MP3 Reseller Accuses Capitol Records of Sabotage

Album artwork on MP3 reseller is noticeably absent after Rdio cut the site off.

A one-of-a-kind startup enabling the online sale of pre-owned digital-music files is accusing Capitol Records of trying to sabotage its business, records obtained by Wired show.

Capitol Records and ReDigi — a months-old startup which claims to be a modern-day used record store providing the public with a platform to buy and sell used MP3s — are embroiled in a nasty copyright infringement suit in New York federal court. U.S. District Judge Richard Sullivan declined to issue an injunction that would have effectively shuttered ReDigi last week at Capitol’s request, and on Wednesday set an August trial date.

Massachusetts-based ReDigi now claims that Capitol muscled another startup, San Francisco-based music-streaming service Rdio, to promptly pull the plug on providing album art and 30-second playable song snippets for ReDigi’s site. Rdio licenses content from record labels including Capitol Records and charges users $10 a month to stream unlimited music to smartphones and computers.

ReDigi now does not display album art in its digital-music flea market, and has begun pulling in sound snippets from YouTube instead of Rdio.

“Apparently, having been denied an injunction, they have sought to use extrajudicial tactics to accomplish what they were unable to obtain in a court of law,” Ray Beckerman, ReDigi’s attorney, wrote (.pdf) Judge Sullivan last week in a letter that was not lodged in the public record but was provided to Wired.

Beckerman declined comment, as did ReDigi. Neither Capitol’s big brother, EMI, nor its attorney returned calls seeking comment. Rdio was not immediately prepared to comment.

Album artwork appearing last week on ReDigi

The legal flap is even more complicated because, as part of its defense to claims of copyright infringement, ReDigi pointed its fingers at Rdio. In a court filing, ReDigi argued that it was not liable for infringement for allowing its customers to listen to 30-second spots of MP3s that were for sale. ReDigi said the same thing (.pdf) when it came to allegations that ReDigi allowed for the unauthorized public display of album artwork.

Instead, ReDigi said it had licensing agreements with Rdio for such services, which Rdio abruptly halted Friday without notice.

On the larger infringement issue, the case weighs the so-called first-sale doctrine, the legal theory that people in lawful possession of copyrighted material have the right to sell it.

A federal judge sided with that principle in 2008, when it debunked UMG Recordings’ claim that it retained perpetual ownership of promotional CDs it releases before an album’s debut. Last year, however, a different court ruled against now-defunct online service Zediva, which streamed movies to customers via DVDs that Zediva had purchased.

In the ReDigi case, Capitol Records claims ReDigi was liable for contributing to copyright infringement (.pdf) and was demanding Judge Sullivan immediately order ReDigi to remove Capitol-owned material, and to also award damages of up to $150,000 per track against the startup — which would have gone under had Sullivan immediately sided with Capitol.

ReDigi says it is not contributing to infringement at all. Instead, it says ReDigi account holders have a right to upload their purchased iTunes files into ReDigi’s cloud. And when a file is sold to another ReDigi account holder, no copy is made. What’s more, because of ReDigi’s technology, the original uploaded file that is sold cannot be accessed by the seller any more through ReDigi or via the seller.

Prices for songs vary on ReDigi, with some files having asking prices as high as 87 cents. The company, which earns up to 15 percent per sale, also offers cloud-storage music streaming.