Southern District of New York deemed it necessary to advise the American public the court’s opinion should not be mistaken for a “technology blog” and noted the intent of the American Copyright Act (originally passed in 1792), before declining to advance or reduce the scope of the act’s language absent express direction from the legislature. In that regard, the court’s opinion in ReDigi stands in the crosshairs of an ongoing legal battle involving the advancement of digital media and the protections traditionally enjoyed by copyright owners.

The record considered by Sullivan included the following: ReDigi distributes digital media and markets itself as a “free cloud service that allows you to store, stream, buy and sell your legally purchased pre-owned digital music.” As part of this service, ReDigi collects 60 percent of every transaction fee. The remaining 40 percent is split evenly between the seller and the artist. Payment does not involve actual currency. Rather, parties to the transaction receive credits allowing them to purchase music uploaded by other ReDigi users. ReDigi’s business model relies principally on its cloud server and media manager services. In order to use these services, a user must first download the media manager. Once installed, the media manager “analyzes” a user’s computer to build a list of digital, pre-owned music files eligible for sale. Only those files purchased on iTunes are eligible for re-sale — those downloaded from a CD or other file-sharing website are not. After the list is built, a user is permitted to upload any file into the ReDigi cloud server. The media manager is designed to delete any additional copies of the music file located on the user’s computer and connected devices. After transfer of the music file from one user to another, only a single digital music file remains.

Capitol Records owns the rights to a number of the sound recordings sold by ReDigi and its users. In its complaint, Capitol Records alleged multiple violations of the Copyright Act, including, among others, direct and secondary copyright infringement. At the close of discovery, both parties filed for summary judgment.

The court granted Capitol Records’ motion. The first few sentences of Sullivan's opinion underscore the theme: “Because this is a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal.” And indeed they were. Although ReDigi characterized its method of file transfer as a Star Trek transporter or Willy Wonka’s teleportation device, the court determined that ReDigi’s software necessarily reproduced a copyrighted work in violation of the Copyright Act. This was because, in the court’s view, the “laws of physics” made it “impossible” to transfer the same material object over the Internet without creating a copy. The court therefore held that when the digital file “migrated” from a user’s computer to the cloud server, an unlawful copy was created.

The court took this same cautious and literal tact in evaluating ReDigi’s defenses. In ultimately rejecting ReDigi’s first-sale defense, the court noted two fundamental errors. First, because ReDigi’s software had unlawfully reproduced the digital music file, the file itself could not be lawfully made under the Copyright Act. As a result, the defense was unavailable. Second, the statute protected “only distribution by the owner of a particular copy or phonorecord … of that copy or phonorecord.” Because ReDigi’s software required an unlawful reproduction of the original record, it was impossible for a user to legally sell his or her particular record on ReDigi, again, frustrating the intent of the first-sale defense as applied to the facts of this case.

There are a number of reasons why an ad hoc expansion of the first-sale defense into digital media might cause concern. First, as explained by the register of copyrights at the time, Marybeth Peters, “physical copies degrade with time and use; digital information does not. Works in digital format can be reproduced flawlessly, and disseminated to nearly any point on the globe instantly and at negligible cost.” As a result, the potential for harm to the copyright owner is magnified.

To illustrate, consider the following hypothetical: Person A buys an original copy of The Beatles’ “Sgt. Pepper’s Lonely Hearts Club Band.” Assuming Person A takes reasonable care of the album, it is safe to assume that the record may last anywhere from 10 to 50 years. This, however, is dependent on a number of factors, at least one of which includes ordinary use. As some sources suggest, as few as 200 plays — or less than one time per day for a year — may result in a decrease of the sound quality of the original record. When compared to a digital copy of the same sound recording, the harm is apparent: a digital copy could potentially be resold on ReDigi ad infinitum with no reduction in sound quality.

Second, “the tangible nature of a copy is a defining element of the first-sale doctrine and critical to its rationale.” So much is confirmed in the plain text of Section 106(1), which limits the exclusive right of the copyright owner to reproduce copyrighted works in phonorecords. By its nature, though, “digital transmission of a work does not implicate the alienability of a physical artifact.” Expansion of the first-sale defense to digital works therefore arguably distorts the plain language.

Third, and perhaps more fundamentally, one might argue judicial expansion of the Copyright Act would cut against the U.S. Supreme Court’s “consistent deference to Congress when major technological innovations alter the market for copyrighted materials.” Although perhaps not apprised of the specific problem arising here, Congress has been aware of the digital music market for more than a decade and thus far has declined to intervene.

On the other hand, Sullivan may have overlooked certain considerations. The first is that music ownership has fundamentally changed. Modern listeners are more concerned with access to their favorite tunes. They are much less interested in whether or not they own physical copies of sound reproductions, whether in particle or digital form. The cultural trend is to stream music — not own copies.

The second point works as a corollary to the first. If ReDigi makes an illegal copy of the protected work when digitally transferring it from the user’s hard drive to the cloud server, does any person who streams a digital media file also make a copy? What about when a user downloads from an external database? Is that also a copy?

Finally, although the U.S. Copyright Office’s 2001 report supports the final decision in some ways, it also works against the court’s analysis. In remarking about the endless nature of digital files, the report notes that “unless a 'forward-and-delete' technology is employed to automatically delete the sender’s copy, the deletion of a work requires an additional affirmative act on the part of the sender subsequent to the transmission.” ReDigi employs a technology almost identical to this “forward-and-delete” feature. As noted in the opinion, ReDigi’s media manager would delete any additional copies of the file located on the user’s computer and connected devices, leaving, in the end, only one copy. It is interesting to note that by employing such technology, ReDigi’s website would likely be permissible in Europe. Indeed, less than a year prior to the ReDigi decision, the Court of Justice in the European Union in UsedSoft GmbH v. Oracle International expressly allowed for the resale of digital media so long as the original acquirer makes the downloaded copy “unusable at the time of resale.”

In sum, advancements in digital media will continue to test the American copyright system. The Southern District of New York’s decision in ReDigi marks this conflict as courts struggle to protect the traditional rights of copyright owners in the age of digital reproduction and distribution. Given that ReDigi has announced its intention to appeal the district court’s decision, the enduring impact of Sullivan’s ruling has yet to be determined by the U.S. Court of Appeals for the Second Circuit.

William E. Viss is an associate with Archer & Greiner.

Daniel J. DeFiglio is a 2014 J.D. candidate at the Rutgers University School of Law-Camden.