The Second Circuit Court of Appeals returned a favorable ruling for major record companies in a copyright infringement case on December 12, 2018.  The ruling came down in Capitol Records, LLC v. ReDigi Inc., a lawsuit involving an online platform (“ReDigi”) designed to enable the lawful resale of purchased digital music files.  The Second Circuit concluded that ReDigi infringed the record companies’ exclusive rights under Section 106 of the Copyright Act.

ReDigi is an online platform created to enable the lawful resale of lawfully purchased digital music under the first sale doctrine.  ReDigi hosts a space online that allows users, who lawfully purchased files from iTunes, to resale those same files online.  In order to resale the files, the user who owns the digital music must first download and install ReDigi’s Music Manager software program (“Music Manager”).  After installation, Music Manager analyzes the digital file intended for resale, verifies that the file was originally lawfully purchased from iTunes, and scans it for indications of tampering.  If the file was lawfully purchased, Music Manger considers it an eligible file that may be resold.  Once the file has been verified, the user transfers the eligible file to ReDigi’s server.  While the file is being transferred, ReDigi breaks the music into small blocks of data, creates a temporary copy of each block, and then sends a command to delete the block of data of the digital file from permanent storage on the initial user’s device.

ReDigi tries to guard against a user’s retention of duplicate digital music files after they are sold through ReDigi by continuing to search the user’s connected device for duplicate.  Major record companies pointed out that ReDigi’s protections do not prevent the retention of duplicates after resale through ReDigi.  According to the record companies, prior to resale, a user could retain duplicates of the digital music file on devices not linked to the computer that hosts Music Manager, and access those duplicates post-resale.  ReDigi’s efforts were not sufficient to prevent the user from retaining sold files.

The US District for the Southern District of New York concluded that ReDigi’s online platform infringed the record companies’ copyrights by unauthorized reproduction and distribution of copyrighted works.  In June 2016, the district court entered a stipulated judgment awarding damages to the record companies for $3.5 million and permanently enjoining ReDigi from operating their online platform.  ReDigi appealed the judgment, but the Second Circuit affirmed the district court’s decision.

In its decision, the Second Circuit found that ReDigi’s temporary copy of the digital file created a new phonorecord which was an unauthorized reproduction.  The Court also found that the making of the reproduction was not a fair use under Section 107 of the Copyright Act where the creators made no change to the copyrighted sound recordings, the system made identical copies of the whole of the recordings, and the reproductions were made for the purpose of resale in competition with the record companies.  The Court made no decision whether ReDigi also infringed the record companies’ exclusive rights under Section 106(3) to distribute their works.