The First Sale Doctrine and the Sale of Digital Goods in Light of Kirtsaeng and ReDigi, Inc.

Under the first sale doctrine (17 U.S.C. § 109) an owner of a particular lawfully made physical copy or phonorecord of a copyrighted work can generally lend, resell, or dispose of the item without permission from the copyright holder.* The first sale doctrine doesn’t mean that you can reproduce the work, create derivative works, or publicly perform the work, but it does mean that you can resell that textbook you bought on  Amazon or sell your old DVDs or CDs to a used bookstore or through eBay. Two recent decisions have attempted to clarify the scope of the first sale doctrine: Kirtsaeng v. John Wiley & Sons, Inc. and Capitol Records, LLC v. ReDigi, Inc.

In the Kirtsaeng case, Supap Kirtsaeng purchased foreign editions of textbooks in Thailand, shipped them to the United States, and then resold the books for profit.  The Supreme Court held that the first sale doctrine would apply in this case, as the doctrine extends to copies of a copyrighted work lawfully made abroad.

Previously, we discussed the importance of this ruling for libraries. It is important to note, the Court’s decision in Kirtsaeng is limited to the sale of tangible or physical items. In our advancing technological world, questions remain in how far the first sale doctrine extends to the sale of digital goods. In other words, can a consumer resell songs purchased on iTunes or eBooks they have downloaded to their Kindle?

Traditionally the purchase of digital goods has operated under a license agreement, meaning that consumers do not own the works they purchase. Without lawful ownership of the goods, a consumer does not have the right to resell that good. But recently, some companies have devised a way to resell digital goods. In these instances, the seller of the digital good loses their access to the content once another individual has bought the good. A recent case, Capitol Records, LLC v. ReDigi, Inc., has given us a preliminary look into how courts may handle this digital goods question.

ReDigi is a cloud service that allows users to resell pre-owned digital music files, in the same way a person may sell an old textbook through Amazon’s Marketplace or an old CD through a used record store. Once ReDigi has verified that the digital file is legally eligible for resale (meaning that the user purchased the song legitimately from iTunes), the digital file is pulled from the user’s computer onto ReDigi’s cloud server. From there other users may purchase and download the “used” music file.

Capitol Records brought suit against ReDigi on the grounds of copyright infringement. The United States District Court for the Southern District of New York held that ReDigi’s website infringed Capitol Record’s rights of reproduction and distribution, and that the distribution of the digital music files was not covered by the first sale doctrine. The court reasoned that the process of creating a copy of the work on ReDigi’s cloud server was an unauthorized reproduction (the first sale doctrine applies only to lawfully made copies that are distributed, not reproduced) and that because an additional copy was made for the server, users did not distribute or sell the particular copy that they had originally purchased.

Lawyers for ReDigi have indicated that they plan to appeal, and it is unclear how many other courts will adopt the reasoning of the United States District Court for the Southern District of New York.

For future cases involving digital goods, it is possible that a court may draw a distinction between digital goods and physical goods for purposes of the first sale doctrine, given the differences between the two. Digital copies can be copied and resold an infinite amount of times, and they can be resold in the exact same condition as an original purchase. In other words, it is not the same situation of buying a used (and worn) copy of a work; it is as if you are buying the work brand new. And because the copy is essentially the same, the market for the original good may suffer due to consumers wishing to purchase cheaper “used” goods instead of identical “new” goods.

A court may also distinguish between digital and physical goods based on how the sale occurs, as the district court did in ReDigi. With physical goods you have a physical transfer or distribution. With digital goods, an exact digital copy is made of the work, which can be considered an unlawful reproduction of the work rather than a sale. Any subsequent distribution would be of the (unlawfully reproduced) copy of the particular copy the user was looking to sell. As mentioned above, an individual cannot use the first sale doctrine as a shield to reproduce a copyrighted work without the copyright owner’s permission or to sell any other copy besides the particular lawfully made copy. So, for example, an individual could sell their digital music files by selling the iPod or hard drive on which those files were stored, but could not make copies of those songs and then sell those copies (which is how the court determined the technology worked in the ReDigi case).

On the other hand, the Supreme Court’s decision in Kirtsaeng is particularly important because it reaffirms the basic notion that one has physical ownership of the things that you buy. A court may hold this broad rationale to be equally applicable to digital goods, meaning consumers should be able to resell their digital goods under the protection of the first sale doctrine. In this sense we are simply talking about the digital equivalent of selling an old book or CD, as the original owner of the digital file no longer retains access to the work after selling it, and any incidental copies made in the process may be covered under a fair use defense.

As consumption of digital goods increases and companies pursue secondary market opportunities for digital goods (Amazon has secured a patent for a digital resale marketplace for objects such as ebooks and apps), the scope of the first sale doctrine must become better defined. Whether this will be done through the courts, or Congress, is yet to be determined.

* There is a special exception for sound recordings of musical works and computer programs. Under § 109, owners of these copies of works cannot rent, lease, or lend the work, unless it is being done by a nonprofit library or nonprofit educational institution. There are also exceptions to this exception, which can be found in § 109(b).

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Maria Scheid is a legal intern at the Copyright Resources Center at OSU Libraries and is currently a student at The Ohio State University Moritz College of Law.

Posted in contracts, copyright infringement, copyright litigation, Copyright Resources Center, copyright terms, digital resale, e-books, first sale, law and libraries, Uncategorized |

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