Published by LawTechie - April 3, 2013 - LawTechie

intellectual property lawThe Southern District of New York ruled last week that the First-Sale Doctrine does not apply to digital goods — namely songs purchased on iTunes. Capitol Records, LLC v. ReDigi, Inc., 12-cv-95 (S.D.N.Y., March 30, 2013).

Recall: Under the First-Sale Doctrine, it is not copyright infringement to resell a lawfully purchased music CD (or any other copyrighted goods).

Last month the Supreme Court confirmed that the First-Sale Doctrine applies to goods purchased abroad and resold to consumers in the US. But I noted that this victory for consumers would be short-lived because it doesn’t look like the First-Sale Doctrine would apply to digital goods. Now we have our first New York district confirmation that it does not.

Background: ReDigi is an online business start-up that allows users to sell their validly purchased iTunes songs to other users. ReDigi hoped to make use of the First-Sale Doctrine, thereby avoiding claims of copyright infringement, by coding their service to delete the selling user’s song file after it had been transferred to the purchasing user — thereby creating the virtual, digital equivalent of a transfer of physical goods from buyer to seller.

Not so, says the Court! In what I can only categorize as a super technical construction of the Copyright Act, the Court writes that:

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.

Or to restate in plain English:

[T]he fact that a file has moved from one material object — the user’s computer — to another — the ReDigi server — means that a reproduction has occurred.

Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk. But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her “particular” phonorecord on ReDigi, the first sale [doctrine] cannot provide a defense.

Now, having read this, I bet a bunch of my more logical-minded readers are asking: “So technically, it is okay for me to sell my hard drive, where I originally downloaded my iTunes purchase, but it is not okay for me to transfer the file in any other manner because doing so would move it from one material object to another and therefore be considered a copyright infringement?”

Short answer: Yup. Even the court notes that this is in fact the case:

Section 109(a) [of the Copyright Act] still protects a lawful owner’s sale of her “particular” phonorecord, be it a computer hard disk, iPhod, or other memory device onto which the file was originally downloaded.

This case is an excellent example of where lawmaking lags so far behind technological progress that patent absurdity ensues. In the Court’s defense, it correctly notes that “[i]t is left to Congress, and not this Court, to deem [the law] outmoded.” Of course given our courts’ penchant for selective activism, I am not sure I can fully accept this excuse.

In either case, it is now up to Congress to fix this nonsense and otherwise revamp the Copyright Act and DMCA to account for new technological developments (or better yet, stick in a clause allowing the courts some greater interpretational leeway on these matters — in light of the fact that legislation will always lag behind innovation). Because, as it stands, I can think of all sorts of ways that common, every-day computer processes are causing all sorts of copyright violations (e.g., when Windows indexes your files for speedier searching, is it not adding small bits of code to the music and movies on your computer in direct violation of the Copyright Act’s exclusive derivative works right? Uh oh…).

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.

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