ReDigi, Fair Use, and Libraries

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In my last post, I opined that the fair use interests of librarians and educators are not necessarily aligned with for-profit business ventures seeking to exploit creative works in ways that can harm authors.  For instance, in the case of Capitol Records v ReDigi, now on appeal at the Second Circuit,  Jonathan Band filed an amicus brief on behalf of the American Library Association, the Association of College and Research Libraries, the Association of Research Libraries, and the Internet Archive in favor of a reversal of the district court opinion, which held that ReDigi is infringing.

To the casual observer, ReDigi is a service that acts as a middle-man to broker the sale of “used” MP3 files.  The idea is that, when you decide you’ve listened to your iTunes-purchased copy of Meat Loaf’s “Bat Out of Hell”* for the last time and think somebody else might want it,  you can sell the MP3 files via ReDigi as “used” items for a portion of the original price, with a cut going to ReDigi.  From a legal standpoint, however, ReDigi is a somewhat complex, computer-to-computer model hoping to avail itself of a copyright limitation written for a purely physical world.

To the best of my knowledge, the ReDigi model has changed a couple of times, but the way the system works is that the MP3 files being offered for sale are removed from the seller’s devices and copied onto the ReDigi server from which the seller alone may still listen to the tracks until they are purchased by someone else.  Upon sale, the files are removed from the server and copied again onto a device belonging to the purchaser. Naturally, this sounds attractive to many consumers, and ReDigi seems to have made an effort to ensure, to the best of its ability, that only one owner at a time has the files.  But that doesn’t necessarily make the service legal, or even a good idea in the market.

The district court held that ReDigi infringes the plaintiff’s rights of reproduction and distribution. ReDigi’s defenses that it is non-infringing were based on the first sale doctrine and fair use; and it is with regard to the fair use defense that the libraries apparently see a common interest.

Band’s amicus brief argues that a finding of fair use in ReDigi would set a precedent that furthers the interest of libraries to develop new models for digital-age lending and other services. And this is where I personally see a necessary distinction between the interests of libraries—which sometimes receive specific carve-outs in copyright law—and avoiding the particular harms caused by a ReDigi model, which could very easily be an Amazon-scale service overnight.

Digital First Sale Creates an Artificially Deflated Market

The first sale doctrine (Section 109(a) of the copyright law) is the reason you are allowed to sell your individual copies of books, CDs, DVDs, etc. as used items without infringing the copyright interest of the authors.  Its predicate is a case from 1908, long before anyone could possibly imagine “owning” entertainment media in the form of data that is not exclusively bound by a physical object like paper or a disk.   ReDigi argued that the first sale doctrine makes its business non-infringing, but the court disagreed on statutory grounds—namely that the language “plainly applies to the lawful owner’s ‘particular’ phonorecord, a phonorecord that by definition cannot be uploaded and sold on ReDigi’s website.”

As a technical matter, ReDigi has to make a copy of the files from the “seller’s” computer to ReDigi’s server. That copy is already an infringement of the rights holders’ exclusive right of reproduction, and that copying is not protected by first sale doctrine.  But even if one wishes to argue that this is a mere technicality, there is still ample reason not to apply first sale doctrine in a purely digital market.

The District Court stated that if ReDigi seeks amendment  to the Copyright Act to satisfy its interpretation of first sale, that this is job of Congress and not the courts. On that subject, Congress has reviewed first sale doctrine as part of its comprehensive review of the Copyright Act. (In fact, I sat on a panel in 2014 hosted by the USPTO discussing this very issue.) And the Department of Commerce examined the subject of digital first sale and concluded that the principle did not apply to digital transmissions and that there is no evidence warranting any change to existing law.

I advocate against digital first sale for the simple reason that digital files cannot be “used” according to any rational definition of that term.  Since 1908, the distinction between the used, secondary market for these goods and the primary market has been clear, with the former posing no threat to the latter.  Even in cases in which used items appreciate in value (e.g. rare books), I would argue this will only ever apply to physical goods and not to raw data that may be endlessly copied from device to device. (A signed, first edition Yeats is worth a couple grand; an eBook containing the same written material is free.)

Because a “used” digital file is as pristine as a “new” digital file, a service operating at scale like a ReDigi (or an Amazon) would simply create a new primary (or alternative) market that artificially degrades pricing for digital-only works.  Regardless of the fact that some consumers feel that any price above zero is a “rip off,” the reality is that we pay comparatively low prices for the media we store today, and even lower prices for media we access through subscription or ad-funded models.  If anything, Congress should reaffirm that first sale applies solely to physically-bound, legally acquired, copies of works.

ReDigi’s Fair Use Argument and the Libraries’ Interests

Apparently unconcerned with the potential harms of a ReDigi model in the consumer market, the above-named library organization would like the appeals court to find that ReDigi’s service is a fair use under the first prong of the fair use test:  1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit purposes.

Initially, ReDigi sought to defend its position as a cloud service—that users have a fair use right to store their files in the cloud; and Capitol did not dispute this part of the argument.  But the fact that this storage was “incident to sale” of the works meant that ReDigi’s service falls “outside the ambit of fair use.”  The district court agreed.  Moreover, the court held that ReDigi’s use was not “transformative” because its service does not add anything to the works and that the commercial nature of the use tilted away from a finding of fair use.  The other three prongs of the fair use test do not favor ReDigi, particularly the fourth, given that their use can clearly cause market harm to the rights holders.

In his brief, Jonathan Band takes a curious position that the lower court failed to understand how ReDigi is protected by first sale doctrine and that a reversal of this reasoning would support a finding of fair use.  He writes …

“The district court overlooked the obvious fact that the use ReDigi sought to enable was analogous to one permitted by a central feature of the Copyright Act: the first sale right, codified at 17 U.S.C. § 109(a). The district court found that ReDigi’s uses did not fall within the scope of section 109(a) because the first sale doctrine is a limitation on the distribution right, not the reproduction right, and ReDigi’s service involves reproduction. However, the similarity between ReDigi’s service and conduct permitted under section 109(a) should have weighed in ReDigi’s favor under the first fair use factor.”

Going back to what first sale allows—namely that you are free to sell that “Bat Out of Hell” CD at a yard sale—fair use doesn’t enter the picture at all. Your right to sell your particular copy of a book or album is not a use of a copyrighted work that in any way implicates a fair use defense.  So, even if these petitioners could persuade the court that it is sufficient that ReDigi is “analogous” to the application of the first sale principle, it is hard to imagine how this favors a finding of fair use, which is supposedly the real interest among these librarians.

My read is that the argument Band presents seems over-broad—a hope that a finding of fair use in ReDigi will open a wider door for libraries to develop new means to fulfill their missions in a digital world.  In this sense, Band appeals to the Google Books case, in which Google Books prevailed on fair use analysis to the benefit of library interests. But without writing another thousand words, suffice to say that Google Books is nothing like ReDigi.  Google Books does not engage in commercial transactions, it does not make whole works available, and it provides services that are either “transformative” (e.g. full-text search) or fair use prima-facie (making works available to the print-disabled).

A finding of fair use in ReDigi may generically support the interests of libraries (or it may not), but it seems a high price to pay to allow a harmful, for-profit company to vitiate fundamental copyright protections. As implied, this paves the way for a massive organization like Amazon to decimate what remains of the primary market for sales of creative works.  I believe these matters should be viewed separately, with libraries and universities pursuing their own interests in context to copyright law rather than riding the coattails of predatory and opportunistic business ventures.

*Nothing personal, Meat Loaf. First album that came to mind.

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