In papers filed this week with the 2nd Circuit Court of Appeals, ReDigi and its founders argue that the company is protected from copyright liability by "first-sale" principles, which allow consumers to re-sell lawfully acquired material.
ReDigi, which declared bankruptcy last year, operated a platform that enabled people to re-sell their old iTunes tracks. ReDigi said its platform scanned users' hard drives for proof that consumers' music was acquired legally and then transferred tracks to the cloud while simultaneously deleting them from the original users' hard drives.
Capitol Records sued ReDigi for copyright infringement soon after its November 2011 launch. The record company argued that consumers weren't selling the same works that they purchased, but copies they uploaded to the cloud. That model is illegal, Capitol said, because only the copyright owner has the right to make copies.
Capitol added that even if the tracks are removed from people's hard drives, users may have kept copies of the files on other devices.
For its part, ReDigi argued its business model was protected by the "first sale" concept, which gives consumers the right to resell products they legally purchased.
U.S. District Court Judge Richard Sullivan in New York sided with Capitol. Sullivan said in his ruling that the first sale doctrine only applies to "material items" and not digital files.
"ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code," Sullivan wrote. "The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era."
ReDigi stipulated that it would pay Capitol $3.5 million in damages, but also appealed the underlying copyright infringement finding to the 2nd Circuit Court of Appeals.
Among other arguments, ReDigi says that Sullivan's ruling leaves consumers without the ability to re-sell digital music, short of selling their hard drives or other physical equipment.
"One does not need an advanced degree in economics to realize that no secondary market for previously purchased iTunes music files can ever develop if consumers are required to give away their computer hard disks as part of any resale," the company argues.
ReDigi also says its service is protected by fair use principles. "Even if this court concludes that ReDigi's technology infringes any of Capitol's rights, ReDigi respectfully submits that such infringements are permitted under the fair use doctrine because they further the public interest by extending reasonable first sale protection to all lawful owners of copyrighted iTunes music files."
Outside groups, including the American Library Association, are expected to soon file friend-of-the-court briefs siding with ReDigi. Capitol hasn't yet responded to ReDigi's appeal.