You Can't Resell Music Bought on iTunes, Federal Judge Rules

7/28/2019 You Can't Resell Music Bought on iTunes, Federal Judge Rules

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

_____________________

No. 12 Civ. 95 (RJS)_____________________

CAPITOL RECORDS,LLC,

Plaintiff,

VERSUS

REDIGI INC.,

Defendant.

__________________

MEMORANDUM AND ORDERMarch 30, 2013

__________________

RICHARDJ .SULLIVAN, District Judge:

Capitol Records, LLC (Capitol), therecording label for such classic vinyls asFrank Sinatras Come Fly With Me andThe Beatles Yellow Submarine, bringsthis action against ReDigi Inc. (ReDigi), atwenty-first century technology companythat touts itself as a virtual marketplacefor pre-owned digital music. What hasensued in a fundamental clash over culture,policy, and copyright law, with Capitolalleging that ReDigis web-based serviceamounts to copyright infringement in

violation of the Copyright Act of 1976 (theCopyright Act), 17 U.S.C. 101, et seq.Now before the Court are Capitols motionfor partial summary judgment and ReDigismotion for summary judgment, both filedpursuant to Federal Rule of Civil Procedure56. Because this is a court of law and not acongressional subcommittee or technology

blog, the issues are narrow, technical, andpurely legal. Thus, for the reasons thatfollow, Capitols motion is granted andReDigis motion is denied.

I. BACKGROUND

A. Facts

ReDigi markets itself as the worlds firstand only online marketplace for digital usedmusic.1

1 The facts are taken from the pleadings, the partiesLocal Civil Rule 56.1 Statements, the affidavitssubmitted in connection with the instant motions, andthe exhibits attached thereto. The facts areundisputed unless otherwise noted. Where onepartys 56.1 Statement is cited, the other party doesnot dispute the fact asserted, has offered no

(Capitol 56.1 Stmt., Doc. No. 50

Case 1:12-cv-00095-RJS Document 109 Filed 03/30/13 Page 1 of 18


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(Cap. 56.1), 6.) Launched on October13, 2011, ReDigis website invites users tosell their legally acquired digital musicfiles, and buy used digital music from othersat a fraction of the price currently available

on iTunes. (Id. 6, 9.) Thus, much likeused record stores, ReDigi permits its usersto recoup value on their unwanted music.Unlike used record stores, however, ReDigissales take place entirely in the digital domain.(See ReDigi Reply 56.1 Stmt., Doc. No. 83(RD Rep. 56.1), 4 16.)

To sell music on ReDigis website, a usermust first download ReDigis MediaManager to his computer. (ReDigi 56.1

Stmt., Doc. No. 56 (RD 56.1), 8.) Onceinstalled, Media Manager analyzes theusers computer to build a list of digitalmusic files eligible for sale. (Id.) A file iseligible only if it was purchased on iTunesor from another ReDigi user; musicdownloaded from a CD or other file-sharingwebsite is ineligible for sale. (Id.) Afterthis validation process, Media Managercontinually runs on the users computer andattached devices to ensure that the user hasnot retained music that has been sold oruploaded for sale. (Id. 10.) However,Media Manager cannot detect copies storedin other locations. (Cap. 56.1 59-61, 63;see Capitol Reply 56.1 Stmt., Doc. No. 78(Cap. Rep. 56.1), 10.) If a copy isdetected, Media Manager prompts the userto delete the file. (Cap. 56.1 64.) The fileis not deleted automatically or involuntarily,though ReDigis policy is to suspend theaccounts of users who refuse to comply. (Id.)

After the list is built, a user may uploadany of his eligible files to ReDigis CloudLocker, an ethereal moniker for what is, infact, merely a remote server in Arizona.(RD 56.1 9, 11; Cap. 56.1 22.)

admissible evidence to refute that fact, or merelyobjects to inferences drawn from that fact.

ReDigis upload process is a source ofcontention between the parties. (See RD56.1 14-23; Cap. Rep. 56.1 14-23.)ReDigi asserts that the process involvesmigrating a users file, packet by packet

analogous to a train from the userscomputer to the Cloud Locker so that datadoes not exist in two places at any onetime.2

(RD 56.1 14, 36.) Capitol assertsthat, semantics aside, ReDigis uploadprocess necessarily involves copying a filefrom the users computer to the CloudLocker. (Cap. Rep. 56.1 14.) Regardless,at the end of the process, the digital musicfile is located in the Cloud Locker and noton the users computer. (RD 56.1 21.)

Moreover, Media Manager deletes anyadditional copies of the file on the userscomputer and connected devices. (Id. 38.)

Once uploaded, a digital music fileundergoes a second analysis to verifyeligibility. (Cap. 56.1 31-32.) If ReDigidetermines that the file has not beentampered with or offered for sale by anotheruser, the file is stored in the Cloud Locker,and the user is given the option of simplystoring and streaming the file for personaluse or offering it for sale in ReDigismarketplace. (Id. 33-37.) If a userchooses to sell his digital music file, hisaccess to the file is terminated andtransferred to the new owner at the time ofpurchase. (Id. 49.) Thereafter, the newowner can store the file in the Cloud Locker,stream it, sell it, or download it to hercomputer and other devices. (Id. 50.) Nomoney changes hands in these transactions.(RD Rep. 56.1 5 18.) Instead, users buymusic with credits they either purchased

2 A train was only one of many analogies used todescribe ReDigis service. At oral argument, thedevice was likened to the Star Trek transporter Beam me up, Scotty and Willy Wonkasteleportation device, Wonkavision. (Tr., dated Oct. 5,2012 (Tr.), 10:2-12; 28:15-20.)



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from ReDigi or acquired from other sales.(Id.) ReDigi credits, once acquired, cannotbe exchanged for money. (Id.) Instead, theycan only be used to purchase additionalmusic. (Id.)

To encourage activity in its marketplace,ReDigi initially permitted users to previewthirty-second clips and view album cover artof songs posted for sale pursuant to alicensing agreement with a third party. (SeeRD 56.1 73-78.) However, shortly afterits launch, ReDigi lost the licenses. (Id.)Accordingly, ReDigi now sends users toeither YouTube or iTunes to listen to andview this promotional material. (Id. 77,

79.) ReDigi also offers its users a number ofincentives. (Cap. 56.1 39.) For instance,ReDigi gives twenty-cent credits to userswho post files for sale and enters activesellers into contests for prizes. (Id. 39,42.) ReDigi also encourages sales byadvising new users via email that they can[c]ash in their music on the website,tracking and posting the titles of sought aftersongs on its website and in its newsletter,notifying users when they are low on creditsand advising them to either purchase morecredits or sell songs, and connecting userswho are seeking unavailable songs withpotential sellers. (Id. 39-48.)

