You know all those used music stores you used to love to go to back in the day when you bought music on CDs?  You could browse through used CDs and buy them for less than retail.  Maybe you still do (kudos to Deja Vu Records in Natick, Mass.).  Of course, you can do the same thing online.

The founders of Massachsetts-based Redigi figured, why can’t we create a marketplace that will allow people to do the same thing with their digital music files?  Or, as Redigi puts it: ” Sell your old songs legally – The world’s first used digital music marketplace - Buy used music insanely cheap”.  However, in starting this business Redigi may have run smack into the disconnect between the U.S. copyright statute and digital media.  And, it has been forced to defend against a full-on assault by the RIAA  (in the form of its apparent designee, Capitol Records).

Redigi’s service launched in October 2011, and by reason of the sheer chutzpah of its business model the copyright industry (the usual ragtag collection of lawyers, industry types, bloggers, reporters and hangers-on) was soon debating the legality or illegality of its service. By early November Redigi was holding a ”roll over and die” letter from the RIAA. By early January 2012 Capitol had filed suit against Redigi in the Southern District of New York.

Issue was joined quickly when Capitol filed a motion for preliminary injunction seeking, in effect, to shut Redigi down and end the case with a single, crushing legal blow.  The district court denied the motion, so Redigi remains alive for now.  However, the case is on a fast track – Capitol and Redigi have waived a jury trial, and the parties will be filing summary judgment motions this summer.  The case is likely to be resolved before the end of the year, at least in the trial court.

At the heart of the Redigi case is what seems to be a question of first impression under copyright law: does the the copyright “first sale” doctrine apply to the transmission of digital audio files?  The first sale doctrine says, in essence, if you have purchased and own a work protected by copyright law, you can resell it.*  If this were not the case it would be illegal for the owners of books, records, cassette tapes, CDs and DVDs to resell them.  Stephen King cannot complain, under copyright law, if a copy of  11/22/63 is legally purchased and then sold and resold 50 times, depriving King and his publisher of what might have been the revenue from 50 separate sales.

*But not if you’ve “licensed” it, and the license prohibits resale.  That is a whole other topic. And, it is likely the reason Redigi limits itself to music that originated with iTunes.  The same practice using music files from Amazon might not be permissible, since Amazon does purport to “license” its downloads, and the license prohibits transfers. 

However, its not clear that the first sale doctrine applies to digital recordings.  Capitol records argues it does not, at least in the form sold by Redigi, and the motivation behind its position, at least in part, is no secret – since you can replicate a digital audio file without limit, and every copy is identical to the original (no degradation in quality), what’s to stop someone from selling a copy and keeping the original?  If you are the prospective purchaser of the 30th resale of a Stephen King novel, you may hesitate – what shape is the book in? What’s that dark smudge on page 200?  Whose phone number is written in the margin of page 2?  If you’re buying a used CD you have to ask whether it’s scratched.

In the world of digital files, these concerns don’t exist – the distinction between an “original” and a “copy” is non-existent.  If you can purchase a legal “used” copy of Thunder Road for 79 cents through Redigi (yes, that tune is for sale (resale?) on Redigi), why pay $1.29 for it on iTunes?  And, of course, the RIAA executives are asking themselves, what’s to stop people from uploaded and selling tens of thousands of audio files on Redigi while keeping a “copy” that is the same, in all respects, on another device?  Looking beyond Redigi, who knows what Pandora’s box of illegal copying may be opened if first sale permits the resale of digital recordings?  Better to stop the leak before it becomes a flood.  Or so the RIAA may be thinking.

