Court Ruling Highlights Huge Roadblock To Reselling Digital Content

Even though huge online players like Amazon and Apple are working on ways to provide users a marketplace to resell “used” digital downloads like mp3s and e-books, neither plan really deals with the most salient problem with reselling digital products — getting rid of the original copy.

For physical goods, the doctrine of first sale applies, meaning that once you buy a book, or a DVD, or a pair of shoes, you generally have the right to resell those items to whomever you want for whatever price you agree to. You can not, however, legally sell a photocopied version of that book, or a duped version of the DVD, and if you have figured out how to clone socks — even with a bit of generation loss — well, then you should probably be putting your scientific knowledge to better use than reproducing socks. Regardless, one of the underlying notions of first sale is that the original item will be going on to the new owner and will not remain with the original owner.

But, putting aside for the moment the fact that almost all digital download purchases are actually end-user licenses that merely grant the user access to material, the issue with digital goods is that it can be incredibly difficult, if not impossible in many cases, to show that the reseller isn’t retaining an identical copy to what’s being resold.

So even if I resell an mp3 and have it removed from my iTunes account or Amazon digital library, so I can never download it again, what’s to say I don’t have an exact copy sitting on my computer or on my phone?

When Apple first launched iTunes and the iPod, it sold songs that were locked to the buyer through a Digital Rights Management (DRM) system, only allowing the user to play purchased songs on authorized computers and mp3 players. That didn’t last long, as competitors offered music downloads without DRM, so now almost all music you purchase online can just be copied an infinite number of times without any loss to the quality of the original.

This is the concern at the core of the lawsuit filed by Capitol Records against ReDigi, an online marketplace that already allows users to resell their old mp3 files. Even though ReDigi requires proof from the seller that the music was legally purchased through iTunes, the record company argued that it violated copyright law for users to upload these files to the ReDigi cloud without permission and once again when a seller downloaded the purchased files.

Over the weekend, a U.S. District Court issued a summary judgment [PDF] (via Ars Technica), siding with Capitol.

“Courts have consistently held that the unauthorized duplication of digital music files over the Internet infringes a copyright owner’s exclusive right to reproduce,” writes the judge. “However, courts have not previously addressed whether the unauthorized transfer of a digital music file over the Internet — where only one file exists before and after the transfer — constitutes reproduction within the meaning of the Copyright Act. The Court holds that it does.”

The judge did not agree with ReDigi’s stance that reselling of digital goods is protected by the doctrine of first sale, saying that the nature of digital items — in that they require copying, as opposed to physically being relocated — it is “impossible for the user to sell” the original file and therefore, “the first sale statute cannot provide a defense.”

“[T]he first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce,” writes the court. “Here, ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects, namely, the ReDigi server in Arizona and its users’ hard drives. The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.”

The court’s opinion is that ReDigi is asking for a “judicial amendment of the Copyright Act to reach its desired policy outcome… However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step.”

And so this is the mammoth roadblock that stands in the way of all the clever patents in the world and a viable marketplace for reselling digital goods. The most likely plausible work-around to these concerns is a cloud-based marketplace where the user never downloads the item. This does pose problems for people who want access to their files but don’t want to, or can’t, be connected to the Internet at all times.

The recent Apple patent application mentions the possibility of a system that would pay out royalties of some sort from each subsequent sale of a file, though that would likely require some sort of embedded DRM in each file.

It’s inevitable that widespread digital reselling will someday be allowed, though we only have the murkiest picture of what it may look like. Remember, civilization has thousands of years of selling and trading physical goods under its belt, and we’re still sorting out the proper way to do that. Digital downloads are barely old enough to go out on a date without a chaperone.