ReDigi to launch in Europe: what's the legal regulation of second-hand digital files?

Last summer the Court of Justice of the European Union (CJEU) issued its controversial decision in Case C-128/11 UsedSoft (IPKat report here; The1709 Blog analysis here and here), ruling that:

·         The right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period;

·         In the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of the Software Directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.

Almost in parallel with EU developments on issues facing sales of second-hand digital products, in the US Capital Records (a subset of EMI) initiated proceedings before the US District Court for the Southern District of New York against "The World's First Pre-Owned Digital Marketplace" ReDigi, claiming that a service that let users buy and sell previously purchased tracks in iTunes was akin to a clearing-house for copyright infringement. 

The business model of ReDigi, which was launched in 2011, is based on the possibility for users to sell their own music library and/or buy pre-owned music. ReDigi takes a small cut from every transaction made on its site. Songs sell for an average of about 60 cents, compared with a typical 99 cents on iTunes. First-time users are requested to download proprietary software, which verifies if a file was bought legally. If the song checks out, it is then erased from the seller's hard drive and uploaded to ReDigi's computer servers. This systems is said to prevent sellers from reinstalling a sold song to their computer, and offers users the chance to check their libraries for illegal music.

As summarised by The Hollywood Reporter, the case (which is thoroughly explained here) touches upon various issues, including the meaning of a "copy" for copyright purposes, whether the first sale doctrine (from which the EU principle of exhaustion descends) applies in the digital context, whether there's "public" performance in transmission of copies, and the ongoing liability for service providers who allow users to do things like move files around in digital clouds and re-sell them to others.

In particular, Capitol Records argues that digital music is not the same as music on physical supports, with the result that the first sale doctrine does not apply. 

Benedict is really exhausted after
just 10 minutes spent trying to understand
what the principle of exhaustion is all about

Back in February 2012, Justice Sullivan rejected the plaintiff's request for summary judgment. As a result, the case proceeded to a full court hearing, which began in October last, as reported and commented by Iona on The 1709 Blog.

As reported by the BBC, while US digital music sales were set to surpass CD and vinyl sales for the first time ever in 2012, preventing users from selling their own digital copies is tantamount to say, together with ReDigi CEO, that  "most lawful users of music and books have hundreds of dollars of lawfully obtained things on their computers and right now the value of that is zero dollars."

In the meanwhile, not only is ReDigi planning to expand into the ebook and videogame makets, but has also announced its intention to launch its services in Europe this quarter.

As reported by the Financial Times, ReDigi’s push into Europe is likely to prompt debate over copyright laws and the right of consumers to buy and sell second-hand digital goods in the same way that they trade physical goods, such as printed books, CDs or handbags.

How dare you tell him that
what's in his iPod is not his property?

According to ReDigi CEO, ReDigi operates within the law: “Property laws the world over have always been that if you buy something, you have the right to resell it ... Companies like EMI are trying to change the status quo by trying to take away people’s property rights and their rights to resell their goods just because they happen to be digital.”

Following the ruling in UsedSoft, it seems that ReDigi's business model would be perfectly lawful under EU law. 

This can have the potential to diminish the chances of success of Capitol Records in the litigation currently pending before the New York court. In any case, the US ruling is keenly awaited, as it will hopefully clarify also what type of property (if any) rests on digital files. 

IPKat readers may in fact remember that a few months ago The Wall Street Journal attempted to provide an answer to the question as to who inherits your iTunes library when you die. At the time the answer seemed to be "no one", as Apple's Terms & Conditions state that the use of digital files is limited to Apple devices used by the account holder. This means that the licence acquired is non-transferable. In a similar way, Amazon’s terms of use make it clear that “You do not acquire any ownership rights in the software or music content.”

Apparently also Bruce Willis wanted to know more about this story, but sadly the news proved untrue in the end ...