First Sale Digital
Whereas Kirtsaeng v. John Wiley & Sons, Inc., addressed first sale in the context of physical text importation, Capitol Records, LLC v. ReDigi, Inc., adressed an altogether different angle of the first sale doctrine under 17 U.S.C. §109(a), i.e. whether a digital copy of an audio file is a reproduction not eligible for the fair use and first sale affirmative defenses where only one file exists before and after the transfer. The latter condition distinguishes this case from others and makes it all about digital resale.
The distilled facts are essentially these. ReDigi is an audio resale service. To use the service, customers must go through ReDigi’s locally installed media manager, which transfers files to ReDigi’s cloud. Upon completion of that migration, files are in the cloud and not on the customer’s computer. Sale of files terminates the owner’s access. The process is repeated if the new owner wishes to resell a file. ReDigi keeps 60% of proceeds, and the other 40% is split evenly between the artist and the reseller. Capitol Records sued ReDigi for various forms of infringement early in 2012 (direct, inducement, contributory, vicarious, common law). Capitol Records was denied a preliminary injunction, but it won this motion for summary judgment.
Copyright holders have the exclusive right to reproduce works in phonorecords under §106(1). Under §101, the copyrighted work is the original recording—the “fixation of a series of musical, spoken, or other sounds”—and a phonorecord is any new material embodiment of it, “from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” You can see where this is going. The court specifically found, as have courts in the past, that a digital sequence magnetically encoded on a hard drive constitutes a phonorecord.
But what about the single-file-before-and-after distinction? The court put it like this:
Simply put, it is the creation of a new material object and not an additional material object that defines the reproduction right … Thus, the right to reproduce the copyrighted work in phonorecords is implicated whenever a sound recording is fixed in a new material object, regardless of whether the sound recording remains fixed in the original material object.
This problem has to get solved, but maybe only by companies that already dominate this space. Check out the patents granted to Amazon and Apple, the former granted shortly after Capitol Records filed suit, and the latter granted just a couple of weeks before Capitol Records won summary judgment.