Capitol v. ReDigi - What Does "Ownership" Mean in the Digital Era?

A few days ago, the U.S. District Court for the Southern District of New York granted summary judgment to Capitol Records in Capitol v. ReDigi.

This case has far-reaching implications. 

What's at stake, really, is what it means to "own" music in the digital era. And based on the March 30th ruling, "ownership" isn't what it used to be. 

As a "computer lawyer", I'm not exactly sure what to think about that. But I'm sure interested in where this discussion leads. 

Secondhand Music

ReDigi is a company that enabled "secondhand" sales of iTunes music files. 

Basically, their process made it possible for people to sell digital music files - provided that the file could be verified as legitimately purchased on iTunes - to other people. 

Secondhand music sales have a long history. Here in Chicago (especially in Bucktown), we have some pretty famous used CD and vinyl shops - Reckless Records, for one. The movie "High Fidelity" was set in a Bucktown used record store. 

There's no issue with selling your used CDs - that's definitely legal, under the "first-sale" doctrine. In this case, you are exchanging something tangible - your physical CD - for cash. And when you sell the CD, you no longer own that physical item. 

But What About Digital?

Here's where it gets tricky. In the last 10 years, we've moved almost entirely away from the idea of music as a "physical item", and toward the idea of music as an intangible digital file - a piece of intellectual property.

Digital music files can, of course, be reproduced infinitely, with no loss of fidelity. 

Obviously, it's illegal to sell copies of the digital music files you purchase. While it would be simple for a person to spend $9.99 buying Justin Timberlake's new album, and then set up shop online selling the album for $4.99, that would be illegal.

So we agree - we can't sell *copies* of our music files. 

ReDigi's Secondhand Digital Sales

ReDigi claimed that their process was different than that. People weren't selling copies - they were selling the file itself. 

ReDigi users would use their Media Manager to upload music files, where they'd be verified as legitimate iTunes files and would be stored on ReDigi's cloud server - where they'd be made available for sale. 

The copy of the file on the user's computer would disappear - but the user could still listen to their ReDigi cloud-music until the file sold. 

ReDigi claims that when a sale takes place, no copy of the music is made - instead, the ability to access the file is transferred to the purchaser. 

So What's the Problem?

It stands to reason that the music industry is against the idea of secondhand sales. Every 49-cent transfer on ReDigi is a lost 99-cent sale that could have been made in iTunes. 

Hence, Capitol Records v. ReDigi

There are a number of issues that are in play. Is an iTunes sale actually a "sale"? In the fine print, Apple states that what you're actually acquiring is a permanent personal "license" to use the music in certain ways. And since ReDigi only worked with iTunes files, the transfer of that license may not be within the terms of the original transaction. 

Capitol's argument against ReDigi focused on the sale - they admitted that the sale of an iPod full of music would be okay, because there was a physical object being transferred - but that ReDigi's process i nsome way involved the copying of copyrighted material.  ReDigi, meanwhile, maintained that their sales process ensured no copies of digital files were being made. 

The Court went with Capitol. 

Judge Richard Sullivan held that ReDigi "facilitates and profits from the sale of copyrighted commercial recordings, transferred in their entirety, with a likely detrimental impact on the primary market for these goods". 

Well, sure. Of course it does. So does every used CD store. So why is this different? Why is the first-sale doctrine inapplicable?

The issue, the court held, lies in the initial transfer to ReDigi's cloud server. A user "must produce a new phonorecord on the ReDigi server" to participate in the ReDigi market. "Because it is therefore impossible for the user to sell her 'particular' phonorecord on ReDigi, the first-sale statute cannot provide a defense."

AHA! So it's the "transfer to the cloud" portion that creates the problem! This ruling will end ReDigi's current sales model... but isn't it possible for ReDigi - or someone else - to create a non-infringing method of direct user-to-user transfers of verified legitimate files? 

And wouldn't such a method fall directly under the first-sale doctrine? 

Stay tuned. 

Moving into an All-Digital World

As we move further and further away from the idea of ownership being tied up in physical media, it's almost certain that a new framework will arise, for enabling legal transfer of our digital libraries. 

It's been reported (and disputed) that Bruce Willis is considering legal action against Apple, in order to gain the ability to transfer his digital music library to his children after his death. Equitably, that makes a lot of sense - and I have a strong hunch that Apple agrees. 

For instance, Apple recently filed a patent for a system enabling the resale and transfer of "used" digital files. 

While this Apple solution may be a ways off, it's fair to assume that the Capitol v. ReDigi decision will factor into Apple's plans moving forward. 

Because while the digital revolution is still in its relative infancy, the status quo simply will not stand. Equity dictates that users are acquiring a tangible, transferable asset when they make an iTunes purchase. And to tell the public, some time down the line, that their right to the music library their mother purchased died with her will not go over well. 

As we get older and consider the implications of dealing only in intangible digital files as our "possessions", our distribution frameworks - and the law - will have to scramble to keep up. 

Yes, we live in interesting times. And they're getting more interesting by the day. 


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