First Sale Doctrine Held Inapplicable to Digital Goods

In a case watched closely by the entertainment industry, on March 30, 2013 U.S. District Court Judge Richard J. Sullivan (Southern District of New York) found the first sale doctrine (which allows owners of copies of copyrighted works to resell the embodiment of those works), inapplicable to the resale of digital goods.

Capitol Records, LLC, v. ReDigi Inc., 2013 WL 1286134, is a copyright infringement action brought by recording label Capital Records, LLC (Capitol) against technology company ReDigi Inc. (ReDigi). In 2011, ReDigi opened a “pre-owned digital marketplace” that allows users to upload and resell songs purchased from online retailers such as Apple’s iTunes for a fraction of the cost. ReDigi charges a commission on each transaction. Capitol argued that this unauthorized sale and distribution of its music violated its copyrights. Judge Sullivan agreed and granted Capitol’s motion for partial summary judgment.

 ReDigi argued its digital marketplace is akin to a used bookstore, as its technology deletes the original file once it is put up for sale, and thus is protected by the first sale doctrine. In distinguishing ReDigi’s digital marketplace from physical resale marketplaces, the court noted that in conducting a transaction, ReDigi must create a “new phonorecord” to give to the buyer, as it deletes the old phonorecord originally purchased by the seller. This violates Capitol’s reproduction rights, as ReDigi is unable to pass the same digital recording from the seller to the buyer and must transmit an unauthorized copy instead.

Damages for ReDigi’s infringement will be considered at a later date, although the technology company plans to appeal the decision.