• by Wendy Davis  @wendyndavis, January 27, 2012

EMI's Capitol Records has escalated its legal battle with the start-up ReDigi by asking a federal judge in New York to order the company to stop selling “used” digital songs.

In court papers filed this week, Capitol argues that it is suffering irreparable harm, due to ReDigi's business model, which centers on selling used digital tracks. ReDigi, which stands for recycled digital media, says it enables consumers to resell digital music they purchased.

ReDigi says it scans users' hard drives for proof that the music was acquired legally, and then allows users to upload their tracks. The company then deletes the original -- although it doesn't appear to have any way of knowing that consumers didn't make extra copies before offering the tracks for resale.

ReDigi subsequently offers to sell the “used” version to other buyers. The company adds that it “gives back to artists and labels through generous payments with every track sold (and resold).

The startup asserts that the “first sale” doctrine gives consumers the same ability to resell digital tracks as physical CDs or vinyl records. Courts have generally held that consumers can resell products they have lawfully acquired.

But Capitol counters that ReDigi isn't covered by first sale principles because it is copying the files (or enabling users to do so) before selling them. “The 'used' music files ReDigi markets ... 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 argues in court papers filed with U.S. District Court Judge Richard Sullivan in Manhattan.

The record label, which sued ReDigi several weeks ago, is now seeking an order directing ReDigi to stop selling Capitol tracks immediately.

Capitol says it is entitled to a preliminary injunction for several reasons. First, Capitol alleges, it has no way to monitor how many of tracks are being sold through the service, which could make it impossible to later determine monetary damages.

Secondly, the label says that ReDigi is causing confusion in the marketplace. “In promoting its service, ReDigi misleads the public into believing that its distribution scheme is legal and approved by and beneficial to record companies like Capitol,” the company alleges.

Capitol adds that it hasn't received compensation for many of the used tracks sold by ReDigi, despite the company's promise to pay artists and labels. “Consumers who might otherwise be disinclined to engage in infringement may be coaxed into unlawful activity with the false promise that they are acting in accordance with the law and actually benefitting the recording company,” Capitol argues.

ReDigi filed papers on Friday opposing Capitol's request. The 15-person startup says a preliminary injunction against it would “devastate” the company“ -- effectively shutting it down, and putting it out of business before this case can be resolved on the merits.”

In its papers, ReDigi says it keeps “detailed records” of all transactions, which would make it possible to determine damages if Capitol prevails in the case.

The company also argues that it is allowed to copy users' tracks -- or enable users to copy their own tracks -- under “fair use” principles. “The only copying which takes place in the ReDigi service occurs when a user uploads music files to the ReDigi Cloud,” the company says. “Such copying is paradigmatic noncommercial personal use excepted from copyright infringement liability.”

Sullivan is slated to hold a hearing on the matter on Feb. 6.