First Sale Doctrine Goes Digital — or Does It?

copyrightHere’s another example of the “if value, then right” approach.¬† You may recall that the first sale doctrine permits an owner of a copyrighted work to sell, transfer, loan, or even dispose of the work without infringing the creator’s distribution rights.¬† So, for example, if you were to purchase a music CD or a book, you have the right to resell or transfer it without infringing on the artist’s copyright in the work itself.¬† It is important to remember that the first sale doctrine is solely an exception to the right of distribution.¬† It does not place any limitations on the right to copy a work.¬† One who acquires a work, even by resale, does not have the right to copy it.Technological changes are stressing long held assumptions about the first sale doctrine.¬† A recent case filed in federal court in New York City by Capitol Records (“Capitol”) against ReDigi Inc. (“ReDigi”) is testing the limits of the doctrine.¬† The case has profound economic ramifications not only for the resale of digital works but also for cloud computing.

ReDigi is an online music reseller, which provides a market place for owners of digital media to resell their mp3’s and other digital files.¬† Capitol sued ReDigi for copyright infringement demanding injunctive relief and statutory damages.¬† ReDigi, of course, claims that it is not infringing copyright but is simply reselling works as permitted by the first sale doctrine.¬† To sell a work on ReDigi’s web site requires a user to upload music files to the ReDigi server.¬† ReDigi claims that its software verifies the legitimacy of the uploaded file and when sold to a buyer, it transfers the file without copying.¬† Capitol, on the other hand, asserts that digital files are not like physical objects.¬† Moving digital files requires the act of copying and there is simply no way to verify that the owner of the work has deleted the original purchased files. The court has yet to decide the case although it denied — without opinion — Capitol’s¬† motion for preliminary injunction.

The ReDigi case has implications that go beyond the viability of the first sale doctrine.¬† Cloud computing companies such as Google and Amazon have a huge stake in the court’s decision.¬† Google and Amazon store millions of files belonging to others on their servers.¬† The right to hold those files and to transfer them depend upon an untested assumption that transferring digital files by service providers represents an exception to principles of copyright law that prohibit unauthorized copying.

The European High Court has already made a ruling on a similar issue involving used software licenses.¬† It has held that software vendors such as Oracle have no right to block resale of “used” software licenses by companies such as UsedSoft.¬† The U.S. version of this case will be an interesting one to watch.

— Adam G. Garson, Esq.

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