Online Market for Pre-Owned Digital Music Hangs in the Balance

The future of a one-of-a-kind website enabling the online sale of pre-owned digital-music files is in the hands of a federal judge.

ReDigi, which opened in October, provides account holders with a platform to buy and sell used MP3s that were purchased lawfully through iTunes. The platform’s technology does not support other music.

Among other points, the case weighs the so-called first-sale doctrine, the legal theory that people in lawful possession of copyright 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 sued the Massachusetts-based startup last month in New York federal court. Claiming ReDigi was liable for contributing to copyright infringement, the label is demanding U.S. District Judge Richard Sullivan immediately order ReDigi to remove Capitol-owned material, and to also award damages of up to $150,000 per track against the startup.

A ruling could come any day.

Larry Rudolph, the 15-employee company’s chief technology officer, seemed confident of the outcome.

“We let others sit around biting their nails,” he said in an e-mail.

Capitol appears equally as confident. It told Judge Sullivan that ReDigi is not the “equivalent of a used record store,” as ReDigi claims.

“ReDigi is actually a clearinghouse for copyright infringement and a business model built on widespread, unauthorized copying of sound recordings owned by plaintiff and others. Plaintiff brings this lawsuit to halt defendant’s ongoing infringement of plaintiff’s copyrighted works and to recover damages for the harm caused by defendant’s activities,”(.pdf) Capitol attorney Richard Mandel wrote.

ReDigi explained to Sullivan in court papers that its undisclosed number of 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’s iTunes account.

“ReDigi’s structure ensures that no copies of an Eligible File are made when one¬†ReDigi user sells an Eligible File stored in the user’s Cloud Locker to another ReDigi user through the ReDigi Marketplace,” its attorney, Ray Beckerman, wrote in a court filing. (.pdf) ¬†”When such a file is purchased by another user, the file pointer associating the Eligible File with the seller’s Cloud Locker is modified to associate the file with the purchaser’s Cloud Locker. In such a transaction only the pointer is changed; the Eligible File remains in the same location in the ReDigi Cloud and is not copied.”

Beckerman, in a telephone interview, said ReDigi does everything it can to block the unauthorized duplication of files in the ReDigi marketplace. Beckerman added that ReDigi’s technology cannot stop customers from file sharing or copying iTunes music purchases before they had uploaded them to the service.

“You can’t stop the world from committing copyright infringement,” he said. “But it’s impossible to infringe through ReDigi.”

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.