Reselling Digital Goods Just Hit A Major Setback With New Court Ruling

Ever think to yourself, wouldn’t it be great if I could resell digital goods that I had previously purchased?  Well, a company called ReDigi did and they were sued by Capitol Records.  ReDigi is a service that lets people resell songs they have legally purchased from iTunes, once someone decides to sell a song on ReDigi, it is uploaded to ReDigi’s servers and removed from the original owners device.  In the lawsuit, ReDigi argued that their service should be considered legal because reselling digital goods falls under the first sale doctrine.

The company claimed that the copy of the work on the user’s computer was moved to the cloud, then to the purchaser’s computer, such that only one copy of the work exists at any given time.  ReDigi argued that this accomplishes the goals of the first sale doctrine, and should be allowed under the Copyright Act.  Unfortunately though for ReDigi, the court didn’t agree.  In fact, the District Court found that the ReDigi process includes a copying as part of this distribution and since the first sale doctrine is not a defense to copying, it does not protect ReDigi.

According to Britton Payne, an intellectual property attorney and professor of Copyright, Trademark, and Emerging Technologies at Fordham University, the first sale doctrine is essentially a safe harbor for alleged infringement of the distribution right. If you have a physical copy of something, you can distribute that copy as you will, in spite of the fact that Section 106(3) of the Copyright Act grants copyright owners the exclusive right “to distribute copies or phonorecords of the copyrighted work.”  It’s because of the first sale doctrine that you can resell things like physical CDs, DVDs, and books you have purchased without getting into legal trouble.  However, with this ruling, it appears the “first sale” defense to infringement in Section 109 of the Copyright Act does not extend to the resale of digital copies

And while it’s certainly easy to have backup copies of digital files that you have supposedly sold, it’s also just as easy to make digital or physical copies of a CD and then sell it with the technology that’s available today.  Mr. Payne was quick to point out to us that, “the ReDigi process may be more likely to thwart the existence of multiple copies of a work existing as the result of a single purchase than the distribution of a work on a CD.”  He went on to say that, “ReDigi can theoretically comb through your system and identify copies that you supposedly “re-sold,” and compel you to delete them. But you can pass around a single CD to twenty friends, and each will retain an identical and perfect “backup” copy of the work.”

An interesting point.

While Mr. Payne acknowledged that this is certainly a setback to the resale of digital goods, he did say that, it is entirely possible that the ruling will be appealed to the Second Circuit and that “the Second Circuit has shown that it is willing to reinterpret the facts of digital copying to overturn District Court decisions to allow end users more freedom with the content they have purchased.”  But really, it looks like if we are ever going to be able to resell digital goods in the way ReDigi has envisioned, it’s going to be up to Congress.

“If Congress wants people to be able to resell the digital copies they have purchased, the Copyright Act will need to be amended.” said Mr. Payne.

You can read a copy of the judges ruling on Scribd.