If digital first sale is going to become a reality, it may take an act of Congress to do it. In a highly anticipated decision, a three-judge panel of the Second Circuit Court of Appeals this week shot down the prospect of a resale market for digital files emerging any time soon, unanimously affirming a 2013 ruling that effectively shut down ReDigi, the upstart service created in 2011 to offer consumers a way to resell their legally purchased iTunes files.
In a narrow, 26-page ruling, the appeals court agreed with district court judge Richard Sullivan that ReDigi's service was illegal because it involved the creation of unauthorized reproductions.
“We conclude that the operation of ReDigi version 1.0 in effectuating a resale results in the making of at least one unauthorized reproduction,” wrote circuit judge Pierre Leval, writing for the court, adding that the law is clear: such unauthorized reproductions “violate the rightsholder’s exclusive reproduction rights” and are therefore not protected by section 109 of the Copyright Act, commonly known as the doctrine of First Sale, the provision of copyright law that enables consumers to resell or otherwise dispose of their legally acquired books, CDs, or records.
When it first launched in 2011, ReDigi touted the legality of its service. Users could upload their old iTunes tracks to ReDigi, which removed the tracks from the user’s computer, and offered them for resale. The company stressed that it never copied the files, but rather "migrated" them, bit by bit, from one device to another, the end result mimicking an analog resale.
But while Sullivan conceded in his 2013 summary judgment that ReDigi's service did mimic an analog sale, he could not get past the fact that, under the law, the service necessarily involved the creation of unauthorized material reproductions. And for the doctrine of first sale to apply, section 109 plainly states that copies must be "lawfully made."
“The fact that a file has moved from one material object—the user’s computer—to another—the ReDigi server—means a reproduction has occurred,” Sullivan explained. “Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.”
In its opinion this week, the Second Circuit agreed. In a footnote, Leval acknowledged that ReDigi was “not making efforts in the shadows” to infringe copyright. “To the contrary, it invented a system designed in good faith to achieve a goal generally favored by the law of copyright, reasonably hoping the system would secure court approval as conforming to the demands of the Copyright Act.”
But, as Sullivan did in his 2013 summary judgment, the appeals court expressly rejected the idea that ReDigi's service should be spared because it effectively mimicked an analog resale.
“As to the argument that we should read [Section 109] to accommodate digital resales because the first sale doctrine protects a fundamental entitlement, we think such a ruling would exceed the proper exercise of the court’s authority,” Leval concluded. “If ReDigi and its champions have persuasive arguments in support of the change of law they advocate, it is Congress they should persuade. We reject the invitation to substitute our judgment for that of Congress.”
The ReDigi case had been seen by some as an opportunity to extend the first dale doctrine to the digital realm. "While advances in digital technology have complicated the first sale doctrine’s application, they cannot eradicate it as the District Court suggested," argued NYU law professor Jason Schultz in an amicus brief.
The ReDigi case had also been closely watched by the publishing industry, as ReDigi (and other players including Amazon) have expressed interest in creating a resale market for e-books. In its amicus brief filed last year, the Association of American Publishers urged the court to uphold Sullivan’s decision, contending that legalizing services like ReDigi would be "catastrophic for the entire publishing industry," as a secondary market made up of cheaper, yet indistinguishable "used" e-books would threaten the industry's primary market.
In a statement yesterday, AAP president and CEO Maria Pallante praised the Second Circuit's decision.
"In applying the plain meaning of the Copyright Act, the Court confirmed that when a defendant makes unauthorized reproductions of copyrighted works and distributes them, it is not merely reselling or transferring used works in the manner of a used bookstore," Pallante said. She also praised the Court for "rejecting the invitation from law professors to overtake Congress" on matters of policy.
"This case is critical in that it reinforces the underlying equities of the copyright law, in which the rights and investments of copyright owners are a valuable part of the marketplace of innovation, not to be minimized or appropriated in the name of expediency.”
As of press time, ReDigi has yet to respond to the decision.