Finally, ReDigi earns a fee for everytransaction. (Id. 54.) ReDigis websiteprices digital music files at fifty-nine toseventy-nine cents each. (Id. 55.) Whenusers purchase a file, with credits, 20% ofthe sale price is allocated to the seller, 20%goes to an escrow fund for the artist, and60% is retained by ReDigi.33 On June 11, 2012, ReDigi launched ReDigi 2.0,new software that, when installed on a userscomputer, purportedly directs the users new iTunespurchases to upload from iTunes directly to theCloud Locker. (RD 56.1 40-41.) Accordingly,while access may transfer from user to user uponresale, the file is never moved from its initial location

(Id.)

B. Procedural History

Capitol, which owns a number of therecordings sold on ReDigis website,commenced this action by filing the

Complaint on January 6, 2012. (SeeComplaint, dated Jan. 5, 2012, Doc. No. 1(Compl.); Cap. 56.1 68-73.) In itsComplaint, Capitol alleges multipleviolations of the Copyright Act, 17 U.S.C. 101, et seq., including direct copyrightinfringement, inducement of copyrightinfringement, contributory and vicariouscopyright infringement, and common lawcopyright infringement. (Compl. 44-88.)Capitol seeks preliminary and permanent

injunctions of ReDigis services, as well asdamages, attorneys fees and costs, interest,and any other appropriate relief. (Id. at 17-18.) On February 6, 2012, the Court deniedCapitols motion for a preliminary injunction,finding that Capitol had failed to establishirreparable harm. (Doc. No. 26.)

On July 20, 2012, Capitol filed its motionfor partial summary judgment on the claimsthat ReDigi directly and secondarilyinfringed Capitols reproduction anddistribution rights. (Doc. No. 48.) ReDigifiled its cross-motion the same day, seekingsummary judgment on all grounds ofliability, including ReDigis allegedinfringement of Capitols performance anddisplay rights.4

in the Cloud Locker. (Id. 44-52.) However,because ReDigi 2.0 launched after Capitol filed theComplaint and mere days before the close ofdiscovery, the Court will not consider it in this action.

(SeeTr. 19:2-20:3.)

(Doc. No. 54.) Both parties

4 ReDigis arguments in this round of briefing differmarkedly from those it asserted in opposition toCapitols motion for a preliminary injunction. (SeeReDigi Oppn to Prelim. Inj., dated Jan. 27, 2012,Doc. No. 14 (ReDigi Oppn to PI).) For instance,ReDigi no longer asserts an essential step defense,nor does it argue that copying to the Cloud Lockerfor storage is protected by the fair use defense. (Id. at



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responded on August 14, 2012 and replied onAugust 24, 2012. (Doc. Nos. 76, 79, 87, 90.)The Court heard oral argument on October5, 2012.

II. LEGAL STANDARD

Pursuant to Federal Rule of CivilProcedure 56(a), a court may not grant amotion for summary judgment unless themovant shows that there is no genuinedispute as to any material fact and themovant is entitled to judgment as a matter oflaw. Fed. R. Civ. P. 56(a); see CelotexCorp. v. Catrett, 477 U.S. 317, 32223(1986). The moving party bears the burden

of showing that it is entitled to summaryjudgment. See Anderson v. Liberty Lobby,Inc., 477 U.S. 242, 256 (1986). The courtis not to weigh evidence but is insteadrequired to view the evidence in the lightmost favorable to the party opposingsummary judgment, to draw all reasonableinferences in favor of that party, and toeschew credibility assessments. AmnestyAm. v. Town of W. Hartford, 361 F.3d 113,122 (2d Cir. 2004) (internal quotation marksomitted); accordAnderson, 477 U.S. at 249.As such, if there is any evidence in therecord from any source from which areasonable inference in the [nonmovingpartys] favor may be drawn, the movingparty simply cannot obtain a summaryjudgment. Binder & Binder PC v.Barnhart, 481 F.3d 141, 148 (2d Cir. 2007)(internal quotation marks omitted).

Inferences and burdens of proof on cross-motions for summary judgment are the sameas those for a unilateral motion. See Straubev. Fla. Union Free Sch. Dist., 801 F. Supp.

9-14.) ReDigi has also abandoned its argument thatthe Digital Millenium Copyright Act, 17 U.S.C. 512, bars Capitols claim. (Id. at 22.) As such, theCourt will consider only those arguments made in theinstant motions.

1164, 1174 (S.D.N.Y. 1992). That is, eachcross-movant must present sufficientevidence to satisfy its burden of proof on allmaterial facts. U.S. Underwriters Ins. Co.v. Roka LLC, No. 99 Civ. 10136 (AGS),

2000 WL 1473607, at *3 (S.D.N.Y . Sept.29, 2000); see Barhold v. Rodriguez, 863F.2d 233, 236 (2d Cir. 1988).

III. DISCUSSION

Section 106 of the Copyright Act grantsthe owner of copyright under this titlecertain exclusive rights, including theright to reproduce the copyrighted work incopies or phonorecords, to distribute

copies or phonorecords of the copyrightedwork to the public by sale or other transferof ownership, and to publicly perform anddisplay certain copyrighted works. 17U.S.C. 106(1), (3)-(5). However, theseexclusive rights are limited by severalsubsequent sections of the statute.Pertinently, Section 109 sets forth the firstsale doctrine, which provides that theowner of a particular copy or phonorecordlawfully made under this title, or any personauthorized by such owner, is entitled,without the authority of the copyrightowner, to sell or otherwise dispose of thepossession of that copy or phonorecord. Id. 109(a). The novel question presented inthis action is whether a digital music file,lawfully made and purchased, may be resoldby its owner through ReDigi under the firstsale doctrine. The Court determines that itcannot.

A. Infringement of Capitols Copyrights

To state a claim for copyrightinfringement, a plaintiff must establish thatit owns a valid copyright in the work at issueand that the defendant violated one of theexclusive rights the plaintiff holds in thework. Twin Peaks Prods., Inc. v. Publns



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Intl, Ltd., 996 F.2d 1366, 1372 (2d Cir.1993) (citing Feist Publns, Inc. v. RuralTel. Serv. Co., 499 U.S. 340, 361 (1991)). Itis undisputed that Capitol owns copyrightsin a number of the recordings sold on

ReDigis website. (SeeCap. 56.1 68-73;RD Rep. 56.1 18-19, 68-73; Decl. ofRichard S. Mandel, dated July 19, 2012,Doc. No. 52 (Mandel Decl.), 16, Ex. M;Decl. of Alasdair J. McMullan, dated July19, 2012, Doc. No. 51 (McMullan Decl.), 3-5, Ex. 1.) It is also undisputed thatCapitol did not approve the reproduction ordistribution of its copyrighted recordings onReDigis website. Thus, if digital music filesare reproduce[d] and distribute[d] on

ReDigis website within the meaning of theCopyright Act, Capitols copyrights havebeen infringed.

1. Reproduction Rights

Courts have consistently held that theunauthorized duplication of digital musicfiles over the Internet infringes a copyrightowners exclusive right to reproduce. See,e.g., A&M Records, Inc. v. Napster, Inc.,239 F.3d 1004, 1014 (9th Cir. 2001).However, courts have not previouslyaddressed whether the unauthorized transferof a digital music file over the Internet where only one file exists before and afterthe transfer constitutes reproduction withinthe meaning of the Copyright Act. TheCourt holds that it does.