Redigi claims to have an answer to the music industry’s objections to its service, and it is quite clever.  Redigi advertises that it “has the technologies in place to ensure that once you sell a song, you no longer have access to it.  This is how ReDigi stays legit, and how you now have access to a new marketplace where rights long accepted in the physical world may now be applied to digital goods.”  More specifically, Redigi claims that its technology (1) verifies a potential seller owns a non-infringing copy, and  (2) ensures that any items sold will not remain on their computer or synced devices, such as an iPod or iPhone. Of course, this assumes a certain level of naiveté - if the seller is motivated and clever enough to move a “copy” of the file to an unsynced device, the owner of the file can have the file and sell it too.  Two computers will do the trick.  However, the fact that a user may go to this extreme to game the system seems irrelevant (legally) – Redigi is not encouraging it, and the fact that a legal product may be put to an illegal use is hardly the legal responsibility of the product’s manufacturer, as long as the illegal use is not encouraged.

Digging more deeply, it is clear that Redigi has put together an ingenious system.  As I understand it from the various court filings (mea culpa), Redigi operates as follows:

Step One: the user establishes a Redigi account and uploads a music file to the Redigi “music locker.”  The user, and only the user, can stream the track on her computer.  This act is legal under copyright law, since this kind of “space shifting,” as its called, is protected as “fair use.”  Thus far, Redigi asserts, it’s in the clear.  Moreover, in this process Redigi verifies that the file was purchased from iTunes and it is legal – that is, it was not ripped from a cd or is itself a copy.  Redigi digitally fingerprints the file, so that multiple copies of the file cannot be sold on Redigi.  And, importantly, Redigi deletes the copy on the user’s computer and synced devices, such as an iPod.  Thus, at this point the file exists only on the Redigi servers, the “Redigi cloud.”  If the user wants to listen to it, they must do so by streaming from the cloud.

Step Two: At some point the user tags the track as “for sale,” and potential buyers are able to see that the track is for sale.  If someone decides to purchase the track, it is re-designated in Redigi’s system as belonging to the new owner.   Redigi does not create a new copy of the file, it simply transfers “title” to the file on its system.

Step Three: The new owner can leave her new audio file on the Redigi server (the cloud locker) and stream it for her listening pleasure.  If the new owner decides to download it to her computer, it is deleted from Redigi.  A download by the new user is legal, since moving a file between the cloud and the owner’s computer is permissible.

This fiendishly clever invention has some serious brainpower behind it (Larry Rudolph, who has a PhD in computer science and has worked at MIT, Carnegie-Mellon and Hebrew University), and a patent pending.

How does Capitol respond?  Poppycock, claims Capitol Records in its lawsuit.  To quote a Capitol court filing, “rather than acknowledge what its service really does, Redigi recasts itself as a benign ‘cloud storage’ medium.  It dissects its service into isolated components, where users upload and download songs to ‘space shift’ for ‘personal, non-commercial’ use, and ‘pointers’ are ‘modified in the cloud’ so that no copying occurs during a resale transaction.”  In truth, Capitol argues, Redigi is an illegal “marketplace,” and Redigi is falsely trying to recast itself as a “cloud service.”

On another level, apart from name calling, hyperbole and accusations aimed at Redigi’s “true” purpose (all standard stuff when it comes to lawyering, I’m sorry to say), the case is being debated at in highly technical terms – technical in both the “computer sense” and the “copyright sense.”  Capitol has raised a multitude of claims, and Redigi as many defenses, but after you filter out the arguments that appear to be weak or red herrings, the central issue appears to be whether the resales facilitated by Redigi are protected by the first sale doctrine.  The law does not, Capitol argues, permit the resale of a digital file unless a material object changes hands, and Capitol assumes that electrons are not material objects.

Capital argues that the first sale doctrine permits owners of a “particular copy” (a “material object”)  in which a copyrighted work is “fixed,” to ”dispose of the possession of that copy.” However, the first sale doctrine does not apply to digital transmissions, which by their very nature do not involve the physical transfer of a material object, or so Capitol claims. If a digital resale can only be accomplished by reproduction of the original file and creation of a new copy, first sale does not apply.  Simply put, you don’t have the right to copy a copyrighted work in order to distribute or sell it to someone else, even if you destroy the original.  When a Redigi buyer purchases an audio file from Redigi, she is purchasing a “copy” of the purchasers file.  The only way this would not be true is if the purchase involved the physical object holding the file.  That, after all, is what a CD is – a disk holding digital files.  The first sale doctrine protects this kind of sale, whether the object being sold is on a vinyl disk, cassette tape, CD or DVD.  It would even allow someone to sell their iPod, loaded with iTunes songs.  But it doesn’t allow a digital transmission of a file, even if the original is simultaneously destroyed.

