Second Circuit Rules Against ReDigi in Major Decision

VidAngel.  TVEyes.  ReDigi.  

Copyright interests might view these enterprises as the unholy trinity of tech ventures that have attempted in recent years to strain statutory limitations to such extremes that their interpretations would actually vitiate copyright protection itself.  In August of 2017, the Ninth Circuit denied VidAngel’s crusade to push the fair use doctrine beyond any meaningful scope; in February 2018, the Second Circuit held that TVEyes’s methods for making news content available was substantially different from Google Books under the fair use doctrine of “transformativeness”; and yesterday, also in the Second Circuit, ReDigi was rebuffed in its attempts to assert fair use and first-sale doctrine to legitimize its trade in “used” digital files.

ReDigi has been the subject of several rather long posts on this blog, but to recap, the venture was based on administering transactions in “used” digital media.  The concept was that if Consumer A no longer wants to listen to a particular digital audio file (MP3), she would be able to sell that file to Consumer B, via the ReDigi interface, at a “secondary market” price on the basis that the file would be considered “used.”  

The obvious market-based problem with this proposal is that because digital files cannot accurately be considered “used,” a ReDigi enterprise would result not in a secondary market but rather in a substitute for at least some portion of the primary market.  This is the reason why the court held that the Fourth Fair Use Factor (potential market harm to the original works) “weighed powerfully against” ReDigi in its appeal to the fair use defense.  

Further, ReDigi attempted, as many others have done, to assert that its use of the files was “transformative” under the First Fair Use Factor (nature of the use and commerciality), and this was most notably rejected by Judge Pierre Leval, the author of the “transformativeness” doctrine.  From the opinion …

“Even if ReDigi is credited with some faint showing of a transformative purpose, that purpose is overwhelmed by the substantial harm ReDigi inflicts on the value of Plaintiff’s copyrights through its direct competition in the rights holders’ legitimate market, offering consumers a substitute for purchasing from the rights holders.”

This is a very important decision as a matter of doctrine because so many users of works, both large and small, have repeatedly tried to exploit the relative vagueness of the word transformative to argue that merely migrating content from one context to another is sufficient to meet that standard.  In finding against TVEyes, this same court drew essential boundaries to reign in the meaning of the term, and now ReDigi further solidifies that opinion.  

Based on these two decisions, it seems fair to summarize thus:  in order to be “transformative” without authoring a new creative expression, a user of works must a) truly offer society something novel and useful; and b) limit the use of protected works to avoid creating a substitute for fair market access to those works.  For instance, Google Books meets these standards while these other business ventures do not.

The court was also not persuaded by ReDigi’s defense under the doctrine of first sale.  As discussed in detail in those other posts, first sale is the limitation in copyright law that allows you to resell your personal copies of works for whatever price a secondary consumer is willing to pay, whether that’s a quarter at a yard sale or thousands of dollars in a rare book shop.  The first sale doctrine dates back to 1908 and, as I have theorized in the past, the principle itself may not ever have been written in a purely digital market where “copies” themselves are no longer limited to one-off, physical objects like paper, plastic, vinyl, etc. 

With regard to ReDigi, the courts agree that our digital music files qualify as “phonorecords” under copyright law and that we consumers have the right to resell our phonorecords.  The problem is that the law also holds that files are “reproduced” in the process of transferring from one device to another.  Even if the ones and zeros that compose “Silent Night” on my computer are erased while they are written onto someone else’s computer, this act is legally held to be one of “reproduction,” which is not exempted by the first sale doctrine.  

Add the interim step of copying the data temporarily to ReDigi’s servers, plus the mass-market implications of such an enterprise, and the company’s first sale defense strays very far from the individual’s right to resell one legally-acquired copy of a work one time.  

ReDigi and its proponents seem to have hoped to make a case that this “reproduction” transaction is, in principle, analogous to the transfer of used copies in the physical world that spawned the first sale doctrine; but as the court held in its opinion, it would be the job of Congress to rewrite the statute to say what they seem to wish it said.  Meanwhile, I suspect that if such a legislative proposal were to be attempted, then history, case law, and market analysis would dictate that the first sale doctrine is untenable in a purely digital market. 

In this regard, it is funny how often copyright proponents are accused of clinging to our metaphorical buggy whips.  Because when the Supreme Court ruled in favor of retailer R.H. Macy in the case that established the first sale doctrine, New Yorkers were in fact still taking hansom cabs to go shopping! 

Relatedly, as I opined in one of those previous posts, it seems both futile and myopic to propose amending the copyright law in order to foster “resale” of digital files in a market that has already shifted so dramatically to streaming nearly everything on demand.  So, ReDigi was not so much clinging to old models as it was seemingly trying to cobble together a legal framework to support a new business model that may already be obsolete.    

Either way, rights holders should be very pleased with the outcomes in what I’ve called the unholy trinity of VidAngel, TVEyes, and ReDigi because the courts have upheld the principle that copyright’s limitations are meaningless if they stray so far as to eradicate its protections. 

© 2018, David Newhoff. All rights reserved.

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