The Copyright Act provides that acopyright owner has the exclusive right toreproduce the copyrighted work in . . .phonorecords. 17 U. S. C. 106(1)(emphasis added). Copyrighted works aredefined to include, inter alia, soundrecordings, which are works that resultfrom the fixation of a series of musical,spoken, or other sounds. Id. 101. Suchworks are distinguished from their material

embodiments. These include phonorecords,which are the material objects in whichsounds . . . are fixed by any method nowknown or later developed, and from whichthe sounds can be perceived, reproduced, or

otherwise communicated, either directly orwith the aid of a machine or device. Id. 101 (emphasis added). Thus, the plain textof the Copyright Act makes clear thatreproduction occurs when a copyrightedwork is fixed in a new material object. SeeMatthew Bender & Co., Inc. v. W. Pub. Co.,158 F.3d 693, 703 (2d Cir. 1998).

The legislative history of the CopyrightAct bolsters this reading. The House Report

on the Copyright Act distinguished betweensound recordings and phonorecords, statingthat [t]he copyrightable work comprises theaggregation of sounds and not the tangiblemedium of fixation. Thus, soundrecordings as copyrightable subject matterare distinguished from phonorecords[,] thelatter being physical objects in which soundsare fixed. H.R. Rep. No. 94-1476, at 56(1976). Similarly, the House and SenateReports on the Act both explained:

Read together with the relevantdefinitions in [S]ection 101, the rightto reproduce the copyrighted workin copies or phonorecords meansthe right to produce a material objectin which the work is duplicated,transcribed, imitated, or simulated ina fixed form from which it can beperceived, reproduced, or otherwisecommunicated, either directly orwith the aid of a machine or device.

Id. at 61; S. Rep. No. 94-473, at 58 (1975).Put differently, the reproduction right is theexclusive right to embody, and to preventothers from embodying, the copyrightedwork (or sound recording) in a new materialobject (or phonorecord). See Nimmer on



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Copyright 8.02 (stating that in order toinfringe the reproduction right, thedefendant must embody the plaintiffs workin a material object).

Courts that have dealt with infringementon peer-to-peer (P2P) file-sharing systemsprovide valuable guidance on the applicationof this right in the digital domain. Forinstance, in London-Sire Records, Inc. v.J ohn Doe 1, the court addressed whetherusers of P2P software violated copyrightowners distribution rights. 542 F. Supp. 2d153, 166 & n.16 (D. Mass. 2008). Citing thematerial object requirement, the courtexpressly differentiated between the

copyrighted work or digital music file and the phonorecord or appropriatesegment of the hard disk that the file wouldbe embodied in following its transfer. Id. at171. Specifically,

[w]hen a user on a [P2P] networkdownloads a song from another user,he receives into his computer adigital sequence representing thesound recording. That sequence ismagnetically encoded on a segmentof his hard disk (or likewise writtenon other media). With the righthardware and software, thedownloader can use the magneticsequence to reproduce the soundrecording. The electronic file (or,perhaps more accurately, theappropriate segment of the hard disk)is therefore a phonorecord withinthe meaning of the statute.

Id. (emphasis added). Accordingly, when auser downloads a digital music file ordigital sequence to his hard disk, the fileis reproduce[d] on a new phonorecordwithin the meaning of the Copyright Act.Id.

This understanding is, of course,confirmed by the laws of physics. It issimply impossible that the same materialobject can be transferred over the Internet.Thus, logically, the court in London-Sire

noted that the Internet transfer of a fileresults in a material object being createdelsewhere at its finish. Id. at 173. Becausethe reproduction right is necessarilyimplicated when a copyrighted work isembodied in a new material object, andbecause digital music files must beembodied in a new material object followingtheir transfer over the Internet, the Courtdetermines that the embodiment of a digitalmusic file on a new hard disk is a

reproduction within the meaning of theCopyright Act.

This finding holds regardless of whetherone or multiple copies of the file exist.London-Sire, like all of the P2P cases,obviously concerned multiple copies of onedigital music file. But that distinction isimmaterial under the plain language of theCopyright Act. Simply put, it is the creationof a new material object and not anadditional material object that defines thereproduction right. The dictionary definesreproduction to mean, inter alia, toproduce again or to cause to exist againoranew. See Merriam-Webster CollegiateEdition 994 (10th ed. 1998) (emphasisadded). Significantly, it is not defined as toproduce again while the original exists.Thus, the right to reproduce thecopyrighted work in . . . phonorecords isimplicated whenever a sound recording isfixed in a new material object, regardless ofwhether the sound recording remains fixedin the original material object.

Given this finding, the Court concludesthat ReDigis service infringes Capitolsreproduction rights under any description ofthe technology. ReDigi stresses that it



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migrates a file from a users computer toits Cloud Locker, so that the same file istransferred to the ReDigi server and nocopying occurs.5

However, even if thatwere the case, the fact that a file has moved

from one material object the userscomputer to another the ReDigi server means that a reproduction has occurred.Similarly, when a ReDigi user downloads anew purchase from the ReDigi website toher computer, yet another reproduction iscreated. It is beside the point that theoriginal phonorecord no longer exists. Itmatters only that a new phonorecord hasbeen created.

ReDigi struggles to avoid this conclusionby pointing to C.M. Paula Co. v. Logan, a1973 case from the Northern District ofTexas where the defendant used chemicalsto lift images off of greeting cards and placethem on plaques for resale. 355 F. Supp.189, 190 (N.D. Tex. 1973); (see ReDigiMem. of Law, dated July 20, 2012, Doc. No.55 (ReDigi Mem.), at 13). The courtdetermined that infringement did not occur

5 It bears noting that ReDigi made numerousadmissions to the contrary at the preliminaryinjunction stage. For instance, in its opposition toCapitols motion, ReDigi stated that, The onlycopying which takes place in the ReDigi serviceoccurs when a user uploads music files to the ReDigiCloud, . . . or downloads music files from the usersCloud Locker. (See ReDigi Oppn to PI at 9(emphasis added).) ReDigi also stated that, after adigital music file was uploaded to the Cloud Locker,the copy from which it was made was actuallydeleted from the users machine. (Id. at 14(emphasis added).) ReDigis officers made similar

statements in their depositions, and ReDigis patentapplication for its upload technology states that tobe offered for sale, [a music file] is firstcopied to theremote server and stored on the disc. (See CapitolMem. of Law, dated July 20, 2012, Doc. No. 49(Cap. Mem.), at 8-9, n.6 (emphasis added).) But,as earlier stated, these semantic distinctions areimmaterial as even ReDigis most recent descriptionof its service runs afoul of the Copyright Act.

because should defendant desire to makeone hundred ceramic plaques . . . , defendantwould be required to purchase one hundredseparate . . . prints. C.M. Paula, 355 F.Supp. at 191. ReDigi argues that, like the

defendant in C.M. Paula, its users mustpurchase a song on iTunes in order to sell asong on ReDigi. (ReDigi Mem. 13.)Therefore, no duplication occurs. SeeC.M. Paula, 355 F. Supp. at 191 (internalquotation marks omitted). ReDigisargument is unavailing. Ignoring thequestionable merits of the courts holding inC.M. Paula, ReDigis service isdistinguishable from the process in that case.There, the copyrighted print, or material

object, was lifted from the greeting card andtransferred in toto to the ceramic tile; nonew material object was created. Bycontrast, ReDigis service by necessitycreates a new material object when a digitalmusic file is either uploaded to ordownloaded from the Cloud Locker.

