I'm an old guy. One of the first musical purchases I ever made was a 45 rpm (that's revolutions per minute for those of you that have never seen a phonograph) recording of Bobby Vee's "The Night Has A Thousand Eyes". If I still had that physical record, I could sell it to you without fear of violating anyone's copyright because of a little something called the "first sale" doctrine. We have mentioned that several times in this blog (see here, here and here). The first sale doctrine says that after the first sale of a copyrighted work, the copyright holder loses its right to restrict further sales. This is the reason that stores that sell used books, records, CDs, DVDs, etc. can exist.
Now, if I could find that particular song on ITunes, I could buy it, download it to my computer or MP3 player and listen to it all I want. If I tired of that, I could use the services of a company called ReDigi. In doing that, I would download an application called Media Manager and then use that to upload the digital file of the recording to ReDigi's remote server in Arizona, which they call the "Cloud Locker". Media Manager then prowls the hard drive of my computer and connected devices to determine if I have retained a copy. If it detects one, it prompts me to delete it. When that happens, only one copy of this particular recording exists and it exists only on the Cloud Locker. I then can either continue to listen to it from the Cloud Locker or I can opt to sell it. If I opt to sell it, ReDigi makes it impossible for me to continue to listen to it. So, now I can use ReDigi to sell that particular recording to you. The exchange is made for credits that you can get by uploading other music. When it is transferred to you (automatically, without human intervention by ReDigi), you can store it, stream it, sell it or download it to one of your devices to listen to it.
In both instances, the result is the same. I bought a copy of "The Night Has A Thousand Eyes" legally. I have transferred it to you. I no longer have a copy. I can't sell it again.
Cool, right? Everybody's happy. I can buy more music with my credits. You are in possession of a great piece of nostalgia and I have no more copies to sell to undercut the copyright holder's income stream. The Southern District of New York says: "Not so fast, my friend".
In a case styled Capitol Records, LLC v. ReDigi Inc., the court held that the first sale doctrine can not apply to non-physical (i.e. digital) recordings.
The First Sale Doctrine is codified in Section 109(a) of the Copyright Act and states in pertinent part: "...the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."
The Court held that ReDigi had several problems under this provision. First, it said that ReDigi had violated Capitol's reproduction rights (another right under the Copyright Act), therefore it was not "lawfully made under this title". The Court also said that the Act only protects distribution by the owner of a particular copy or phonorecord...of that copy or phonorecord". (Emphasis added by Court). So, the transfer of the files requires copying on ReDigi's server, which violates the reproduction rights and because the sale is not a sale of that particular copy, the first sale doctrine does not provide a defense. The Court specifically said that the first sale defense is limited to "physical" items. To comply with this, you would have to sell and transfer your computer or MP3 player with the file on it.
This ruling was part of an opinion resulting from Capitol's Motion For Summary Judgment and other matters still remain to be decided, but the Court left little doubt about where it stood on this issue.