Derailing the Packet Train: Capitol Records v. ReDigi, Inc.

As the “MalacoSoul Brother” Chuck Brooks once sang, “you can’t be in two placesat the same time.” This is the underlying logic behind ReDigi Inc.’sargument to the Second Circuit that their “packet train” file transfer system doesnot violate the Copyright Act. ReDigi, Inc. was conceived as an onlinemarketplace for digital music files, allowing owners of any “used” digitalmusic files to buy or sell them. ReDigi’s novel technology, originally introducedin late 2011, was designed to allow individuals to sell their music filesthrough a file transfer process that deletes the original files from theseller’s hard drive, with the stated purpose of ensuring that only one copy ofthe particular music file exists at any point.

The marketplacefunctioned through “Cloud Lockers” provided to each ReDigi user for digitalmusic file storage, similarly to other cloud storage platforms like Google’s“My Drive”. A keydifference from traditional cloud locker services is a proprietarytechnology that searches for and removes the music file from the seller’s harddrive after being purchased and transferred to its new owner. This requires the“packet train” system, in which the music files are transferred from the harddrive to the Cloud Locker block-by-block (or to extend the train metaphor,“car-by-car”), and each block is subsequently deleted after upload. The sameprocedure follows with the purchaser after buying the music file.

While theservice was a welcome sign for nascent used-digital-music, it quickly becamethe subject of a copyright infringement lawsuit by Capitol Records. DespiteReDigi’s arguments that their technology ensured a permissible “first sale” ofa lawfully produced copyrighted work, both the Southern District of New Yorkand the Second Circuit disagreed.

The mainquestion in the ReDigi case was whether a digital music file is a “materialobject,” and therefore within the first sale doctrine protections of theCopyright Act. The Copyright Act protects rights of reproduction anddistribution for copyrighted works. These protections extend to copyrighted“phonorecords,” which are defined inSection 101 as “material objects in which sounds, other than those accompanyinga motion picture or other audiovisual work, are fixed by any method now knownor later developed, and from which sounds can be perceived, reproduced, orotherwise communicated, either directly or with the aid of a machine ordevice.” Section 106 establishes a wide range of exclusive rights for copyrightowners, but there is a key exception in Section 109(a), commonly known as thefirst sale doctrine.

The first saledoctrine originates in common law, and as early as the 17th century commentatorsremarked on the common law’s refusal to permit restraints on the alienation ofchattels. In moderncopyright law, the first sale doctrine provides that once acopyright owner consents to the sale of certain types of copyrighted works,they are no longer able to exercise distribution rights over copies of thoseworks. One of the unique challenges for a digital first sale doctrine is theambiguity of the “material object” requirement – while the phrase “materialobject” appears seven times in the definitions of the Copyright Act, it is notspecifically defined itself. This uncertainty has allowed for a wide range ofinterpretation over what is in fact a material object; indeed, it is theprimary issue in the ReDigi case.

In its opinion, the Second Circuit noted that “[i]t is undisputed that one who owns a digital file from iTunes of music that is fixed in a material object qualifies as ‘the owner of a particular . . . phonorecord lawfully made,’” and is therefore entitled “to sell or otherwise dispose of the possession of that . . . phonorecord,” without violating § 106(3). But, “on the other hand, § 109(a) says nothing about the rights holder’s control under § 106(1) over reproduction of a copy or phonorecord.” This essentially means that while digital music files fixed in material objects are subject to the first sale doctrine and may be resold without violating copyrights, trouble arises when there are any reproductions of the copyrighted work.

One of the unique challenges for a digital first sale doctrine is the ambiguity of the “material object” requirement – while the phrase “material object” appears seven times in the definitions of the Copyright Act, it is not specifically defined itself.

In assessingReDigi’s arguments, the court did not decide whether a transferred digital fileis a phonorecord because ReDigi’s transfer process “effectuates an unlawfulreproduction even if the digital file itself qualifies as a phonorecord.” Thecourt cites the embodiment and transitory duration requirements from CartoonNetwork LP v. CSC Holdings, Inc., and found that the transfer ofa digital music file from one hard drive to another (or Cloud Locker) creates anew phonorecord because “[a]t each of these steps, the digital file is fixed ina new material object”. It then noted that the only legal way to reproduce acopyrighted work is to receive protection under fair use – ReDigi did notqualify for such protection.

By refusing to decide the issue of whether a digital file is a phonorecord (and therefore a material object), the Second Circuit missed an opportunity to more properly align the definitions of phonorecord and material object with modern technology. While the court currently recognizes that “the segment of a hard disc on which an electronic music file is encoded is a ‘phonorecord’ under the Copyright Act,” this definition neglects the fact that hard drives are not quite as “hard” as their name suggests; while some files may remain in relatively constant locations within a hard drive over time, hard drives are too fluid for this definition to make common sense. Under the Second Circuit’s interpretation, it would be possible for a digital music file owner to unlawfully reproduce their digital music file simply by moving it from one hard drive location to another, as long as the transitory time frame suggested in Cartoon Network LP is satisfied. If the court had instead recognized that the digital music file is itself a phonorecord, a digital first sale doctrine may have been realized. But instead, we will have to wait for a sea change in first sale doctrine interpretation, or settle for selling our used music on physical copies.

Sam Spalding, 11 February 2019