ReDigi also argues that the Courtsconclusion would lead to irrationaloutcomes, as it would render illegal anymovement of copyrighted files on a harddrive, including relocating files betweendirectories and defragmenting. (ReDigiOppn, dated Aug. 14, 2012, Doc. No. 79(ReDigi Oppn), at 8.) However, thisargument is nothing more than a red herring.As Capitol has conceded, such reproductionis almost certainly protected under otherdoctrines or defenses, and is not relevant tothe instant motion. (Cap. Reply, dated Aug.24, 2012, Doc. No. 87 (Cap. Reply), at 5n.1.)

Accordingly, the Court finds that, absentthe existence of an affirmative defense, thesale of digital music files on ReDigiswebsite infringes Capitols exclusive rightof reproduction.



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2. Distribution Rights

In addition to the reproduction right, acopyright owner also has the exclusive rightto distribute copies or phonorecords of the

copyrighted work to the public by sale orother transfer of ownership. 17 U. S. C. 106(3). Like the court in London-Sire, theCourt agrees that [a]n electronic filetransfer is plainly within the sort oftransaction that 106(3) was intended toreach [and] . . . fit[s] within the definition ofdistribution of a phonorecord. London-Sire, 542 F. Supp. 2d at 173-74. For thatreason, courts have not hesitated to findcopyright infringement by distribution in

cases of file-sharing or electronictransmission of copyrighted works. AristaRecords LLC v. Greubel, 453 F. Supp. 2d961, 968 (N.D. Tex. 2006) (collectingcases); see, e.g., Napster, 239 F.3d at 1014.Indeed, in New York Times Co., Inc. v.Tasini, the Supreme Court stated it wasclear that an online news database violatedauthors distribution rights by sellingelectronic copies of their articles fordownload. 533 U.S. 483, 498 (2001).

There is no dispute that sales occurred onReDigis website. Capitol has establishedthat it was able to buy more than one-hundred of its own recordings on ReDigiswebite, and ReDigi itself compiled a list ofits completed sales of Capitols recordings.(Cap. 56.1 68-73; RD Rep. 56.1 68-73.) ReDigi, in fact, does not contest thatdistribution occurs on its website it onlyasserts that the distribution is protected bythe fair use and first sale defenses. (See,e.g., ReDigi Oppn 15 (noting that anydistributions . . . which occur on the ReDigimarketplace are protected).)

Accordingly, the Court concludes that,absent the existence of an affirmativedefense, the sale of digital music files on

ReDigis website infringes Capitolsexclusive right of distribution.6

3. Performance and Display Rights

Finally, a copyright owner has theexclusive right, in the case of . . . musical. . . works, to perform the copyrighted workpublicly. 17 U. S. C. 106(4). Publicperformance includes transmission to thepublic regardless of whether the membersof the public . . . receive it in the same placeor in separate places and at the same time orat different times. Id. 101. Accordingly,audio streams are performances because astream is an electronic transmission that

renders the musical work audible as it isreceived by the client-computers temporarymemory. This transmission, like a televisionor radio broadcast, is a performance becausethere is a playing of the song that isperceived simultaneously with thetransmission. United States v. Am. Soc. OfComposers, Authors, & Publishers, 627F.3d 64, 74 (2d Cir. 2010). To state a claimfor infringement of the performance right, aplaintiff must establish that (1) the publicperformance or display of the copyrightedwork was for profit, and (2) the defendantlacked authorization from the plaintiff or the

6 Capitol argues that ReDigi also violated itsdistribution rights simply by making Capitolsrecordings available for sale to the public, regardlessof whether a sale occurred. (See Cap. Mem. 11 n.8(citing Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199, 201 (4th Cir. 1997)).However, a number of courts, including one in thisdistrict, have cast significant doubt on this makeavailable theory of distribution. See, e.g., Elektra

Entmt Grp., Inc. v. Barker, 551 F. Supp. 2d 234, 243(S.D.N.Y. 2008) ([T]he support in the case law forthe make available theory of liability is quitelimited.); London-Sire, 542 F. Supp. 2d at 169([T]he defendants cannot be liable for violating theplaintiffs distribution right unless a distributionactually occurred.). In any event, because the Courtconcludes that actual sales on ReDigis websiteinfringed Capitols distribution right, it does notreach this additional theory of liability.



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plaintiffs representative. See Broad. Music,Inc. v. 315 W. 44th St. Rest. Corp., No. 93Civ. 8082 (MBM), 1995 WL 408399, at *2(S.D.N.Y. July 11, 1995).

The copyright owner also has theexclusive right, in the case of . . . pictorial[and] graphic . . . works[,] . . . to display thecopyrighted work publicly. 17 U.S.C. 106(5). Public display includesshow[ing] a copy of [a work], eitherdirectly or by means of a film, slide,television image, or any other device orprocess. Id. 101. The Ninth Circuit hasheld that the display of a photographicimage on a computer may implicate the

display right, though infringement hinges, inpart, on where the image was hosted.Perfect 10, Inc. v. Amazon.com, Inc., 508F.3d 1146, 1160 (9th Cir. 2007).

Capitol alleges that ReDigi infringed itscopyrights by streaming thirty-second songclips and exhibiting album cover art topotential buyers. (Compl. 25-26.)ReDigi counters that it only posted suchcontent pursuant to a licensing agreementand within the terms of that agreement.(ReDigi Mem. 24-25.) ReDigi also assertsthat it promptly removed the content whenits licenses were terminated, and instead sentusers to YouTube or iTunes for previews.(Id.) Capitol, in response, claims thatReDigis use violated the terms of thoselicenses and did not cease at the time thelicenses were terminated. (Compare RD56.1 73-79, with Cap. Rep. 56.1 73-79.) As such, there are material disputes asto the source of the content, whether ReDigiwas authorized to transmit the content, whenauthorization was or was not revoked, andwhen ReDigi ceased providing the content.Because the Court cannot determine whetherReDigi infringed Capitols display andperformance rights on the present record,ReDigis motion for summary judgment on

its alleged infringement of these exclusiverights is denied.

B. Affirmative Defenses

Having concluded that sales on ReDigiswebsite infringe Capitols exclusive rightsof reproduction and distribution, the Courtturns to whether the fair use or first saledefenses excuse that infringement. For thereasons set forth below, the Courtdetermines that they do not.

