ReDigi, a company that sought to create a used marketplace for digital music, infringed Capitol Records' copyright by illegally reproducing iTunes tracks, a federal appellate panel in New York ruled Wednesday.
The ruling, issued by a three-judge panel of the 2nd Circuit Court of Appeals, largely upheld a decision issued in 2013 by a trial judge in New York.
Wednesday's ruling stems from a battle dating to 2011, when ReDigi launched a platform that enabled iTunes users to re-sell unwanted tracks. ReDigi, which declared bankruptcy in 2016, 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.
Soon after ReDigi debuted, it was sued for copyright infringement by Capitol Records. Capitol 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.
The label also said 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.
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 then asked the 2nd Circuit Court of Appeals to reverse that finding. Among other arguments, the company said its system only “transferred” music from users' computers to the cloud, as opposed to “reproducing” it.
The appellate judges rejected that contention, ruling that ReDigi's system “inevitably involves the creation of new phonorecords by reproduction.”
The appellate judges also noted that ReDigi couldn't guarantee that users didn't retain duplicates of the same music they sought to re-sell. “A user could, prior to resale through ReDigi, store a duplicate on a compact disc, thumb drive, or third-party cloud service ... and access that duplicate post-resale,” Circuit Judge Pierre Leval wrote in an opinion for the panel.
ReDigi had argued that a ruling against its service would leave consumers without the ability to re-sell digital music, short of selling their hard drives or other physical equipment. But the appellate judges seemed to suggest that users could still potentially re-sell digital music by transferring it to a physical thumb drive.
“A secondary market can readily be imagined for first purchasers who cost effectively place 50 or 100 (or more) songs on an inexpensive device such as a thumb drive and sell it,” Leval wrote. “Furthermore, other technology may exist or be developed that could lawfully effectuate a digital first sale.”