Many of these issues came to a head for the first time (but hopefully not the last) in early February, when U.S. District Court Judge Richard J. Sullivan heard Capitol’s motion for a preliminary injunction in federal court in New York.  Before the hearing Google requested leave to intervene in the case, noting the “complex and profound legal issues” raised by the case.  Judge Sullivan denied that motion.  However, Google made many of its point in its request letter, and Judge Sullivan undoubtedly got the message that in the small world of digital copyright law, this case is a big deal.

The outcome of the hearing was both good and bad for Redigi: the judge denied the injunction (which would have shut Redigi down while the case proceeded, and likely have ended Redigi’s existence altogether).  However, he did this on the relatively narrow, non-copyright-specific, ground that Capitol would not suffer “irreparable harm” without an injunction – that is, that Capitol could recover money damages if it ultimately won the case, and therefore any injunction should await final judgment in the case.  For Redigi, this was good.  However, according to the transcript of the hearing the judge also made comments suggesting he thought Capitol had the better case: “ I think likelihood of success on the merits is something that plaintiffs have demonstrated.”  This was bad.

The transcript (link below) makes interesting reading.  The judge appeared to be prepared, and he peppered the lawyers on both sides with hypothetical questions that the lawyers sometimes had difficulty addressing. For example, Capitol’s lawyer conceded that Capitol was not challenging the right to store a legally purchased digital recording in the cloud, if the purpose is not resale of the recording.  In a humorous exchange Capitol also allowed that it would have no objection to the Judge selling his iPod, loaded with recordings, to his law clerk.  ”That’s fine, because you transferred the material object.”*

* Tough question since it’s hard to disagree with a hypothetical that restricts the  judge and his clerk’s freedom of action.  The Capitol lawyer didn’t point out that if the original copies of these songs remained on the Judge’s computer (as is typically the case with iTunes music files), this would be an illegal transfer.  

However, based on a reading of the briefs and the transcript, it’s not clear that the judge really had a nuanced understanding of how Redigi works, or how copyright law might apply to Redigi’s system. Nothing in the transcript suggests that the judge understood that each “step” in the Redigi process was permitted, and therefore the system as a whole may be permissible.  Most judges and lawyers are not strong on computer technologies, and the hearing seemed to suffer from this shortcoming all around.  The judge even seemed to think it was relevant that Redigi could be misused (by the “second computer” trick, mentioned above). However, if Redigi doesn’t encourage misuse of the system, it can’t be blamed for the hypothetical misuse of it, so this should be irrelevant.

The case is now scheduled for summary judgment motions to be filed in mid-July, with oral argument to follow on August 17th.  A decision on these motions is likely to arrive sometime this Fall, and almost certainly by year end.  Hopefully, the outcome won’t turn on whether an electron is a “material object.”  And, one hopes that should the outcome be adverse to Redigi, it will have the resources to pursue an appeal to the Second Circuit Court of Appeals, which might be more receptive to the the “complex and profound” issues that lie at the heart of this case.*

Redigi Oral Argument Transcript (scribd)

Redigi Bench Ruling on Preliminary Injunction (scribd)

*Rick Sanders, at Aaron Sanders in Nashville, has written about this case at length (and in real time, as information on Redigi has been disclosed and the lawsuit has evolved) in a series of blog posts that are required reading for those seeking deeper understanding.  Click on “Redigi” under “Popular Tags” on Aaron Sanders site.

