This is an explainer of a decision you may have heard people talking about: Capitol Records v. ReDigi, Inc. Can you re-sell digital content you’ve legally acquired over the internet?

The Problem: How Can You Re-Sell Your Digital Content?

I’ve been blogging about the ReDigi case since 2011—before the lawsuit was even filed. At first, I was just fascinated with the question of whether there can ever be a secondary market for digital goods. And that question goes to one of the major ways copyright law weirds11For reference: Calvin & Hobbes. our lives. We’re used to “owning” things. And one of the ancient rights we have is the right to sell the things we own. The fancy term for this is “alienating property.” It’s not the sort of right you need to put in a constitution.12Though: if the British had tried to limit our right to alienate our property, you bet we would’ve put in the Bill of Rights. But digital “goods” are legally different than physical goods, though we think of them as nearly the same, and they are pitched to us as substitutes for the real thing.
The broad question presented in the ReDigi case is: assuming you own a digital song, movie, book, etc.13Not a safe assumption., can you sell it? The answer is yes, but it’s very hard and impractical.
To review: ReDigi set out to create a secondary (“used”) market for digital music. Apple had recently stripped its music files of digital rights management (DRM) and changed its terms and conditions to transfer real legal ownership of its music files to its customers. But having downloaded the song into your iTunes library and having tired of the song (or just hard up for cash), can you sell the song, something most people assume is a concomitant right of ownership?
But you can’t just hand a computer file over. You can’t, in fact, give the same computer file to someone. You can only give a copy of the computer file. And even that isn’t really “giving” because a computer file is just information. Giving a computer file is “giving” in the same way as giving someone a piece of your mind is: it’s just a stream of information that doesn’t really leave your mind. Computer files aren’t even that stable on a hard drive, since the computer every once in a while writes different bits of the file in different places (ever de-fragged a hard drive?).
There is a way to do it! If you somehow downloaded the file directly to maybe a DVD or flash drive, and sold the DVD or flash drive, then that’d be a legal sale because you actually sold the actual copy of the file you bought. This would avoid infringing the “reproduction” right, i.e., the copyright owner’s exclusive right to make copies of the music files. Now, it technically wouldn’t avoid infringing the “distribution” right, because you’d be handing someone a copyrighted work, which constitutes a “distribution” under copyright law, that’d be OK. There’s a iron-clad defense to that: the First-Sale Doctrine, which allows people to sell and give away material objects even though they’re under copyright. You know, your right to sell you own stuff.
I’m not sure iTunes would even let you do download directly to somewhere other than your hard drive? In any event, most people bought music without the intention of re-selling and foolishly downloaded the music file onto their hard drive (or equivalent14For purposes of this post, “hard drive” means the main storage device internal to a computer, including solid-state drives). Selling it at that point would mean wiping everything off the hard drive except what you’re selling, pulling the hard drive out of your computer, and and selling that. Just copying the file to a DVD or flash drive doesn’t solve the problem of what happens to the original file on your hard drive. For all anyone knows, you’re just making multiple copies of the same file and selling it over and over. Not that anyone would do that.

ReDigi’s Solution: Cute or Clever?

Computer files are normally transferred via a network, so why not sell them the same way? Same problem. You’re just selling a copy of a file and you still have the original. But ReDigi thought it had that problem solved:
1. Download ReDigi’s software, which resides on your computer.
2. Designate the song you want to sell through that software.
3. ReDigi’s software scans your hard drive for copies of the music file.
4. ReDigi uploads the music file to space on its own central servers allocated to you, a “locker.” Only you can access your “locker.”
5. ReDigi almost simultaneously erases all copies of the music file from your hard drive. But you can still access and listen to the song via your locker, though you cannot download it (unless you change your mind about selling).
6. When another ReDigi customer agrees to buy your song through her own ReDigi software, ReDigi gives you money that it collected from the other customer and “transfers” the music file to the buyer’s locker. But this isn’t a real transfer. All that happens is that the file is no longer allocated to your locker and is allocated to the buyer’s locker. The file is not copied during this process. It’s more like each song is in its own locker, you have a single key to some of those lockers (the songs you uploaded), but then the lock is changed so it fits the buyer’s key, not yours.
The cute-clever thing about this process is that, at the moment of sale, no copy of the music file is made. ReDigi felt that would avoid violation the reproduction right since no copy was made incident to the sale. And it would put the sale firmly under the First-Sale Doctrine, since the sale would be of a file that was legally owned by the seller.

