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Selling MP3s? You should have stuck with CDs

What’s the difference between selling a secondhand music CD and transferring ownership of the same songs bought from iTunes? Not much, you’d think - except one’s illegal, according to a New York court…

If someone sold it, and you can hold it, you can pass it on. Michael D. Dunn

What’s the difference between selling a secondhand music CD and transferring ownership of the same songs bought from iTunes?

Not much, you’d think - except one’s illegal, according to a New York court.

Earlier this month, ReDigi.com, which sells “used” digital music files, was found to violate copyright law after record label Capitol Records claimed the web-based service infringed reproduction rights.

While many people are familiar with browsing and buying used vinyls or books, this recent decision hinders methods of virtually sourcing secondhand digital files, even if ownership of a song or track is completely transferred to a different person, and no lasting copies are made.

To understand the decision in Capitol Records, LLC v ReDigi Inc. it is useful to review developments in music distribution over the past 30 years and consider how concepts of property and ownership apply to digital copyright works.

Three decades of digital music formats

Before the advent of digital storage, recorded music was distributed on vinyl records, 8-track, and cassette tapes.

In 1982 the first Compact Disc (CD) players were released by electronics manufacturers Philips and Sony.

As CD players and CDs became cheaper, CD sales boomed and largely replaced vinyl records and cassette tapes.

The first recordable CD was produced by Japanese electronics firm Taiyo Yuden in 1988 and marketed in 1990, and CD burners, which became standard equipment in desktop and laptop computers, enabled consumers to make exact digital copies of CDs they had purchased.

At the same time the MP3 file format (developed by the German Fraunhofer Institute in 1988), which enables digital music files to be compressed into very small files, was rapidly becoming popular.

Using CD drives to copy files from (or “rip”) commercial CDs, users could convert the digital music files into the MP3 format and either burn a new CD or share the file on the internet.

With the appearance of the first portable MP3 player in 1999 and the first peer-to-peer client, Napster, popularity of both the MP3 format and CD burners increased greatly – as did the music industry’s problems as music piracy started to rise.

Lars Ulrich, Chuck D and Charlie Rose talk Napster

Belatedly, the music industry embraced online distribution of digital music files, which has increasingly replaced CDs.

Apple’s iTunes Store, established in 2003, has been the biggest music vendor in the world since 2010; by February 2013 iTunes had sold a staggering 25 billion songs.

Where does ReDigi fit in?

ReDigi is a cloud service that acts as an intermediary between MP3 sellers and buyers.

It was launched in late 2011 by American entrepreneur John Ossenmacher.

Sellers upload their tracks, originally bought from iTunes, onto ReDigi’s cloud, which are then advertised for less than the “new” price.

Want some secondhand Meat Loaf? ReDigi.com

Once a buyer purchases a secondhand track, the original is deleted from the seller’s hard drive and the copy in the cloud is transferred to the buyer.

While it may appear that copyright remains intact - the deletion of the original file after sale means only one person is possession of the track - the step of copying it to the cloud holds the key to the court’s decision.

Property and ownership in copyright law

Whenever we talk about “property” and “ownership” in relation to copyright works, it is necessary to distinguish between the rights of

  • the copyright owner
  • the rights of someone who purchases an article that embodies the copyright work

Once an article - such as a book - embodying copyright material has been put into circulation by, or with the authorisation of, the copyright owner, a person who obtains the article can do what they like with it, subject to restrictions.

So if a person purchases a copy of a book that has been put on the market by the copyright owner, they can either give it to another person or sell it to a secondhand bookseller, who will in turn resell it.

These two actions are permitted because the copyright owner’s rights in the book, as an item of tangible property, ceased at the time it was first sold.

This is known as the “first sale doctrine”.

But the copyright owner still retains all the exclusive rights of copyright and can restrain the purchaser of the book, or any other person who subsequently receives it, from acting within those exclusive rights, such as making a copy or adaptation of it.

Lammy831

So, in the case of a music CD, we can distinguish between ownership of the physical item - the CD - and ownership of the copyright work embodied in it - the music tracks which are digitally “burned” onto the disc.

When purchasing a CD, the consumer gains ownership of the physical item but not the copyright work.

Rather, the consumer obtains a licence, or permission, to use the copyright work – by playing it on a CD player.

But, since the consumer owns the CD upon which the copyright work is stored, they can legally dispose of the physical item by way of gift or sale.

In that case, it is implied that permission to use the copyright work is transferred along with the physical item.

Where the music recording only ever exists as a non-physical digital file – as is the case when digital music files are downloaded from the iTunes Store and others – there is no physical item that can be transferred to a purchaser.

Where a copyright work exists only in the form of computer-readable code, the consumer does not obtain any rights of ownership but merely permission to use the copyright work for specified purposes – usually, to store and play it in a device.

The standard terms of the licence expressly prohibit the copying of the work without the permission of the copyright owner.

The decision in Capitol Records, LLC v ReDigi Inc.

The facts considered in Capitol Records, LLC v ReDigi Inc. were summarised by District Judge Sullivan:

ReDigi markets itself as “the world’s first and only online marketplace for digital used music.” To sell music on ReDigi’s website, a user must first download ReDigi’s “Media Manager” to his computer.

Once installed, Media Manager analyses the user’s computer to build a list of digital music files eligible for sale. A file is eligible only if it was purchased on iTunes or from another ReDigi user; music downloaded from a CD or other file-sharing website is ineligible for sale.

After the list is built, a user may upload any of his eligible files to ReDigi’s “Cloud Locker”, an ethereal moniker for what is, in fact, merely a remote server in Arizona.

If a user chooses to sell his digital music file, his access to the file is terminated and transferred to the new owner at the time of purchase. Thereafter, the new owner can store the file in the Cloud Locker, stream it, sell it, or download it to her computer and other devices.

Capitol Records claimed ReDigi infringed its copyright in its digital music files by enabling and inducing users to make additional copies by uploading the files to the “Cloud Locker” and then downloading or streaming it to the new purchaser of the file.

How ReDigi works.

In its defence, ReDigi argued that the resale of MP3/digital music files is permitted under the fair use and first sale doctrines.

But the court rejected ReDigi’s arguments.

On ReDigi’s argument based on the first sale doctrine, the court held that the doctrine’s application

was limited to material items that the copyright owner put into the stream of commerce.

The court accepted that the first sale doctrine would apply to resale of a computer hard drive, iPod or other memory device onto which the music file was originally downloaded.

Rick Heath

But this was not the case in this instance, where all that ReDigi was purporting to sell was the digital music file.

Although these issues have not yet been considered by an Australian court, similar cases – involving software rather than digital music files - have already come before the courts in the United States and Europe.

While ReDigi continues to claim its service is legal, the extent of copyright owners' rights in digital materials may be an issue for legislatures rather than the courts.

In the meantime, we can expect more cases like this to be brought before domestic courts while the law, as ever, struggles to keep up with technological advances.

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