ReDigi, a company that sought to create a marketplace for "used" digital music, had no right to operate its second-hand sales platform, a lawyer for Capitol Records argued Tuesday to an appellate panel.
Richard Mandel told three judges of the 2nd Circuit Court of Appeals that so-called "first-sale" principles, which allow people to re-sell CDs and DVDs they have purchased, only apply to physical objects, not digital files.
"Congress has consistently refused to enact a digital first-sale doctrine," Mandel told the panel in an argument that lasted for over an hour on Tuesday afternoon.
Instead, Mandel argued, digital music purchasers can only re-sell the files by selling the iPhones, hard drives or other computer equipment where the tracks reside.
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.
ReDigi countered that its business model was protected by the first sale concept, which gives consumers the right to resell products they legally purchased. ReDigi stipulated that it would pay Capitol $3.5 million in damages, but also appealed the copyright infringement finding to the 2nd Circuit.
ReDigi's lawyer, Robert Welsh, argued to the judges that the company's technology enabled users to "transfer" files, as opposed to copy them.
But Mandel contended that it wasn't possible to "transfer" a digital file without first making a copy.
Mandel also noted that in 2016, the Commerce Department advised against extending first-sale principles to digital files. That agency's report noted that copyright holders argued that digital files weren't comparable to physical objects. "Music industry groups ... stressed that a digital first sale doctrine would allow users to distribute perfect copies of works to others without the copyright owner receiving any compensation, 'making piracy undetectable' and stifling the online marketplace," the report said. "An app developer concurred, observing that if purchasers who decide they do not want to keep his app are permitted to resell it, they can make it available for sale at a lower price and destroy his market."