When I wrote about the trial judge’s remittitur order in the Jamie Thomas case last week, I didn’t mention that a legal aspect of remittitur is that the plaintiff may accept it, or reject it and demand a new trial. I now understand that the plaintiff in this case has not accepted the judge’s remittitur, and has informed the court that it elects instead to proceed with a new trial. This would be the third trial in this case, since the first was set aside by the judge following verdict.  Obviously, this decision is a matter of principle, not finances, since the cost of the new trial alone will likely exceed the damages offered by the judge. However, this case, like the Tenenbaum case in Boston, is all about principle, and very little about hard, cold cash.

There’s an interesting discussion of remittitur on the Copyrights and Campaigns web site, here.

Out of more than 30,000 cases filed against downloaders by the record companies only two end-user download cases have gone to trial and judgment: the Tenenbaum case in Boston, and the case against Jammie Thomas-Rassett in Minnesota.

In the second case, the jury awarded the copyright owners $2 million for downloading (and allegedly distributing) 24 songs.  The federal judge to whom the case is assigned has now lowered that amount to $2,250 per song (the legal term of the judge’s action is “remittitur”).

Some quotes from the Thomas-Rassett January 22, 2010 decision:

After long and careful deliberation, the Court . . . remits the damages award to $2,250 per song – three times the statutory minimum. The need for deterrence cannot justify a $2 million verdict for stealing and illegally distributing 24 songs for the sole purpose of obtaining free music. . . . although Plaintiffs were not required to prove their actual damages, statutory damages must still bear some relation to actual damages.

. . .  This reduced award is significant and harsh. It is a higher
award than the Court might have chosen to impose in its sole discretion, but the decision was not entrusted to this Court.

. . . Thomas‐Rasset argues that the ratio of the statutory damages award to actual damages in this case, when measured in songs, is 1:62,015. She bases this calculations on a cost of $1.29 per song online.

. . .  Thomas‐Rasset asserts that, at most, she was a single mother who merely downloaded and shared music when she had already lawfully bought CDs of much of that music and had no commercial motive to infringe.

. . .  The need for deterrence cannot justify a $2 million verdict for stealing and illegally distributing 24 songs for the sole purpose of obtaining free music.

. . .  The Court will not substitute its judgment for the judgment of the jury. Rather, it will remit the award to the maximum amount sustainable by the record, so that the statutory damages award is no longer shocking or monstrous.

It will be interesting to see if this decision has any impact on Judge Nancy Gertner, the federal judge assigned to the Tenenbaum case in Boston.  In that case, the jury awarded $22,500 for each work infringed, and a motion for remittitur is pending.

Here is a link to the full opinion in Thomas-Rasset:

Thomas-Rasset Remittatur Order

Update: Link to First Circuit’s Decision Rejecting Constitutional Grounds for Reducing Statutory Damages, issued September 16, 2011.

____________________

Final judgment in Sony v. Tenenbaum entered by Judge Nancy Gertner today.  The 30 day appeal clock starts to run.  Should be interesting to see what the First Circuit does with this one, although I suspect that the betting is heavy in favor of quick affirmance.

A few choice quotes from Judge Gertner’s opinion, which is provided in full below on scribd.com.

“the Court, deeply concerned by the rash of file-sharing lawsuits, the imbalance of resources between the parties, and the upheaval of norms of behavior brought on by the Internet, did everything in its power to permit Tenebaum to make his best case for fair use.…The Court did what it could to focus the issue, notwithstanding what can only be described as a truly chaotic defense.”

…

Tenenbaum “tailor[ed] his fair use defense to suggest a modest exception to copyright protections,” he “mounted a broadside attack that would excuse all file sharing for private enjoyment. It is a version of fair use so broad that it would swallow the copyright protections that Congress created, defying both statute and precedent.”

…

“As this Court has previously noted, it is very, very concerned that there is a deep potential for injustice in the Copyright Act as it is currently written. It urges – no implores – Congress to amend the statute to reflect the realities of file sharing. There is something wrong with a law that routinely threatens teenagers and students with astronomical penalties for an activity whose implications they may not have fully understood. The injury to the copyright holder may be real, and even substantial, but, under the statute, the record companies do not even have to prove actual damage. “Repeatedly, as new developments have occurred in this country, it has been Congress that has fashioned the new rules that new technology made necessary.”  … It is a responsibility that Congress should not take lightly in the face of this litigation and the thousands of suits like it.”

