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Business News (more headlines) 04-07-2013

Cowan Liebowitz Attorneys Obtain Decision Against Second Hand Digital Music Marketer

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Cowan, Liebowitz & Latman successfully represented Capitol Records, LLC, the copyright owner of sound recordings by such famous artists as the Beatles, Frank Sinatra, Coldplay and Katy Perry, in establishing copyright infringement against ReDigi, Inc., a start-up technology company that touts itself as "the world's first and only online marketplace for digital used music." Closely watched by the media, bloggers and major players in online digital distribution, the case is one of first impression, addressing for the first time in a U.S. court the applicability of the "first sale doctrine" to digital goods.

"the world's first and only online marketplace for digital used music."
In resolving what it called "a fundamental clash over culture, policy, and copyright law," the United States District Court for the Southern District of New York granted Capitol's motion for partial summary judgment in an order signed on March 30, 2013 and released on April 1, 2013. The Court held that ReDigi's service, which permitted users to sell their legally purchased iTunes digital music files to other ReDigi users, violated Capitol's exclusive reproduction and distribution rights under the copyright law. The Court further ruled that ReDigi was liable as a direct, contributory and vicarious infringer of Capitol's copyrights.

In so holding, the Court found that ReDigi's alleged process of "migrating" digital music files did not technologically avoid "reproduction" of Capitol's sound recordings. Citing the language of the Copyright Act, its legislative history and "the law of physics," Judge Richard Sullivan held that ReDigi "reproduced" Capitol's sound recordings by embodying them on the new "material object" of ReDigi's server, regardless of the purported novelty of ReDigi's system.

The Court likewise held that ReDigi violated Capitol's exclusive right of "distribution" by processing sales of music files. In particular, Judge Sullivan found that the first sale doctrine, which allows the owner of a lawfully made copy of a copyrighted work to dispose of that particular copy, did not apply to the transmission of digital files. Because sales through ReDigi require that the digital music files first be uploaded to the ReDigi site, the process necessarily involves unauthorized reproduction of Capitol's copyrighted sound recordings rather than the "resale" of the "particular" copies of those recordings.

The Court made clear from the outset that it was not inclined to enter the thicket of policy arguments asserted by ReDigi and various interested third parties who unsuccessfully sought to participate as amicus curiae: "Because this is a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal." At the same time, the Court pointed out that the policy arguments were not "as straightforward or uncontested as ReDigi suggests," noting that the Copyright Office had previously rejected extension of the first sale doctrine to the distribution of digital works because of the aggravated threats to copyright owners in the digital realm. Ultimately, the Court concluded that it was for Congress to determine whether the first sale doctrine required the changes advocated by ReDigi: "the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly where Congress itself has declined to take that step."

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