Second Circuit Affirms 'ReDigi': No 'Resale' of Digital Music Files

“Copy” and “phonorecord” are then defined in the statute as material objects in which a work or sound recording is fixed. In an effort to take advantage of this provision in a digital environment, ReDigi developed technology that worked roughly as follows: A user would download a “media manager” program that would analyze the user's computer to identify each digital music file that might be eligible for sale through ReDigi. Once a user decided to sell an eligible track and initiated an upload process, the end result was a new copy of the digital music file on ReDigi's server and the deletion of the corresponding file from the user's computer.

Granting summary judgment for the plaintiffs in 2013 in Capitol Records LLC v. ReDigi Inc., 934 F.Supp. 2d 640, Southern District of New York Judge Richard J. Sullivan found that, semantics aside, at the end of the process there was a digital music file on ReDigi's server and not on the user's computer, so reproduction had occurred; under the laws of physics, it was simply impossible that the same material object, i.e., the same “copy or phonorecord,” could be transferred over the Internet. Therefore, because first sale is only a defense to violation of the distribution right, first sale did not immunize ReDigi's violation of the plaintiff's reproduction right. The district court observed that “[t]he first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.”

In its affirmance, the Second Circuit noted: “We are not free to disregard the terms of the statute merely because the entity performing an unauthorized reproduction makes efforts to nullify its consequences by the counterbalancing destruction of the preexisting [copies].”

ReDigi argued that because a technological change had rendered the literal terms of §109(a) ambiguous, the Copyright Act must be construed more broadly. However, the appeals court rejected that argument, holding the “crucial fact” was that “each transfer of a digital music file to ReDigi's server and each new purchaser's download of a digital music file to his device creates new [copies].” “We conclude that the operation of ReDigi version 1.0 in effectuating a resale results in the making of at least one unauthorized reproduction. Unauthorized reproduction is not protected by 109(a).”

As to its finding that ReDigi's use of the record labels' recordings was not a fair use under §107 of the Copyright Act, that section requires a court to consider several factors in determining whether a use is fair, most significantly whether the defendant's use “transforms” a plaintiff's work, whether the use is commercial, and whether it is likely to harm the actual or potential market for a plaintiff's work.

The Southern District had wasted little time in concluding that ReDigi's reproduction and distribution of plaintiffs' works was not a fair use, because it was commercial, did not “transform” the original works in any way, used the works in their entirety and was a direct market substitute for plaintiffs' own sale of authorized digital music files.

Redigi cited Authors Guild v. Google, 804 F.3d 202 (2d Cir. 2015) — an opinion also by Redigi appellate decision author Judge Pierre N. Leval — to argue that its use was transformative because it “expanded the utility” of the plaintiffs works, as in the “Google Books” case involving digitization of library books. But in ReDigi, Circuit Judge Leval made clear that “such utility-expanding transformative fair uses have included scanning books to create a full-text searchable database and public search function (in a manner that did not allow users to read the texts).”

The ReDigi appeals court also cited Fox News Network v. TV Eyes, 883 F.3d 169 (2d Cir. 2018) to emphasize that use of an unaltered work that “compete[s] with sales of the same [work] by the rights holder” is not consistent with transformative use.

Because Judge Leval himself first articulated the concept of “transformative use” in an influential 1990 Harvard Law Review article that was ultimately adopted by the U.S. Supreme Court in Campbell v. Acuff-Rose Music Inc., 510 U.S. 569 (1994), his clarification of the limits of the doctrine in ReDigi is particularly authoritative.

ReDigi also argued that fair use should favor ReDigi's activities because they were consistent with the broad “principles” of first sale, even if not literally within the parameters of §109(a). For ReDigi, because the end result was technologically equivalent to a physical resale, the purposes of copyright would be better served by excusing the copying under fair use, just as those purposes are served by physical resale.

The Second Circuit disagreed, observing that §109(a) does not state broad “principles,” but rather is a provision “for which Congress has taken control, dictating both policy and the means of its execution. … Notwithstanding the purported breadth of the first sale doctrine as originally articulated by the courts, Congress in promulgating §109(a) adopted a narrower conception. … If ReDigi and its champions have persuasive arguments in support of the change of law they advocate, it is Congress they should persuade.”

In so holding, the Second Circuit also confirmed that there is no universal principle of technological neutrality that requires equivalent treatment of various means and processes for accomplishing a result, when those means and processes interact differently with the definitions in the Copyright Act.

Clear Result

The ReDigi decision is a thorough, well-reasoned opinion by a unanimous Second Circuit panel, written by Judge Leval, who is a very influential and highly regarded judge on copyright matters, particularly with respect to fair use. The panel took almost 16 months, after an unusually lengthy oral arguments, to draft the opinion. No other court has reached a contrary result, and the decision is solidly grounded in the literal text of several inter-related provisions the Copyright Act. The Second Circuit further noted that its decision is consistent with leading treatises and the longstanding views of the Copyright Office.

While the ReDigi decision does not foreclose the possibility that some technical means might permit the “resale” of digital music files without running afoul of the Copyright Act — and drops a footnote to emphasize that a reproduction “made solely for cloud storage of the user's music on ReDigi's server, and not to facilitate resale, … would likely be fair use” — the ReDigi ruling clearly states that the court is not “free to disregard the terms of the statute” in the digital environment.

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Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein in New York City. Robert W. Clarida is a partner at Reitler, Kailas & Rosenblatt in New York City and author of Copyright Law Deskbook (BNA).