Capitol Records, LLC v ReDigi Inc
A 'fundamental clash over culture, policy and copyright law'
Background
The recent case of Capitol Records v ReDigi Inc is a significant ruling on just what a consumer can do with legally purchased digital music files. Ultimately the result is that while CDs (etc) can be sold secondhand, legitimate mp3s cannot.
Although this decision doesn't bind New Zealand, it is highly persuasive and logically applicable to New Zealand copyright law. Additionally, it also illustrates the inherent incompatibility of using 'copying' to trigger illegality in the realm of digital music.
The Parties/Facts
Launched in October 2011, ReDigi provides an online market place for digital used music. Allowing "users to recoup value on their unwanted music." Effectively updating the sacred salvaging exercise of the CD age; the sacred act of going to Cash Converters and trying to convince the clerk at the counter to buy 'Kickin' 10' and 'The Ego Has Landed'.
Being digital or involving "computers" as Kenny Powers would say, the process is a bit more complex. ReDigi make users download a program called 'Media Manager.' This program creates a list of digital music files eligible for sale. This files must be purchased from iTunes or another ReDigi user (e.g. not from a CD/illegally downloaded). The program also checks whether any other copies have been retained either on the computer, or any other devices. If such copies are found the program prompts the user to delete the file. There is also a company policy to suspend user's accounts who fail to do so.
Eligible files can be uploaded onto the user's "Cloud Locker." On this locker a user can stream the file, and also offer it for sale. The structure ensures that the file cannot be playable on both the computer or the cloud locker. Once a file is 'sold' it is removed from the Locker. ReDigi takes a percentage fee of any sale.
Capital Records, own the copyright in the sound recordings of these file which could (and have) been sold via this process. Capital Records applied for summary judgment which meant the case was not heard in full and the Court had to be satisfied that there was no genuine dispute as to any material facts and that Capital were entitled to judgment as a matter of law.
Did Copyright Infringement take place?
The Court examined three exclusive rights of Capital which could be infringed.
1. Reproduction Rights
The Court held that Capitals exclusive right to "reproduce" copies of the sound recording has been infringed. A new 'copy' had been made once the file was transferred to the Cloud Locker and accordingly, reproduction rights where infringed.
2. Distribution Rights
Under statue Capital had the exclusive right to "distribute copies or phonorecords..." of their recordings to the public. These would be infringed.
3. Performance Rights
The Court refused to rule on this matter (where ReDigi linked to third parties such as YouTube, so users could sample music before buying a second hand file) as they considered that material disputes existed.
Therefore - Capital's reproduction and distribution rights as copyright owners of sound recordings were breached.
Did any Defences Apply to ReDigi?
1. Fair Use
ReDigi raised everyone's favourite copyright defence - fair use. This was swiftly rejected by the Court at page 9. Briefly, the use was not trans-formative, used an entire sound recording and significantly undercut the copyright work by providing an indistinguishable product at a lower price (isn't this exactly what a second hand CD does?!).
2. The First Sale Doctrine
Of more robust argument was the first sale doctrine. This is the idea that 'once the copyright owner places a copyright item in the stream of commerce, by selling it, he has exhausted his exclusive statutory right to control its distribution.' This is the principle which allows you to sell secondhand CDS, DVDs, and LPs. Once you have legitimately purchased such items, you can re-sell them without restriction. If you want to recover two to three dollars from the twenty plus you layed out for 'The Ego Has Landed' you are free to do so.
ReDigi argued that effectively they were allowing consumers to do the same thing, with legitimately purchased iTunes files.
3. The First Sale Fails
The Court noted that the first sale doctrine only applied to distribution rights. Prima facie, a CD can be redistributed, but the redistributing taking place in the context of digital files, involved reproducing another copy of the file, which isn't protected by the defence.
Furthermore, any distribution was not sourced from a "lawfully made" copy. This meant that the defence was not applicable to either the infringement of Capitals reproduction or distribution rights.
As a result Capitals claims of infringement under these two heads succeeded. (See page 17)
The Real Issue - Is 'Copy' The Correct Trigger Point for IP Infringement
Logically the court is correct. Under the existing law, a new copy had been created, and the consequences outlined above logically flowed. ReDigi's only real limb to stand on was to argue that:
"technological change has rendered its literal terms ambiguous, and the Copyright Act must be construed in light of [its] basic purpose" (at p12).
"technological change has rendered its literal terms ambiguous, and the Copyright Act must be construed in light of [its] basic purpose" (at p12).
Put simply, that the definition of 'copy' is outdated and incompatible in the context of digital media. It creates an unrealistic and unjustified divide in this context, between consumers being able to re-sell CDs but not mp3s. However the Court refused to engage in such "judicial amendment:"
"However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step"
(at page 17).
Conclusion
Once again the fundamental trigger point mechanism of equating 'copying' as the point of infringing a content owner's right of economic exploitation raises its ugly head; only to be conservatively considered by the Judiciary and hospital-passed to an uninterested Legislature.
Alaister J Moghan