1. Fair Use

The ultimate test of fair use . . . is

whether the copyright laws goal ofpromot[ing] the Progress of Science anduseful Arts would be better served byallowing the use than by preventing it.Castle Rock Entmt, Inc. v. Carol PublgGrp., Inc., 150 F.3d 132, 141 (2d Cir. 1998)(quoting U.S. Const., art. I, 8, cl. 8).Accordingly, fair use permits reproductionof copyrighted work without the copyrightowners consent for purposes such ascriticism, comment, news reporting,teaching (including multiple copies forclassroom use), scholarship, or research.17 U.S.C. 107. The list is not exhaustivebut merely illustrates the types of copyingtypically embraced by fair use. Castle RockEntmt, Inc., 150 F.3d at 141. In addition,four statutory factors guide courtsapplication of the doctrine. Specifically,courts look to:

(1) the purpose and character of theuse, including whether such use is ofa commercial nature or is fornonprofit educational purposes;(2) the nature of the copyrightedwork; (3) the amount andsubstantiality of the portion used inrelation to the copyrighted work as awhole; and (4) the effect of the use



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upon the potential market for orvalue of the copyrighted work.

17 U.S.C. 107. Because fair use is anequitable rule of reason, courts are free to

adapt the doctrine to particular situations ona case-by-case basis. Sony Corp. of Am. v.Universal City Studios, Inc., 464 U.S. 417,448 n.31 (1984) (quoting H. Rep. No. 94-1476, at 65-66); see Iowa State Univ.Research Found., Inc. v. Am. Broad. Cos.,621 F.2d 57, 60 (2d Cir. 1980).

On the record before it, the Court haslittle difficulty concluding that ReDigisreproduction and distribution of Capitolscopyrighted works falls well outside the fairuse defense. ReDigi obliquely argues thatuploading to and downloading from theCloud Locker for storage and personal useare protected fair use.7

Each of the statutory factors counselsagainst a finding of fair use. The first factorrequires the Court to determine whetherReDigis use transforms the copyrightedwork and whether it is commercial.Campbell v. Acuff-Rose Music, Inc., 510U.S. 569, 578-79 (1994). Both inquiriesdisfavor ReDigis claim. Plainly, theupload, sale, and download of digital musicfiles on ReDigis website does nothing to

(See ReDigi Mem.15.) Significantly, Capitol does not contestthat claim. (See Tr. 12:8-23.) Instead,Capitol asserts only that uploading to anddownloading from the Cloud Lockerincident to sale fall outside the ambit of fairuse. The Court agrees. See Arista Records,LLC v. Doe 3, 604 F.3d 110, 124 (2d Cir.

2010) (rejecting application of fair use touser uploads and downloads on P2P file-sharing network).

7 ReDigis argument is, perhaps, a relic of theargument it previously levied that copying to theCloud Locker is protected as space shifting underthe fair use doctrine. (SeeReDigi Oppn to PI at 10.)

add[] something new, with a furtherpurpose or different character to thecopyrighted works. Id.; see, e.g., Napster,239 F.3d at 1015 (endorsing district courtfinding that downloading MP3 files does

not transform the copyrighted work).ReDigis use is also undoubtedlycommercial. ReDigi and the uploading userdirectly profit from the sale of a digitalmusic file, and the downloading user savessignificantly on the price of the song in theprimary market. See Harper & RowPublishers, Inc. v. Nation Enters., 471 U.S.539, 562 (1985) (The crux of theprofit/nonprofit distinction is not whetherthe sole motive of the use is monetary gain

but whether the user stands to profit fromexploitation of the copyrighted materialwithout paying the customary price.).ReDigi asserts that downloads for personal,and not public or commercial, use must becharacterized as . . . noncommercial,nonprofit activity. (ReDigi Mem. 16(quotingSony, 464 U.S. at 449).) However,ReDigi twists the law to fit its facts. When auser downloads purchased files from theCloud Locker, the resultant reproduction isan essential component of ReDigiscommercial enterprise. Thus, ReDigisargument is unavailing.

The second factor the nature of thecopyrighted work also weighs againstapplication of the fair use defense, ascreative works like sound recordings areclose to the core of the intended copyrightprotection and far removed from the . . .factual or descriptive work more amenableto fair use. UMG Recordings, Inc. v.MP3.Com, Inc., 92 F. Supp. 2d 349, 351(S.D.N.Y. 2000) (alteration and internalquotation marks omitted) (citing Campbell,510 U.S. at 586). The third factor theportion of the work copied suggests asimilar outcome because ReDigi transmitsthe works in their entirety, negating anyclaim of fair use. Id. at 352. Finally,

http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060http://www.lexis.com/research/xlink?app=00075&view=full&searchtype=le&search=621+F.2d+57%2520at%252060


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ReDigis sales are likely to undercut themarket for or value of the copyrightedwork and, accordingly, the fourth factorcuts against a finding of fair use. Cf. AristaRecords, LLC v. Doe 3, 604 F.3d at 124

(rejecting application of fair use to P2P filesharing, in part, because the likelydetrimental effect of file-sharing on thevalue of copyrighted compositions is welldocumented. (citing Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545U.S. 913, 923 (2005)). The product sold inReDigis secondary market isindistinguishable from that sold in thelegitimate primary market save for its lowerprice. The clear inference is that ReDigi

will divert buyers away from that primarymarket. ReDigi incredibly argues thatCapitol is preempted from making a market-based argument because Capitol itselfcondones downloading of its works oniTunes. (ReDigi Mem. 18.) Of course,Capitol, as copyright owner, does not forfeitits right to claim copyright infringementmerely because it permits certain uses of itsworks. This argument, too, is thereforeunavailing.

In sum, ReDigi facilitates and profitsfrom the sale of copyrighted commercialrecordings, transferred in their entirety, witha likely detrimental impact on the primarymarket for these goods. Accordingly, theCourt concludes that the fair use defensedoes not permit ReDigis users to uploadand download files to and from the CloudLocker incident to sale.

2. First Sale

The first sale defense, a common lawprinciple recognized inBobbs-Merrill Co. v.Straus, 210 U.S. 339, 350 (1908) and nowcodified at Section 109(a) of the CopyrightAct, provides that:

Notwithstanding the provisions ofsection 106(3), the owner of aparticular copy or phonorecordlawfully made under this title, or anyperson authorized by such owner, is

entitled, without the authority of thecopyright owner, to sell or otherwisedispose of the possession of thatcopy or phonorecord.

17 U.S.C. 109. Under the first saledefense, once the copyright owner places acopyrighted item [here, a phonorecord] inthe stream of commerce by selling it, he hasexhausted his exclusive statutory right tocontrol its distribution. Quality KingDistribs., Inc. v. Lanza Research Intl, Inc.,523 U.S. 135, 152 (1998); see Kirtsaeng v.J ohn Wiley & Sons, Inc., No. 11-697, 2013WL 1104736, at *4 (U.S. Mar. 19, 2013).