The full opinion, below.

Tenenbaum Final Judgment

And Judge Gertner’s opinion rejecting Joel Tenenbaum’s fair use defense:

Sony v. Tenenbaum Fair Use Decision

The First Circuit’s decision upholding the RIAA’s challenge to Judge Gertner’s decision to permit webcasting of a motion hearing in the RIAA v. Tenenbaum case was issued on April 16, 2009, very shortly after oral argument.

The First Circuit, interpreting a D. Mass. Local Rule, held that U.S. District Judge Nancy Gertner’s interpretation of the local rule concerning photographing recording and broadcasting of courtroom proceedings was “palpably incorrect”.

This result is quite disappointing for many people who had hoped that the First Circuit would hold that Massachusetts District Court Judges have have the discretion to webcast court proceedings in their courtrooms, and that this would be a first step toward allowing the public to view federal district court civil proceedings. The decision will, many hope, lead to a change in the pre-Internet Age Rule that was found to prohibit the webcast.

Here is the First Circuit’s recent decision upholding a preliminary injunction in a copyright case  out of D. Puerto Rico.  The sole issue on appeal was the holding on substantial similarity.  The products were stuffed animals, specifically, frogs.  Or, more specifically, the Puerto Rican tree frog, the Coqui.   I’ve tried to find a picture of the defendant’s stuffed animal frog  with no luck.

Link: Coquico, Inc. v. Rodriguez-Miranda.

Great article by Steven Seidenberg in the February 2009 ABA Journal on the legal tensions between user-generated content sites (UGC, in the lingo) and the content owners under the “notice and take down” regime established by the DMCA.

Interesting fact from the article: On YouTube alone ten hours of video content are put online every minute of every day, more than 250,000 clips per day.

Link to article.

Cases and sites mentioned in the article:

Lenz v. Universal Music Corp

Io Group, Inc. v. Veoh Networks, Inc.

Viacom page on the YouTube case

Are business training materials sufficiently original to be protected by copyright law? The answer, of course, is “it depends.” First and foremost it depends on the materials themselves, but it also depends on the judge. In Situation Management v. ASP, Massachusetts U.S. District Court Judge William Young thought the training materials created by the plaintiff, Situation Management, were not entitled to copyright protection. (I posted on this case when Judge Young’s decisionwas issued – click here for earlier post).

Judge Young was not complimentary toward Situation Management’s training materials. In the process of holding that the materials were not entitled to copyright protection he described them as nothing more than “a summary of common-sense communication skills . . . “fodder for sardonic workplace humor” and as “aggressively vapid”. He observed that “the works at issue are so dominated by nonprotectable material that it is impossible to reduce the work to a copyrightable essence or structure.” He found that the materials were filled with generalizations, platitudes, and observations of the obvious” . . . [contained] “not-so-stunning revelation[s],” and taught “[a]t their creative zenith, . . . common-sense communication skills.” Not finished, he observed that “these works exemplify the sorts of training programs that serve as fodder for sardonic workplace humor that has given rise to the popular television show The Office and the movie Office Space. They are aggressively vapid — hundreds of pages filled with generalizations, platitudes, and observations of the obvious.”

The First Circuit disagreed and reversed. The heart of the decision is captured in the following quotation:

. . . the district court improperly denied copyright protection to large portions of SMS’s works because it, in an error of law, found “they focus on concepts and teach a noncopyrightable process.” . . . The fact that SMS’s works describe processes or systems does not make their expression noncopyrightable. SMS’s creative choices in describing those processes and systems, including the works’ overall arrangement and structure, are subject to copyright protection. . . . The district court’s analysis . . . lost sight of the expressiveness of the works as a whole by focusing too closely on their noncopyrightable elements.

Link to the First Circuit opinion here.

