copies of works or other subject-matter which are services by nature. Unlike CD-
ROM or CD-I, where the intellectual property is incorporated in a material
medium, namely an item of goods, every on-line service is in fact an act which
should be subject to authorization where the copyright or related right so
provides.”- Capitol Records v. ReDigi
In Capital Records, LLC v. ReDigi, Inc.,^3319 ReDigi operated a web site that enabled
users to “resell” their legally acquired iTunes music files and purchase “used” iTunes files from
others at a fraction of the price on iTunes. To sell music on ReDigi’s web site, a user was
required to download ReDigi’s “Media Manager” to his or her computer. Once installed, Media
Manager analyzed the user’s computer to build a list of digital music files eligible for sale. A
file was eligible only if it was purchased on iTunes or from another ReDigi user; music
downloaded from a CD or other file-sharing webs site was ineligible for sale. After the
validation process, Media Manager continually ran on the user’s computer and attached devices
to ensure that the user had not retained music that had been sold or uploaded for sale. However,
Media Manager could not detect copies stored in other locations. If a copy was detected, Media
Manager prompted the user to delete the file. The file was not deleted automatically or
involuntarily, although ReDigi’s policy was to suspend the accounts of users who refused to
comply.^3320
Once uploaded, a digital music file underwent a second analysis to verify eligibility. If
ReDigi determined that the file had not been tampered with or offered for sale by another user,
the file was stored in ReDigi’s “Cloud Locker,” and the user was given the option of simply
storing and streaming the file for personal use or offering it for sale in ReDigi’s marketplace. If
a user chose to sell a digital music file, the user’s access to the file was terminated and
transferred to the new owner at the time of purchase. When users purchased a file (at 59 cents to
79 cents), the seller received 20%, 20% went to an escrow fund for the artist, and 60% was
retained by ReDigi. Capitol Records sued ReDigi for direct, contributory and vicarious
copyright infringement.^3321
For the reasons discussed in Section II.A.4(v) above, the court held ReDigi liable under
all three theories. The court also rejected ReDigi’s assertion that the first sale doctrine permitted
users to resell their digital music files on ReDigi’s web site. The court noted as an initial matter
that, because it had concluded that ReDigi’s service violated Capitol Records’ reproduction right,
the first sale defense (which is a defense to a violation of the distribution right) could not apply
to ReDigi’s infringement of those rights. In addition, the first sale doctrine did not protect
ReDigi’s distribution of Capitol Records’ copyrighted works because, as an unlawful
reproduction, a digital music file sold on ReDigi is not “lawfully made” as required by 17 U.S.C.
§ 109(a). Moreover, Section 109(a) protects only distribution by the owner of a particular copy
(^3319) 934 F. Supp. 2d 640 (S.D.N.Y. 2013).
(^3320) Id. at 645.
(^3321) Id. at 646.