Court slams shut music locker ReDigi, says “first sale” doesn’t apply

A court ruled on Saturday that “music locker” ReDigi, which offers consumers a way to resell music they purchased from iTunes(s aapl), is liable for copyright infringement. The ruling is likely to force the service to shut down and also dims the prospect for a mainstream marketplace for used digital goods.
ReDigi touts itself as a legal source of secondhand music. It works by inviting users to upload iTunes tracks to a cloud-based “locker” where other users can purchase them. When someone buys a track, the song is transfered to the purchaser’s locker and Redigi performs a sweep of the seller’s computer to ensure he or she hasn’t held onto a copy — an arrangement that ReDigi argues makes it akin to a used record store.
Capitol Records sued ReDigi, claiming that the service had sold more than 100 of its copyrighted recordings without permission. After refusing to issue a preliminary injunction in February 2012, a New York federal judge this weekend ultimately sided with Capitol.
In his ruling, U.S. District Judge Richard Sullivan roundly disagreed with Redigi’s record store theory, arguing that that its “first sale” defense — a copyright defense that lets people sell used works — did not apply because the works in question were not legally obtained in the first place. Instead, Sullivan argues that ReDigi made illegal copies of the songs and then offered them for sale. Rejecting the record store analogy, the judge offered a metaphor of his own:

“The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.”

Sullivan’s skepticism also appeared to be driven by the economics of ReDigi’s business model, in which the startup takes a 60 percent cut of each transaction, dividing the remaining 40 percent between the seller and a fund for artists.
The ruling, which relies heavily on the technical fact that the ReDigi’s model includes making a copy, is likely to please copyright owners while disappointing technology enthusiasts who argue that consumers should have a right to resell digital media the same way that they can resell CDs and print books. Sullivan acknowledged that the Copyright Act is unfriendly to digital reselling but suggested the issue is one for Congress, not courts, to address.
The ruling — which you can read in full below — did not include damages or an injunction, but it’s a safe bet these are coming soon. Sullivan found ReDigi liable on summary judgment for several types of copyright infringement, as well as for contributory and vicarious infringement — meaning that Redigi is guilty, like music-sharing service Napster, of encouraging its users to breach copyright.
The decision may also mean that any future digital resale market is likely to be created by the likes of Amazon(s amzn), which recently obtained a patent for an “electronic marketplace.” Such a service would likely operate in conjunction with copyright owners. In the meantime, there is likely to be heated debate over the “ticking time bomb over digital goods.”

Redigi Capitol

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