ReDigi asserts that its service, whichinvolves the resale of digital music fileslawfully purchased on iTunes, is protectedby the first sale defense. (ReDigi Mem. 19.)The Court disagrees.

As an initial matter, it should be notedthat the fair use defense is, by its own terms,limited to assertions of thedistribution right.17 U.S.C. 109 (referencing Section106(3)); see Nimmer on Copyright 8.12.Because the Court has concluded thatReDigis service violates Capitolsreproduction right, the first sale defensedoes not apply to ReDigis infringement ofthose rights. See Design Options v.BellePointe, Inc., 940 F. Supp. 86, 91(S.D.N.Y. 1996).

In addition, the first sale doctrine doesnot protect ReDigis distribution ofCapitols copyrighted works. This isbecause, as an unlawful reproduction, adigital music file sold on ReDigi is notlawfully made under this title. 17 U.S.C. 109(a). Moreover, the statute protects



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only distribution by the owner of aparticular copy or phonorecord . . . of thatcopy or phonorecord. Id. Here, a ReDigiuser owns the phonorecord that was createdwhen she purchased and downloaded a song

from iTunes to her hard disk. But to sellthat song on ReDigi, she must produce anew phonorecord on the ReDigi server.Because it is therefore impossible for theuser to sell her particular phonorecord onReDigi, the first sale statute cannot providea defense. Put another way, the first saledefense is limited to material items, likerecords, that the copyright owner put intothe stream of commerce. Here, ReDigi isnot distributing such material items; rather,

it is distributing reproductions of thecopyrighted code embedded in new materialobjects, namely, the ReDigi server inArizona and its users hard drives. The firstsale defense does not cover this any morethan it covered the sale of cassetterecordings of vinyl records in a bygone era.

Rejecting such a conclusion, ReDigiargues that, because technological changehas rendered its literal terms ambiguous, theCopyright Act must be construed in light of[its] basic purpose, namely, to incentivizecreative work for the ultimate[] . . . causeof promoting broad public availability ofliterature, music, and the other arts. Sony,464 U.S. at 432 (quotingTwentieth CenturyMusic Corp. v. Aiken, 422 U.S. 151, 156(1975)). Thus, ReDigi asserts that refusal toapply the first sale doctrine to its servicewould grant Capitol a Court sanctionedextension of rights under the [C]opyright[A]ct . . . which is against policy, and shouldnot be endorsed by this Court. (ReDigiMem. 24.)

The Court disagrees. ReDigi effectivelyrequests that the Court amend the statute toachieve ReDigis broader policy goals goals that happen to advance ReDigiseconomic interests. However, ReDigis

argument fails for two reasons. First, whiletechnological change may have renderedSection 109(a) unsatisfactory to manycontemporary observers and consumers, ithas not rendered it ambiguous. The statute

plainly applies to the lawful ownersparticular phonorecord, a phonorecordthat by definition cannot be uploaded andsold on ReDigis website. Second,amendment of the Copyright Act in linewith ReDigis proposal is a legislativeprerogative that courts are unauthorized andill suited to attempt.

Nor are the policy arguments asstraightforward or uncontested as ReDigisuggests. Indeed, when confronting thisprecise subject in its report on the DigitalMillenium Copyright Act, 17 U.S.C. 512,the United States Copyright Office (theUSCO) rejected extension of the first saledoctrine to the distribution of digital works,noting that the justifications for the first saledoctrine in the physical world could not beimported into the digital domain. SeeUSCO, Library of Cong., DMCA Section104 Report (2001) (DMCA Report); seealso Cartoon Network LP v. CSC Holdings,Inc., 536 F.3d 121, 129 (2d Cir. 2008)(finding that the DMCA report is entitled todeference under Skidmore v. Swift & Co.,323 U.S. 134, 140 (1944)). For instance, theUSCO stated that the impact of the [firstsale] doctrine on copyright owners [is]limited in the off-line world by a number offactors, including geography and the gradualdegradation of books and analog works.DMCA Report at xi. Specifically,

[p]hysical copies of works degradewith time and use, making usedcopies less desirable than new ones.Digital information does notdegrade, and can be reproducedperfectly on a recipients computer.The used copy is just as desirableas (in fact, is indistinguishable from)



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a new copy of the same work. Time,space, effort and cost no longer actas barriers to the movement ofcopies, since digital copies can betransmitted nearly instantaneously

anywhere in the world with minimaleffort and negligible cost. The needto transport physical copies of works,which acts as a natural brake on theeffect of resales on the copyrightowners market, no longer exists inthe realm of digital transmissions.The ability of such used copies tocompete for market share with newcopies is thus far greater in thedigital world.

Id. at 82-83 (footnotes omitted). Thus,while ReDigi mounts attractive policyarguments, they are not as one-sided as itcontends.

Finally, ReDigi feebly argues that theCourts reading of Section 109(a) would ineffect exclude digital works from themeaning of the statute. (ReDigi Mem. 21.)That is not the case. Section 109(a) stillprotects a lawful owners sale of her

particular phonorecord, be it a computerhard disk, iPod, or other memory deviceonto which the file was originallydownloaded. While this limitation clearlypresents obstacles to resale that are differentfrom, and perhaps even more onerous than,those involved in the resale of CDs andcassettes, the limitation is hardly absurd the first sale doctrine was enacted in a worldwhere the ease and speed of data transfercould not have been imagined. There are

many reasons, some discussed herein, forwhy such physical limitations may bedesirable. It is left to Congress, and not thisCourt, to deem them outmoded.

Accordingly, the Court concludes that thefirst sale defense does not permit sales ofdigital music files on ReDigis website.

C. Liability

Having determined that sales on ReDigiswebsite infringe Capitols copyrights, theCourt turns to whether ReDigi is directly

and/or secondarily liable for thatinfringement. Direct liability requiresvolitional conduct that causes thereproduction or distribution to be made. SeeCartoon Network, 536 F.3d at 131.Secondary infringement occurs when adefendant contributed to or benefitted from athird partys infringement such that it isjust to hold the defendant accountable forthe infringing activity. Sony, 464 U.S. at435. For the reasons stated below, the Court

finds that ReDigi directly and secondarilyinfringed Capitols copyrights.

1. Direct Infringement

To be liable for direct infringement, adefendant must have engaged in somevolitional conduct sufficient to show that [it]actively violated one of the plaintiffsexclusive rights. Arista Records LLC v.Usenet.com, Inc., 633 F. Supp. 2d 124, 148(S.D.N.Y. 2009). In other words, toestablish direct liability under . . . the Act,something more must be shown than mereownership of a machine used by others tomake illegal copies. There must be actualinfringing conduct with a nexus sufficientlyclose and causal to the illegal copying thatone could conclude that the machine ownerhimself trespassed on the exclusive domainof the copyright owner. Cartoon Network,536 F.3d at 130 (quotingCoStar Group, Inc.v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir.2004)) (citing Religious Tech. Ctr. v.Netcom On-Line Commcn Servs., Inc., 907F. Supp. 1361, 1370 (N.D. Cal. 1995)).