Space-Shifting: The Final Frontier

There was an elephant and a mouse in the room, though. The elephant is the copy that was made, when the seller uploaded.15Apropos of nothing, but the transporters in Star Trek must’ve played hell with copyright. ReDigi had two arguments for this. First, ReDigi argued that the upload constituted “space shifting,” the supposed right of an owner (or even licensee?) of digital content to make copies of the content in order to make backups, to enjoy the content on different devices, or enjoy the content in a better or more convenient way. Ripping songs off a CD to listen on your iPod16Ahem, MP3 player. is space shifting. So is uploading a song to a “music locker” so you can listen to it over the internet wherever you are. “Space shifting” is analogized to “time shifting,” the right to make a copy of a TV program so you can watch it at a more convenient time. Time shifting was expressly recognized as a fair use by the U.S. Supreme Court.
Now, no court had ever held space shifting was also a fair use17 Don’t bring up the Diamond Ninth Circuit decision, which mentioned it but only in dicta and in an unhelpful context., but it makes common sense. The song is yours. If you want to copy your vinyl records onto cassette tapes so you can listen to it in your car, you should be able to. If you’re tired of sticking the DVD of your favorite movie into a fussy machine that can’t even display it in high-definition, you should be able to rip the movie onto your computer hard drive so you can just watch it there in high definition.18Copyright holders have vacillated about this “right.” Sometimes they’re cool with it, sometimes not. They once lost their collective shaving cream over something called digital audio tape, which they thought was going to ruin the music industry forever.
ReDigi was prepared to argue that the space allocated on its servers for its customers were “music lockers,” and thus the uploaded copies were just being space shifted. Before the sale, the customer (and only the customer) could continue to enjoy the song over the internet. And when the sale was made, no copy was made; the server space holding the file was just re-allocated to another customer, who then gain exclusive access to the file. This argument might have gone further if ReDigi acted like a music locker service. Maybe for five years, all of its customers’ songs were uploaded to their respective “lockers,” and sale of individual songs was introduced later. But ReDigi was always about selling music.

Intermediate Difficulty

So ReDigi abandoned that argument. It had another.19You may read ReDigi’s brief here. The upload was an “intermediate copy” that was necessary to carry out an otherwise legal transaction. This idea arose from Sega Enterprises v. Accolade, Inc., in which Accolade decompiled the Sega’s game console operating system so it could make games compatible with that system. Decompilation is the process of converting code that can be read only by computers (“machine code”) into code that can be read (with difficulty) by humans. Sega, after all, wasn’t handing out copies of its human-readable source code. Decompilation is an arduous process and requires making numerous of the code. Accolade learned enough about how Sega’s operating system worked for it to make games that would work on Sega’s game console. When Sega sued for copyright infringement, it couldn’t sue about those games: those were perfectly legal. But it could sue about all those copies of its operating system. The Ninth Circuit held that these intermediate copies were fair use because they were in the service of a legal project: making compatible games. Competition is good, basically, and the Ninth Circuit thought Sega shouldn’t use copyright law to stop otherwise legal competition.
ReDigi thought it could extend this reasoning. Selling your stuff is also legal. So the upload is an intermediate copy is necessary to exercise that legal activity. There’s an immediate problem with this, of course. Whereas Accolade was using the copies as a stepping stone to making something entirely different, ReDigi’s customers were selling the intermediate copy itself. The copy wasn’t very “intermediate.” If Accolade had decompiled Sega’s operating system so it could sell Sega’s operating system (perhaps an improved or modified version), Sega would have probably turned out differently.
Another problem with the “intermediate copy” argument is that the court had to be convinced that selling your stuff is a really important and fundamental right. I happen to think it is, but reasonable minds can differ on this issue!
This intermediate copy argument was presented to the District Court, which rejected it. It was presented again to the Second Circuit Court of Appeals, where it was heard by a panel led by copyright rockstar Judge Pierre Leval, he who invented “transformative use” and ruled in Google’s favor in the Google Books case. Rather than take the intermediate copy argument even half-way seriously, Judge Leval just treated ReDigi’s fair use defense like any other fair use defense, with no mention of “intermediate copying” at all, or even of Sega (Update: But see the next section below. Leval does address the argument, just very obliquely.). As far as I can tell, since intermediate copying went to the first fair use factor—purpose and character of the use—and since it didn’t qualify as a “transformative use,” there really was no place for ReDigi’s main fair use argument anywhere. Having determined that ReDigi’s use of the uploaded song files was not “transformative,” and that the not-really-used song files were competing with the “new” song files20Debatable, since even legal re-sales compete with “new” versions, and many legal re-sales are of “new” goods. Just because something has been re-sold doesn’t mean it’s been “used.”, Judge Leval quickly determined uploaded files were not “fair uses.”
He didn’t entirely ignore the intermediate copy argument. He focused on the right to sell your stuff aspect. He understood it to be a policy argument, which, in a way, is correct. His response was that the policy sounded nice, but it wasn’t his job to make copyright policy. It’s Congress’ job.

