Capitol Records v ReDigi – The Battle of Consumer Rights

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Think you own your music collection? Think again. The music label Capitol Records is suing ReDigi, a service that allows users to sell ‘second hand’ digital music.

The Boston based start-up ReDigi is an online marketplace for pre-owned digital music that allows users to sell tracks to other users, as long as they were bought legally on iTunes. It started operating in October 2011 but quickly ran into legal difficulties as Capitol Records filed a copyright infringement case against them in January.

Capitol Records demanded that they remove all Capitol-owned music and pay $150,000 per track that has been traded on the system, but U.S. District Judge Richard Sullivan denied the injunction in February, meaning that ReDigi can continue do business as the on-going court case unfolds.

Capitol say that there is no way you can buy or sell digital music without copying it, which amounts to illegal music piracy. ReDigi claim that their system deletes the files from the seller’s computer when it is sold, ensuring the file is not simply copied.

Underpinning this legal dispute is the ‘First Sale’ principal in copyright law. The First Sale Doctrine essentially says that when you buy something, you become the owner, and have the right to sell it on, and it is this principle that makes all sorts of marketplaces possible, from car-boot sales to eBay. However it is not only the music industry that is seeing the First Sale Doctrine being attacked in the courts.

The First Sale Doctrine is at the centre of a high profile case currently being held in the Supreme Court in Washington. Kirtsaeng v. John Wiley & Sons is the legal battle between a book publisher and a student who sold textbooks on eBay after buying them cheaply abroad. If Wiley is successful in suing Kirtsaeng, it will undermine ‘First Sale’ in a fundamental way, disputing the basic principal that you own the things you buy. For this reason it has attracted significant attention from Google and eBay, who claim the initial ruling in a New York federal appeals court that sided with Wiley “threatens the increasingly important e-commerce sector of the economy.”

Google has a vested interest in this case as it sees Wiley’s attack on First Sale as a threat to the inevitable move towards cloud-based storage.

Cloud based music storage looks to be a serious battleground in the near future, as Google recently released this statement on their official blog:

“We’re launching our new matching feature to streamline the process of uploading your personal music to Google Play. We’ll scan your music collection, and any song we match against the Google Play catalog will be automatically added to your online library without needing to upload it, saving you time. This will be available in Europe at launch on November 13 and is coming to the U.S. soon after. This will all be for free — free storage of your music, free matching, free syncing across your devices, and free listening.”

This ‘matching’ service is nothing new; Apple released iTunes Match over a year ago and Amazon have recently unveiled a similar service, allowing you to access your entire music library wherever you are. Google’s product is disruptive because unlike the Apple system it is free, and instead of downloading your own music from the cloud it will stream to your device. When you look closer at how these services work however, it gets more interesting.

To avoid the time-consuming and data-intensive task of uploading all your music to the cloud, these services ‘scan’ your music library, find matching tracks on iTunes, then send the track they have under that name to your device. There have been claims that this legitimises piracy, as regardless of how you acquired an mp3, Apple, Amazon and Google will make sure you have access to it wherever you are. The permissions for these services were bought at tremendous costs from the music labels, so this is really monetising piracy rather than legitimising it, with subscriptions of $25 a year, with the exception of Google, who make revenue by advertising choices informed by their access to vast amounts of data. The move to provide their cloud service for free could drive down the price of services offered by its competitors, which is good news for consumers.

ReDigi is of course also a cloud-based music storage service, and is in fact the only cloud based music storage system which verifies that the music was bought legally, unlike iTunes Match. This is from their website:

“Our patent pending technology can accurately verify the legal eligibility of a digital music file before it is allowed to be transferred to the cloud for storage.”

ReDigi even started paying artists directly in June by introducing the Artist Syndication Program. “All artists who sign up for the Artist Syndication program are paid every time one of their second-hand tracks sell in the marketplace,” a ReDigi spokeswoman told The Register. “The cut they receive is significant. In fact, they often make more from the sale of a pre-owned track on ReDigi than they do on the sale of a new track on other sites.” However this was not enough to placate Capitol and the Recording Industry Association of America (RIAA), who issued a cease and desist letter to ReDigi almost as soon as they started trading.

If ReDigi can argue that the First Sale Doctrine does in fact apply to digital goods, they may have a chance. “This is a case of first impression, and here Capitol seeks to create precedent that the first sale doctrine cannot apply to digital goods,” ReDigi claims in court documents.

However, if Capitol can show that digital goods are somehow fundamentally different to physical goods, or that consumers never really owned iTunes music in the first place, but ‘licensed’ it (ever wondered what was in that iTunes licensing agreement?), then ReDigi are in trouble.

There is one last hope for ReDigi. At the beginning of July, a similar case was heard in the Court of Justice of the European Union, where it was ruled legal to sell ‘used’ software. Intellectual property law specialist Iain Connor of legal firm Pinsent Masons said this:

“If this case was heard in the UK, ReDigi would make their case on the basis that their business of re-selling MP3 files is exactly the same from a legal stand point as the resale of used software and so arguments made before the European Court in the Oracle v UsedSoft case are applicable,” said Connor. “The judges in the UsedSoft case said that software owners ‘exhausted’ their distribution right on first sale leaving others free to trade in second hand software.”

ReDigi is playing a dangerous game, but things may not be what they seem. Even if they lose the case, the legal proceedings are an excellent platform to demonstrate that their patent pending software actually works; that they can verify the authenticity of mp3s, something Apple, Google and Amazon have all failed to do. If ReDigi emerge from this with a patent for this lucrative software, they stand to make a fortune. Ironically the patent would essentially help protect copyright, and ReDigi would have played both sides for a fool.

Cloud-based music storage is undoubtedly the future of music. But what happens in courtrooms in America in the coming days and months may have profound effects on how this new technology is implemented. Whether we will see a decisive blow dealt to copyright law and the music industry remains unclear, but the decisions reached in the Supreme Court will have ramifications for ownership that may shape the way we understand property in the years to come.

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