[Update: the FTC did file a reply brief.  Link here]

All the briefs are in on the FTC petition for cert in its antitrust case against Rambus, (unless the FTC decides to file a reply brief, which is unlikely to change things much). I’ve added the Rambus opposition to the Rambus Group page on scribd.com, here. Now its time for the antitrust community to hold its breath and see whether the Court takes the case. Some knowledgeable commentators have opined that FTC/Rambus case has the best chance of any antitrust case obtaining review this year, but that plus a dime will get you …. well, nothing I guess. If the petition is allowed, it will be very exciting times for antitrust and standards setting law and policy wonks.

In federal court in Boston the Gatehouse Media v. New York Times case (described in these two (1, 2) earlier posts) has settled, as I suspected it would. The settlement agreement (or a preliminary agreement which is binding in the event a “definitive agreement” is not reached), is on scribd.com, here. It appears that this agreement was not intended to be made public (at least not yet), but apparently someone leaked it, so it’s public now.

As I read this, Gatehouse prevailed, hands down over the NYT/Boston.com. Gatehouse will erect “technical solutions” to prevent Boston.com from copying the Gatehouse original content, and Boston.com will respect those “solutions.” If a “solution” proves ineffective, Gatehouse will notify Boston.com, and Boston.com will back off right away. Why the parties went about it in this manner (which implicates DMCA-like anti-circumvention) I’m not sure, but I appears to accomplish the same result as if the NYT/Boston.com simply said “we won’t copy your ledes.”

From what I can seek, Boston.com/yourtown has already dropped its ledes and links to the Gatehouse sites, at least based on a quick sampling.

[postscript: here is a link to the report of Gatehouse's copyright expert, Douglas Lichtman, Professor of Law, UCLA. The report is an analysis of the case under copyright fair use principles, and a rebuttal of the NYT/Boston.com's unclean hands argument]

Some interesting goings on on the copyright front in D. Mass. are worth a brief mention.

First, U.S. District Court Judge Nancy Gertner has ruled that proceedings in the RIAA’s case against Joel Tenenbaum, alleging illegal downloading, may be “webcast” by the Berkman Center. Whether the actual trial will be webcast is undecided as yet, but upcoming in-court motions will be. The audio-visual will be streamed live by the Berkman Center at no charge to viewers. Tune in on January 22nd to see the circus.  [Update: the First Circuit held that the trial could not be webcast].

I find the following quote from the decision to be quite humorous:

In many ways, this case is about the so-called Internet Generation — the generation that has grown up with computer technology in general, and the Internet in particular, as commonplace. It is reportedly a generation that does not read newspapers or watch the evening news, but gets its information largely, if not almost exclusively, over the Internet. . . Consistent with the nature of these file-sharing cases, and the identity of so many of the Defendants, this case is one that has already garnered substantial attention on the Internet.

While the Plaintiffs object to the narrowcasting of this proceeding, . . . their objections are curious. At previous hearings and status conferences, the Plaintiffs have represented that they initiated these lawsuits not because they believe they will identify every person illegally downloading copyrighted material. Rather, they believe that the lawsuits will deter the Defendants and the wider public from engaging in illegal file-sharing activities. Their strategy effectively relies on the publicity resulting from this litigation.

• Judge Gertner’s Decision in Tenenbaum, Allowing Cameras in Courtroom During Trial

Meanwhile, in the Gatehouse Media copyright case against the New York Times, Gatehouse has filed an unopposed motion, asking Judge Young to rule on whether the court has jurisdiction before the copyright registrations for the material in dispute have been issued by the Copyright Office. This is a frequent controversy, and one of interest to copyright lawyers representing plaintiffs whose unregistered works are the subject of infringement – may they proceed with suit, and perhaps a preliminary injunction, or are they bound to wait for the registrations to issue? Apparently, this issue was of enough concern to Gatehouse Media that it filed this brief, collecting and arguing the legal precedents on this issue.

• Gatehouse Motion for Ruling on Jurisdiction