UPDATE: Judge Leval DID Address Intermediate Copying (Sort Of)

In preparing for the panel on the ReDigi matter for the Copyright Society of the USA 2019 Conference, I realized that Judge Leval did address “intermediate copying.” He just did it in the most dismissive way possible. In a footnote, he wrote:

We recognize that the use of computers with digital files of protected matter will often result in the creation of innocuous copies which we would be loath to consider infringements because doing so would effectively bar society from using invaluable computer technology in relation to protected works. We believe this precedent will not have that undesirable effect for reasons discussed below in the section on fair use. What we consider here is that the making of unauthorized reproductions in pursuit of an objective to distribute protected matter in competition with the rights holder. The production of innocuous, unauthorized reproductions through the unavoidable function of a computer, when done for purposes that do not involve competing with the rights holder in its exclusive market, is outside the scope of this dispute.

Remember, this was ReDigi’s main argument! And Judge Leval doesn’t even do it the courtesy of citing ReDigi’s leading authority—or any authority. Having said that, you can see how he would have distinguished Sega. First, the copying in Sega was “innocuous” and “unavoidable.” That’s not much of a distinction since the copying here was “unavoidable” if you want to sell music files, and “innocuous” is either a fairly empty value judgment or jumps to the conclusion that there’s proof of actual market harm (which Judge Leval seems to believe). Second, and more important (in my view), the end-result of the copying in Sega was new Sega-compatible games that were themselves completely legal. In a way, the “intermediate” copying was not just intermediate but stood at a distance of the public benefit conferred by the copying—nice, new games. By contrast, with ReDigi, the end-result is an infringement and the vindication of an ancient right.
I think ReDigi’s intermediate-copying argument deserved a full hearing, and not this bland dismissal. The ancient right to sell your own stuff is important, and its relationship with copyright law fraught. What, exactly, do you “own,” when it comes to digital content? And, if you “own” it, is it really “property” in the ordinary sense if you can’t sell it? And is it right that we use these fortuitous copies to stop what is otherwise normal and accepted transactions, up to and including the normal and ordinary use of computer software on your computing devices (which must be copied so they can be used)?
Perhaps the court knew this, and perhaps that’s why the court went out of its way to minimize this line of inquiry.

Consigning ReDigi to Infringement

I mentioned a mouse in the room. It has to do with the distribution right. Judge Leval didn’t address it at all—perhaps wisely—but the District Court did. The District Court held that ReDigi violated the distribution right—no argument there—but was ineligible for the First Sale Doctrine. My own initial reaction was that this conclusion couldn’t be squared: if you believed the sale of the song file was a distribution, you must have accepted the uploaded copy as something that belonged to the seller and thus was a legal re-sale.
I think I misunderstood where the District Court thought the distribution occurred. I assumed it was when the file was uploaded, because that’s when the file “moves.” But a sale has two parts: movement of the item and exchange of the money. And the money isn’t exchanged until after the upload and isn’t especially related to it. Under the Copyright Act’s definition of “distribution,” the distribution occurs upon the “transfer of ownership,” i.e., the moment ReDigi changes the allocation of the file from the seller to the buyer.
This sale is thus a lot like sale of your stuff through a consignment shop. You physically deliver the goods to the shop, but you still own them, unless and until the goods are sold, at which point they don’t belong to you anymore. If the goods were books, then the “distribution” occurs not when you deliver the books to the shop, but when the shop sells the books on your behalf.
Of course, the consignment sale of the books is legal because it falls under the First Sale Doctrine. But what if you (for whatever reason) didn’t deliver books you had previously bought, but copies you had made of books you had previously bought, made without authorization. Then the sale wouldn’t be legal, because the books you sold were not legally made. That’s a limitation on the First Sale Doctrine: the things being sold must have been legally acquired.
So, if we accept that the uploaded copy isn’t the copy that was legal acquired but is an infringing copy, then the distribution doesn’t fall under the First Sale Doctrine.
The reason this point is a mouse and not an elephant is that it doesn’t add anything to the plaintiffs’ position or hurt ReDigi any further than it’s already been hurt. It turns entirely on whether the uploaded copies are legal, so it’s adding nothing much to the party. And how much trouble an infringer is in doesn’t depend on how many rights it violated. All it takes is one right, but beyond that, it doesn’t matter. Especially not here, where the rights are effectively the same.

Hint: It’ll Be About Aereo

So that’s my explainer. But next time (after the Holidays), I’ll suggest there’s a completely different way of thinking about this case that ReDigi seems not to have considered, one that is philosophically much interesting and goes to the heart of how we think of copyright law.
Thanks for reading!

Rick Sanders

Rick is the litigation half of Aaron & Sanders, PLLC; and, from 2012 to 2014, an adjunct professor at Vanderbilt University Law School, where he was teaching Copyright Law. Vandy also happens to be where he got his law degree in 2000. After graduation, he practiced at a major intellectual-property law firm in Silicon Valley for a few years. He returned to Nashville in 2004, where he worked for a large Nashville firm, practicing as much intellectual-property law as he could, but also a lot of commercial law. He left that firm in 2011 to start Aaron & Sanders with Tara Aaron, so he could practice intellectual-property law full time and work with start-ups and other non-institutional clients.