DIGITAL MUSIC RESELLER Redigi has lost a court case that threatens its business model.
Redigi, which operates in the US though not in Europe, would buy a person's digital music collection from them, as someone might your CDs, and sell them on.
Songs on its webpages are offered new or pre-owned, and there is a big price difference. A new copy of Eric Clapton's "Run Back To Your Side" costs $1.29. Pre-owned it costs $0.69. Pre-owned prices can go as low as $0.49, which undercuts many of the major music sellers on the internet.
Capitol Records took Redigi to court, and on Monday the court ruled that it is not allowed to carry on doing what it is doing.
The problem is that the judge could not see that digital copies of music should be covered by the first sale doctrine, a doctrine that essentially says that once something like a CD has been bought or acquired for free once, it can be sold on again. The judge did not find that this would apply here because no physical object existed.
"It is simply impossible that the same 'material object' can be transferred over the internet. Redigi facilitates and profits from the sale of copyrighted commercial recordings, transferred in their entirety, with a likely detrimental impact on the primary market for these goods," wrote US District Judge Richard Sullivan in his ruling, according to Reuters.
"[A user] must produce a new phonorecord on the Redigi server. Because it is therefore impossible for the user to sell her 'particular' phonorecord on Redigi, the first sale statute cannot provide a defense."
Redigi has not replied to our request for comment, but on its website it says that yes, Redigi is legal, because it is covered by the aforementioned first sale doctrine.
It says that it makes sure that the digital copy is gone from the sellers' computer before it is sold on, and that gives these virtual goods "physicality".
"We believe that Redigi makes a significant contribution to copyright compliance well beyond any method previously available in any secondary market for media," it adds.
Redigi replied to our email asking for more information, and told us that the ruling only applies to Capitol content and the Redigi 1.0 service, not the Redigi 2.0 service.
The spokesperson said that the firm will appeal the court's ruling, adding that the judge had only ruled on the beta version of its service, and not the Redigi 2.0 version, or indeed any others that might follow.
"We are disappointed in Judge Sullivan's ruling regarding ReDigi's 1.0 service technology. The case has wide ranging, disturbing implications that affect how we as a society will be able to use digital goods.The Order is surprising in light of last month's United States Supreme Court's decision in Kirtsaeng v. Wiley & Sons, which reaffirmed the importance and applicability of the First Sale Doctrine in the United States of America.," it said in a statement
"Also, within the past year the European Court of Justice has also favorably underscored the importance of the 'first sale' or the 'copyright exhaustion' doctrine and its direct application to digital transactions. Redigi will continue to keep its Redigi 2.0 service running and will appeal the Redigi 1.0 decision, while supporting the fundamental rights of lawful digital consumers." µ