Owners of books and music in physical media form need not fear if ever they decide to sell, rent, or otherwise dispose of these copyright-protected materials. The first-sale doctrine permits such activities by extinguishing a copyright owner’s exclusive right of distribution of copyrighted items that have been lawfully sold or transferred. However, according to a recent federal court ruling, Capitol Records, LLC. v. ReDigi Inc., No. 12 Civ. 95 (S.D.N.Y. March 30, 2012) owners of digital versions of the same works may find it more difficult to sell, rent, or otherwise dispose of their digital files.

ReDigi Inc. (“ReDigi”) is a marketplace for buyers and sellers of “used” digital music files. Users can sell their legally purchased digital music by installing ReDigi’s “Media Manager” software. This software scans the user’s hard drive for digital music files purchased from iTunes, and will mark these as being eligible for sale. To avoid the possibility of copyright infringement, the Media Manager software considers all other digital music files, e.g. files downloaded from CDs or from other file-sharing websites, as ineligible for sale. The seller can then upload the eligible files onto ReDigi’s server. The Media Manager software monitors the seller’s computer to ensure that the uploaded files have not been retained. Other users can then purchase the digital music by downloading the files from the server.

In January 2012, Capitol Records, LLC (“Capitol”) brought suit against ReDigi, accusing ReDigi of violating Capitol’s exclusive rights of reproduction and distribution of many of its sound recordings. In his March 30 ruling, Southern District of New York District Court Judge Richard J. Sullivan agreed with Capitol, granting its summary judgment motion “on its claims for ReDigi’s direct, contributory, and vicarious infringement of [Capitol’s] distribution and reproduction rights.”

Judge Sullivan, citing the laws of physics, noted the impossibility of transferring a “material object” over the Internet. A file sent over the Internet from Point A to Point B is not a simple transfer of the same “material object.” Instead, it is a reproduction of the file from Point A, made at Point B. Therefore, the uploading and downloading of digital media files sold in ReDigi’s marketplace are, in essence, a combination of (unauthorized) reproductions and the distribution of those reproductions. Accordingly, the Court ruled that ReDigi violated Capitol’s digital media reproduction and distribution rights.

Under U.S. copyright law, the first-sale defense can be asserted by owners of a copyrighted item “lawfully made under this title . . . .” 17 U.S.C. § 109(a). This defense only applies against assertions of infringement of a copyright holder’s right of distribution. Because the Court ruled that digital music files sold by ReDigi’s marketplace were not “lawfully made,” but instead were unauthorized reproductions, the first-sale defense could not be asserted.

So what does this mean to owners of lawfully purchased digital media who wish to sell their files? For now, selling the hard drive where the files reside may be the safest option, barring a contractual arrangement with the copyright owner, to avoid infringement.

ReDigi plans to appeal this decision, and has, since June 2012, been implementing ReDigi 2.0, which purportedly does not involve user and seller uploading and downloading.

Gibbons will continue to monitor developments concerning the first-sale doctrine and other copyright issues involving digital media.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Catherine M.C. Farrelly, a former Director in the Gibbons Intellectual Property Department, co-authored this post.