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

February 17, 2019

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

The marketplace functioned through “Cloud Lockers” provided to each ReDigi user for digital music file storage, similarly to other cloud storage platforms like Google’s “My Drive”. A key difference from traditional cloud locker services is a proprietary technology that searches for and removes the music file from the seller’s hard drive after being purchased and transferred to its new owner. This requires the “packet train” system, in which the music files are transferred from the hard drive 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 same procedure follows with the purchaser after buying the music file.

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

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

The first sale doctrine originates in common law, and as early as the 17th century commentators remarked on the common law’s refusal to permit restraints on the alienation of chattels. In modern copyright law, the first sale doctrine provides that once a copyright owner consents to the sale of certain types of copyrighted works, they are no longer able to exercise distribution rights over copies of those works. 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. This uncertainty has allowed for a wide range of interpretation over what is in fact a material object; indeed, it is the primary 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 assessing ReDigi’s arguments, the court did not decide whether a transferred digital file is a phonorecord because ReDigi’s transfer process “effectuates an unlawful reproduction even if the digital file itself qualifies as a phonorecord.” The court cites the embodiment and transitory duration requirements from Cartoon Network LP v. CSC Holdings, Inc., and found that the transfer of a digital music file from one hard drive to another (or Cloud Locker) creates a new phonorecord because “[a]t each of these steps, the digital file is fixed in a new material object”. It then noted that the only legal way to reproduce a copyrighted work is to receive protection under fair use – ReDigi did not qualify 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