ReDigi, started in late 2011, holds itself out as a legal means for consumers to sell their digital music files online, giving them the same ability to re-sell as they possess with their CDs or vinyl. ReDigi proponents argue that the historical lack of a re-sale market has encouraged consumers to (a) view MP3 files as devoid of economic value, and (b) participate in pirate peer-to-peer services. The ReDigi user may upload iTunes songs and sell them to for, generally, $0.49 to $0.79.

ReDigi technology differs from file-sharing services, which allow the same track to be downloaded by innumerable users, each of whom creates a new copy. ReDigi’s platform never increases the total number of existing copies, instead deleting the sold file from the seller’s hard drive. It also requires the subscriber to use ReDigi sale proceeds to purchase files uploaded to ReDigi by other users.

There is some concern, however, about ReDigi’s ability to provide assurance that its users lawfully possess the media they are offering for sale. Further, some elements in the music industry oppose enabling the re-sale of digital files, arguing that technology permitting consumers to sell “used” digital files would enable the same media to be endlessly transferred, killing the initial-sale market for it.

On the other hand, some say ReDigi is creating a windfall to the music industry derived solely from changing technology. In the past, re-sale of an original record or CD earned the copyright holder no profit. They ask why the copyright holder should now reap a profit from essentially the same secondary market transfer (as long as the seller does not keep a copy of the file after selling it) just because its subject is a digital file?

Obviously disagreeing, Capitol Records filed a 2012 copyright infringement suit against ReDigi in federal court in the Southern District of New York. The case is winding its way through the judicial system. In April, the court ruled for the plaintiff on the theory that ReDigi infringed Capitol’s copyrights, regardless of whether sold files were deleted from uploaders’ computers.

The primary copyright law premise at issue is the first-sale doctrine, established by the U.S. Supreme Court in 1908, which provides that copyright owners cannot prevent consumers who purchased copyrighted material from reselling it (e.g., selling used CDs at a flea market). Record labels contend that ReDigi creates unauthorized copies that cannot be sold, even if first-sale doctrine applied to the article initially sold.

Capitol successfully argued it is impossible to transfer digital files without copying them, saying the first-sale doctrine allows only the owner of a particular copyrighted item to sell that exact item. That would make it legal to resell vinyl albums, CDs or even hard drives containing legitimately downloaded music, but not copies of files that are uploaded to the Internet. Under traditional copyright theory, the reproduction right held by the copyright holder is infringed when a copy is made unless a license to create the copy has been granted.

The rationale behind the prohibition on copying is to enable the copyright owner to control the total number of copies of a creative work in existence. Some argue, however, that the whole notion of copies and their condition is anachronistic as to digital media. Additionally, some observers’ rationale with regard to these issues is based on the notion of media materials being licensed, as opposed to actually sold.

Following initial bouts in the Capitol Records suit, ReDigi has apparently recently disabled prior functionality that permitted its users to transfer music from their computer to ReDigi’s cloud marketplace. It has not, however, disabled its 2.0 service, which, in effect, directs all new digital purchases to the cloud before any personal use copies can be made to the user’s computer, mobile devices, etc.

In economic terms, the person buying a used CD for $1 is not likely to purchase a new one for $15-$30, but the distributor is unlikely to sell original material for less than perhaps $9.99. Thus, we may be discussing distinct markets with little to no overlap. Even if ReDigi’s concept may require community improvement, it’s better for copyright owners than file-sharing services, which don’t generate any revenue for the music industry because people can both distribute and download files for free without also deleting their copies.

Access may be supplanting ownership as the primary model for monetizing media. Paid subscription to services that stream media may be headed to the forefront. In these systems, it is much easier for rightsholders to track what is being consumed by whom, and proceeds are much more easily distributed to the deserved recipients.

In the meantime, Amazon and Apple are busy securing patents for marketplace transfer of “used” digital goods.

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