Publishers breathed a sigh of relief last week as federal judge Richard Sullivan dealt a setback to any potential resale market for digital books. In a forceful ruling in Capitol Records v. ReDigi, Sullivan held that the doctrine of “first sale,” which allows consumers to redistribute lawfully acquired copies, does not apply to the transfer of digital files.
The ruling comes just two weeks after the Supreme Court dealt publishers their own setback in another closely watched first-sale case—Kirtsaeng v. Wiley. In Kirtsaeng, the high court held that a phrase in the first-sale provision requiring copies be “lawfully made” under the Copyright Act does not imply a geographic limit. Publishers say that ruling will enable cheaper, foreign editions of textbooks made for exclusive sale overseas to come flooding back into the domestic market.
Notably, the ReDigi case largely turned on the same phrase at issue in Kirtsaeng, with Sullivan holding that the ReDigi service created “unlawful reproductions” to facilitate the resale of iTunes tracks; and was therefore not protected by first sale.
ReDigi’s model is simple: a user who wants to sell off his or her iTunes tracks uploads them to the company’s servers, which remove the tracks from the seller’s computer and transfers them to the buyer’s. ReDigi argued the service fulfills the intent of first sale, and that a ruling against it would serve to exclude digital files from fundamental resale rights that owners enjoy in other mediums. Sullivan, however, held that it did not matter that ReDigi deleted tracks from the sellers’ computers—what matters is that in the process it created new, “unauthorized” copies. ReDigi has vowed an appeal.
Of the two recent first-sale decisions, the ReDigi ruling is almost certainly the more important to publishers. Digital textbooks are gaining rapidly in popularity as tablets like the iPad become standard in education settings. And if the future of textbooks is digital, the ReDigi ruling—if it stands—portends a future without a used textbook market.
While dealt a setback, the question of a “used” market for e-books and other digital content remains far from settled. First, there is the coming appeal. While ReDigi’s current model and its first-sale defense may have failed at the district court, it will get a second look on appeal. And while Sullivan did do a fair-use analysis in deciding the case, New York Law School professor James Grimmelmann noted that he did so for ReDigi, and not for ReDigi’s users. “The fair-use issue could arise on appeal,” Grimmelmann told PW. “If the Court of Appeals agrees with ReDigi that its users ‘make’ the copies and distribute them to each other, then the next natural question is whether it’s fair use for them to do so.”
Legal questions aside, publishers concerned about the rise of a “used” e-book market would be wise to recognize the market forces that made ReDigi a viable business in the first place. For even as it files an appeal, ReDigi is “moving forward at full speed” with plans to launch its used e-book component in both the U.S. and U.K. in the next few months, a spokesperson said. The company contends that the ruling applies only to ReDigi 1.0, which it is no longer using, after launching ReDigi 2.0 in mid 2012. “In a way,” the spokesperson said, “the ruling has made 2.0 more valuable than ever.”
Public and market pressure are building for some sort of digital resale model. Amazon has already received a patent for a digital resale mechanism, and Apple has applied for one.