In Cartoon Network, the Second Circuitaddressed whether the cable televisionprovider Cablevision had directly infringedthe plaintiffs copyrights by providing



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digital video recording devices to itscustomers. 536 F.3d 121. The courtdetermined that it had not. ThoughCablevision had design[ed], hous[ed], andmaintain[ed] the recording devices, it was

Cablevisions customers who made thecopies and therefore directly infringed theplaintiffs reproduction rights. Id. at 131-32.The court reasoned that, [i]n determiningwho actually makes a copy, a significantdifference exists between making a requestto a human employee, who then volitionallyoperates the copying system to make thecopy, and issuing a command directly to asystem, which automatically obeyscommands and engages in no volitional

conduct. Id. at 131. However, the courtallowed that a case may exist where onescontribution to the creation of an infringingcopy [is] so great that it warrants holdingthat party directly liable for theinfringement, even though another party hasactually made the copy. Cartoon Network,536 F.3d at 133.

On the record before it, the Courtconcludes that, if such a case could everoccur, it has occurred with ReDigi.ReDigis founders built a service whereonlycopyrighted work could be sold. UnlikeCablevisions programming, which offered amix of protected and public television,ReDigis Media Manager scans a userscomputer to build a list of eligible files thatconsists solely of protected music purchasedon iTunes. While that process is itselfautomated, absolving ReDigi of directliability on that ground alone would be adistinction without a difference. The factthat ReDigis founders programmed theirsoftware to choose copyrighted contentsatisfies the volitional conduct requirementand renders ReDigis case indistinguishablefrom those where human review of contentgave rise to direct liability. See Usenet.com,633 F. Supp. 2d at 148; Playboy Enters.,Inc. v. Russ Hardenburgh, Inc., 982 F. Supp.

503, 512-13 (N.D. Ohio 1997). Moreover,unlike Cablevision, ReDigi infringed bothCapitols reproduction and distributionrights. ReDigi provided the infrastructurefor its users infringing sales and

affirmatively brokered sales by connectingusers who are seeking unavailable songswith potential sellers. Given thisfundamental and deliberate role, the Courtconcludes that ReDigis conducttransform[ed] [it] from [a] passiveprovider[] of a space in which infringingactivities happened to occur to [an] activeparticipant[] in the process of copyrightinfringement. Usenet.com, 633 F. Supp. 2dat 148. Accordingly, the Court grants

Capitols motion for summary judgment onits claims for ReDigis direct infringementof its distribution and reproduction rights.8

2. Secondary Infringement

The Copyright Act does not expresslyrender anyone liable for infringementcommitted by another. Sony, 464 U.S. at434. However, common law doctrinespermit a court to impose secondary liabilitywhere just and appropriate. Id. at 435.Capitol asserts that ReDigi is secondarilyliable for its users direct infringement underthree such doctrines: contributory

8 Capitol also asserts a claim for common lawcopyright infringement arising from sales of its pre-1972 recordings on ReDigis website. (Compl. 82-88.) Capitol correctly argues in itsmemorandum that the elements for a directinfringement claim under federal law mirror those forinfringement of common law copyright under state

law. SeeCapitol Records, Inc. v. Naxos of Am., Inc.,4 N.Y .3d 540, 563 (2005); (Cap. Mem. 4.)Accordingly, the Court also Court grants Capitolsmotion for summary judgment with respect toReDigis direct infringement of Capitols distributionand reproduction rights in its pre-1972 recordings.However, because neither Capitol nor ReDigiaddressed the question of secondary infringement ofcommon law copyrights, the Court does not reachthat claim.



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infringement, inducement of infringement,and vicarious infringement. (Cap. Mem. 13-16.) The Court agrees with respect tocontributory and vicarious infringement, andtherefore does not reach the inducement

claim.

a. Contributory Infringement

Contributory infringement occurs whereone . . . with knowledge of the infringingactivity, induces, causes or materiallycontributes to the infringing conduct ofanother. Arista Records, LLC v. Doe 3,604 F.3d at 118 (quoting Gershwin PublgCorp. v. Columbia Artists Mgmt., Inc., 443

F.2d 1159, 1162 (2d Cir. 1971)); see, e.g.,Grokster, 545 U.S. at 930. The knowledgerequirement is objective and satisfiedwhere the defendant knew or had reason toknow of the infringing activity. See AristaRecords, LLC v. Doe 3, 604 F.3d at 118.Further, the support must be more than amere quantitative contribution to theprimary infringement . . . [, it] must besubstantial. Usenet.com, 633 F. Supp. 2d124, 155 (S.D.N.Y . 2009). However, evenwhere a defendants contribution is material,it may evade liability if its product iscapable of substantial noninfringing uses.Sony, 464 U.S. at 442 (the Sony-Betamaxrule).

In weighing the knowledge requirement,courts consider evidence of actual andconstructive knowledge, including cease-and-desist letters, officer and employeestatements, promotional materials, andindustry experience. See, e.g., Napster, 239F.3d at 1020-21, 1027; Arista Records LLCv. Lime Grp. LLC, 784 F. Supp. 2d at 432;Usenet.com 633 F. Supp. 2d at 155. Inaddition, courts have consistently found thatmaterial support existed where file-sharingsystems provided the site and facilities fortheir users infringement. Napster, 239 F.3d

at 1022; see, e.g., Usenet.com, 633 F. Supp.2d at 155.

The Court has little difficulty concludingthat ReDigi knew or should have known that

its service would encourage infringement.Despite the fact that ReDigi boasted on itswebsite that it was The Legal Alternativeand insisted YES, ReDigi is LEGAL,ReDigi warned investors in its subscriptionagreements that the law cannot be said tobe well-settled in this area and that it couldnot guarantee ReDigi would prevail on itscopyright defenses. (Cap. 56.1 65-66.)The Recording Industry Association ofAmerica (RIAA) sent ReDigi a cease-and-

desist letter in November 2011, advisingReDigi that its website violated Capitolsand other RIAA members copyrights.(Compl. 41.) Further, ReDigi wasensnared in a licensing dispute over songclips and cover art shortly after its launch,plainly indicating that infringement could beafoot. (RD 56.1 74-75, 77.) ReDigi wasalso, of course, aware that copyrightprotected content was being sold on itswebsite a fact central to its business modeland promotional campaigns. (Cap. 56.1 70-73). Finally, ReDigis officers claim tohave researched copyright law [and]consulted with attorneys concerning theirservice, and also to have met with recordcompanies to get input, get marketingsupport[,] and enter into deals with thelabels. (RD Rep. 56.1 2 5, 5 20.) Byeducating themselves, the officerspresumably understood the likelihood thatuse of ReDigis service would result ininfringement. Indeed, though ReDigiattempts to use its consultations withcounsel as a shield, it is telling that ReDigideclined to reveal any of the advice itreceived on the subject. (SeeCap. Reply 9).ReDigis lone rebuttal to this surfeit ofevidence could only be that it sincerelybelieved in the legality of its service.



