Is the sale of "used" digital tracks music piracy? Capitol Records vs. ReDigi
ReDigi bills itself as the first "online marketplace for pre-owned digital music." Users upload their "used" digital music to the ReDigi marketplace for sale. ReDigi then sells the "used" music for 79 cents, pays the user 10 cents, keeps 69 cents and (according to Capitol Records) pays the record companies nothing.
According to the ReDigi website,
ReDigi is the world's first and only online marketplace for pre-owned digital music. Its genius is in its ability to facilitate the transfer of a digital music file from one user to another without copying or file sharing. This gives digital music a resale value for the first time ever, and consumers the freedom to buy and sell the music they rightfully own. ReDigi also gives back to artists and labels through generous payments with every track sold (and resold).
It is unclear from this explanation how ReDigi verifies that you do not keep a copy of the track you just sold (for example, back-up copies on another computer). Nor is there any explanation how ReDigi "gives back" to the artists when you re-sell your "used" music (according to Capitol Records this statement is simply false).
Not surprisingly when ReDigi did not (or could not) reach an agreement with the music industry for this business model they were sued.
Capitol Records filed its complaint on January 6, 2012, alleging copyright infringement, contributory copyright infringement, vicarious copyright infringement, and inducement of copyright infringement.
ReDigi filed its answer on January 19, 2012 and included several affirmative defenses including the first sale doctrine, the copyright exhaustion doctrine, fair use, and Capitol Record's alleged failure to follow the notice and take-down procedures of the Digital Millennium Copyright Act, 17 U.S.C. § 512.
After ReDigi sent a letter to the judge outlining its defenses and Capitol Records requested a preliminary injunction hearing, the court set a briefing schedule and set a preliminary injunction hearing for February 6, 2012. Both sides have now filed their initial briefs.
In Capitol Records brief, ReDigi is painted as a common copyright infringer,
"Although ReDigi promotes itself as a technological pioneer, it is simply an online infringer, engaged in unauthorized copying, distribution, performance, and display of Capitol's copyrighted works. It is less notable for its technology than for the uncontrolled breadth of its infringement and brashness of its claims.
ReDigi styles itself as "the world's first and only online marketplace for used digital music." The "used" music files ReDigi markets, however, are not secondhand, scratched CDs that physically pass from one user to another, but pristine digital files that ReDigi reproduces, stores and distributes without authorization. ReDigi encourages users to "sell" files resident on their home computers by having copies of those files "uploaded" to ReDigi's "cloud" storage. Upon uploading, ReDigi purports to remove the original file from the user's home computer. Interested "buyers" then "download" copies of the files available in the "cloud" for prices below those available via legitimate digital merchants, such as Amazon or iTunes.
According to Capitol Records this is classic copyright infringement, plain and simple.
Throughout the entire process, ReDigi and its users engage in numerous acts of copyright infringement. Uploading, storing and downloading digital music files necessarily entail making multiple, unauthorized copies of the original file and transferring those copies to the public, in violation of Capitol's exclusive rights of reproduction and distribution.
ReDigi counters in its brief that (at least during the sales process) no copies of the digital file are actually made.
[T]he file in the ReDigi Cloud is not touched, let alone erased, in connection with a resale transaction. Rudolph Dec. ¶ 30. Moreover, no copies of an Eligible File are made in connection with a resale transaction. When such a file is purchased by another user, the file pointer associating the file with the seller's Cloud Locker is modified to associate the file with the purchaser's Cloud Locker. In such a transaction only the pointer is changed; the file remains in the same location in the ReDigi Cloud and is not copied. Rudolph Dec. ¶ 10.
As for the uploading and downloading of music to and from its servers, ReDigi casts this activity as fair use.
The only copying which takes place in the ReDigi service occurs when a user uploads music files to the ReDigi Cloud, thereby storing copies thereof in the user's personal Cloud Locker, or downloads music files from the user's Cloud Locker, thereby placing copies of the files on his or her computer.1 Such copying is paradigmatic noncommercial personal use excepted from copyright infringement liability under by the Fair Use Doctrine.
ReDigi does not address the fact that in its system one user is uploading the music while a second user is downloading the music. ReDigi also does not address the fact that during the purchase process a track uploaded by one user and accessible in that user's digital locker is instantly made available in a second user's digital locker.
In its brief, ReDigi cites all of the relevant fair use cases such as Recording Industry Association of America v. Diamond Multimedia Systems, Inc. ("Diamond"), 180 F.3d 1072, 1079 (9th Cir. 1999) (music files copied from a computer to a portable external storage drive is personal non-commercial fair use). However, ReDigi fails to address how these non-commercial fair use cases apply to the commercial nature of its business, that is selling music tracks.
Instead, ReDigi just jumps to the conclusion that an adverse ruling against its business model "would mean that consumers who use the other cloud storage providers mentioned above also infringe copyright, which would put the future of all cloud storage services in doubt." Of course such a result would be highly unlikely (impossible?) in this case as the users of ReDigi are not being sued for using a cloud service, nor is ReDigi being sued for providing a cloud service. Rather, ReDigi is being sued for selling digital music it allegedly does not have the right to sell.
ReDigi does make one solid argument against issuing a preliminary injunction, however. Specifically, ReDigi points out that Capitol Records has not clearly shown irreparable harm, that is, harm which cannot be fully compensated with money. Since Capitol Records routinely licenses and sells its music and ReDigi is dutifully keeping track of each song it sells, calculating Capitol Records damages should it prevail in this litigation will be trivial. Since a showing of irreparable harm is such a key component of injunctive relief this argument alone may be enough for the court to deny Capitol Records' requested injunction.
A ruling on Capitol Records preliminary injunction motion is expected soon after the February 6, 2012 hearing.
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