Tuesday, December 13, 2011

Recording Industry vs. ReDigi -- Is Site Facilitating Re-Selling of "Pre-Owned" MP3s a Contributory Copyright Infringer or Protected under “First Sale Doctrine”?

Want to re-sell all those old MP3 files of songs you downloaded back in the day but no longer want? The New York Times recently reported about a controversial new business that wants to help. Why is this business—called ReDigi—controversial? Because it presents old copyright issues in a new technological guise—and rests on a creative attempt to avoid being snared in the contributory copyright infringement trap that killed the Napster and Grokster file-sharing services several years ago.

The Copyright Issues

Copyright law’s “first sale doctrine” permits a legitimate purchaser of a music CD, film DVD, book, painting, or other copyrighted works to re-sell the item freely. The copyright holder can control the “first sale,” but that’s it. When such tangible items are sold, the first owner no longer has the item. But if the first owner made and kept a copy of the item before re-selling it, then he’s probably infringed the copyright. And the law is the same with copyrighted works in digital format: first sale doctrine will likely protect the sale if the item is a lawful copy and the seller doesn’t retain a copy.

So if a resale facilitator (like ReDigi) simply provided an unrestricted forum to resell digital works—and it knew or expected that many users would be either trading infringing copies or unlawfully making additional copies to sell—it would probably be snared under the law as a contributory infringer. In a nutshell, this was the legal downfall of the well-known Napster and Grokster music and video “file-sharing” services. And a business can’t hide its head in the sand about such shenanigans: “willful blindness” is the legal equivalent of actually knowing that illegal copies are being made.

ReDigi’s Workaround

Here’s how ReDigi claims to work: It purchases your old MP3s sitting on sellers' hard drives. To ensure that sellers aren’t copyright infringers, ReDigi claims its technology: (1) verifies that your copy is legal; and then (2) deletes all copies of the audio file on your computer.

ReDigi says its business model has done just the opposite of willful blindness: it employs comprehensive preventative measures to ensure that its re-sellers are legitimate owners and don’t retain files and so avoid copyright infringement.

Will ReDigi Measure Up? -- The Tiffany v eBay Analogy

Are these steps enough to make ReDigi’s service legal? What if the re-seller burned a CD-ROM with the file? Or made and kept a copy of the hard drive itself? Or saved the file to a thumb drive?

These questions of what degree of diligence is needed to avoid contributory infringement liability bear some similarity to the Second Circuit’s recent Tiffany v. eBay decision (which we previously discussed here). In that case, eBay convinced the court that the steps it took to minimize the potential for trademark counterfeiting and address known instances of counterfeiting that slipped through were enough to insulate it from Tiffany’s claims that eBay was contributorily liable. Though the decision in Tiffany dealt with contributory liability under trademark law, the legal principles are very similar in the copyright context.

The First Attack is Launched

The Recording Industry Association of America (RIAA) has already sent ReDigi a "cease-and-desist" letter, accusing ReDigi of contributory infringement. Such demands to shut down are usually a prelude to a full-blown lawsuit, so it appears that we may not have to wait long for the first court decision to weigh in with answers to these important issues.

Authors: Tom Casagrande Jason Nardiello