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However, the Court has not found and willnot create a subjective, good faith defense tocontributory liabilitys objective knowledgerequirement, and therefore concludes that,based on the objective facts, ReDigi was

aware of its users infringement.

The Court also finds that ReDigimaterially contributed to its usersinfringement. As ReDigi has admitted,more than any other website that permitsthe sale of music, ReDigi is intimatelyinvolved in examining the content that willbe sold and supervising the steps involved inmaking the music available for sale andselling it. (Cap. 56.1 35; RD Rep. 56.1

15 35.) ReDigi thus provided the site andfacilities for the direct infringement. See,e.g., Napster, 239 F.3d at 1022; Usenet.com,633 F. Supp. 2d at 155; Lime Grp., 784 F.Supp. 2d at 434. Without ReDigis CloudLocker, no infringement could haveoccurred. Indeed, Media Manager ensuredthat only infringement occurred by limitingeligible files to iTunes tracks. Contrary toany conception of remote conduct, ReDigisservice was the hub and heart of its usersinfringing activity.

The Court finally concludes thatReDigis service is not capable ofsubstantial noninfringing uses. The Sony-Betamax rule requires a court to determinewhether a product or service is capable ofsubstantial noninfringing uses, not whetherit is currently used in a non-infringingmanner. Napster, 239 F.3d at 1021(discussingSony, 464 U.S. at 442-43). But,put simply, ReDigi, by virtue of its design,is incapable of compliance with the law.ReDigis business is built on the erroneousnotion that the first sale defense permits theelectronic resale of digital music. As such,ReDigi is built to trade only in copyrightprotected iTunes files. However, asdetermined above, ReDigis legal argument

and therefore business model isfundamentally flawed. Accordingly, tocomply with the law, either the law orReDigi must change. While ReDigi 2.0, 3.0,or 4.0 may ultimately be deemed to comply

with copyright law a finding the Courtneed not and does not now make it is clearthat ReDigi 1.0 does not. Given thefundamental disconnect between ReDigi andthe Copyright Act, and ReDigis failure toprovide any evidence of present or potentialnoninfringing uses, the Court concludes thatthe Sony-Betamax rule cannot save ReDigifrom contributory liability.

Accordingly, the Court grants Capitols

motion for summary judgment on its claimfor ReDigis contributory infringement of itsdistribution and reproduction rights.9

b. Vicarious Infringement

Vicarious liability for copyrightinfringement exists where the defendanthas the right and ability to supervise theinfringing activity and also has a directfinancial interest in such activities.Napster, 239 F.3d at 1022 (quotingGershwin Pub. Corp., 443 F.2d at 1162); seeGrokster, 545 U.S. at 930. Unlikecontributory infringement, knowledge is notan element of vicarious liability. Gershwin,

9 As noted above, Capitol has alleged a separatecause of action for inducement of infringement.(Compl. 51-60.) Disagreement exists overwhether inducement of infringement is a separatetheory of liability for copyright infringement ormerely a subset of contributory liability. Compare

Flava Works, Inc. v. Gunter, 689 F.3d 754, 758 (7thCir. 2012) (describing inducement as a form ofcontributory infringement), with Lime Grp., 784 F.Supp. 2d at 424 (In Grokster, the Supreme Courtconfirmed that inducement of copyright infringementconstitutes a distinct cause of action.). Regardless,because the Court concludes that ReDigi is liable forcontributing to its users direct infringement ofCapitols copyrights, it does not reach Capitolsinducement claim.



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443 F 2d at I 162; see Fonovisa, Inc. v.Cherry Auction, Inc., 76 F.3d 259, 262-63(9th Cir. 1996).

Clearly, ReDigi vicariously infringedCapi tol' s copyrights. As discussed, ReDigiexercised complete control over itswebsite's content, user access, and sales.Indeed, ReDigi admits that it "is intimatelyinvolved in . . . supervising the stepsinvolved in making the music available forsale and selling it" on the website. (Cap.56.1 35; RD Rep. 56.1 '135); see, e.g.,Lime Grp., 784 F. Supp. 2d at 435 (findingright to supervise where P2P file sharingsystem could filter content and regulateusers). In addition, ReDigi financiallybenefitted from every infringing sale when itcollected 60% of each transaction fee. See,e.g., Shapiro, Bernstein & Co. v. Ii L.Green Co., 316 F.2d 304, 308 (2d Cir. 1963)(finding a direct financial benefit where thedefendant received a share of the grossreceipts on every infringing sale). Notably,ReDigi failed to address any of thesearguments in its opposition brief, insteadinsisting that it was not vicariously liable forinfringement that occurred outside theReDigi service, for instance, when a userimpermissibly retained files on hiscomputer. (See ReDigi Opp'n 22-23.)However, this argument is inapposite to theinstant motions. Accordingly, the Courtgrants Capitol's motion for summaryjudgment on its claim for ReDigi's vicariousinfringement of its distribution andreproduction rights.

IV. CONCLUSIONAt base, ReDigi seeks judicialamendment of the Copyright Act to reach itsdesired policy outcome. However, "[s]ound

policy, as well as history, supports [theCourt's] consistent deference to Congresswhen major technological innovations alter

market for copyrighted materials.C ngress has the constitutional authorityan the institutional ability to accommodatefu ly the varied permutations of competingin erests that are inevitably implicated bysu 'h new technology." Sony, 464 U.S. at431. Such deference often counsels for aIi ited interpretation of copyrightpr tection. However, here, the Court cannotof its own accord condone the wholesaleap lication of the first sale defense to thedi ital sphere, particularly when Congressits If has declined to take that step.A cordingly, and for the reasons statedab ve, the Court GRANTS Capitol's motionfo summary judgment on its claims forRe igi 's direct, contributory, and vicariousingement of its distribution and

roduction rights. The Court alsoNIES ReDigi's motion in its entirety.Because issues remain with respect to

Ca ito1's performance and display rights,an ReDigi's secondary infringement ofCapitol's common law copyrights, as well as

d a ~ a g e s , injunctive relief, and attorney'sfees. IT IS HEREBY ORDERED THAT theI 'pal' ies shall submit a joint letter to the Courtno later than April 12,2013 concerning thene t contemplated steps in this case.

The Clerk of Court is respectfullydir cted to terminate the motions pending atDo . Nos. 48 and 54.

c ~RD . ~ t t I V A NiDa1ed: March 30,2013New York, New York

* * *

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Plaintiff is represented by RichardStephen Mandel, Jonathan Zachary King,and Robert William Clarida of Cowan,Liebowitz & Latman, P.c., 1133 Avenue ofthe Americas, New York, New York 10036.

Defendant is represented by Gary PhilipAdelman of Davis Shapiro Lewit & HayesLLP, 689 Fifth Avenue, Fifth Floor, NewYork, New York 10022.

( ' " ' n f \ ; : . ' ~ - --" ..J .. 1, ,, : "\,T

~ ,I I,

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You Can't Resell Music Bought on iTunes, Federal Judge Rules

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