ReDigi Lets You Resell Used Digital Music, but Is It Legal?

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Your music collection: a hodgepodge trove of CDs and cassette tapes or digital songs you downloaded from iTunes and maybe even digital versions of some of those CDs you ripped yourself.

Also: an altar to bygone eras, like that one where you’d tear swathes of cardboard off giant shipping boxes, tilt the bill of your cap sideways, then see how many seconds you could spin like a top (only on your back) while jamming to Ollie and Jerry’s “There’s No Stopping Us.”

Your goal in 2012, with a music library grown wild: to squeeze a couple extra bucks from the music you’ve outgrown by reselling it, like that maxi-single copy of Baltimora’s “Tarzan Boy” you downloaded after a few drinks on iTunes, or music publisher Razor & Tie’s Totally ’80s CD twofer with gems like the J. Geils Band’s “Centerfold,” Nena’s “99 Luftballoons” and Tommy Tutone’s “867-5309/Jenny.”

(MORE: What ‘Ownership’ Means for Digital Media (Hint: Not Much))

The CDs you probably know what to do with. There’s stuff like Craiglist or eBay, or the odd local record store that still buys and sells tapes and CDs and even 8-track and vinyl albums. But what about your sprawling digital music collection? Do you remember where everything came from? Purchased through Apple’s iTunes store? Some other company? Copied from a friend? Downloaded from who knows where with the assistance of a file-sharing torrent? What if someone offered a way to find out what’s what — to sort through all the legit as well as not-so-legit stuff, then let you swap the former for songs you’d rather have?

Record Store Re-imagined

A company that calls itself ReDigi wants to make it so, offering a music exchange of sorts while at the same time juggling lawsuits from angry (and perhaps equal parts envious) record labels. The company, which officially launched on October 13, 2011, bills itself as a peddler of “recycled digital media” and “the world’s first online marketplace for new and pre-owned digital music.” Technically it fits that bill, since the world’s other most popular pre-owned digital music repository is less a marketplace than a peer-to-peer free-for-all — a collection of torrent sites and users joining hands in the digital ether to share anything and everything outside the framework of a marketplace entirely.

ReDigi aims to offer a legitimate, lawful alternative — a place for users to buy and sell used music that’s like an online version of “the used record store of old.” Employing technology it calls its “Verification Engine,” ReDigi say it can validate your music collection, then upload — but not copy, since that would be leaving something behind and technically unlawful — “legally acquired file(s)” to its servers, where it provides “free, unlimited” storage.

You can alternatively store your music in ReDigi’s cloud, stream it, buy new music through ReDigi’s storefront, or sell music from your existing collection to other users in trade for credits. The only caveat: At the moment, ReDigi is exclusively an iTunes shop, meaning you’re limited to selling and buying from iTunes’ music catalogue with its lossy encoding rates (256Kbps AAC).

And there’s at least one very serious other: Earlier this year, Capitol Records sued ReDigi in New York for copyright infringement, alleging that the company’s service is illegal on a variety of levels.

“While ReDigi touts its service as the equivalent of a used record store, that analogy is inapplicable: used record stores do not make copies to fill their shelves,” wrote Capitol attorney Richard Mandel in the complaint. “ReDigi is actually a clearinghouse for copyright infringement and a business model built on widespread, unauthorized copying of sound recordings owned by plaintiff and others.”

(MORE: Digital Music Sales Finally Surpassed Physical Sales in 2011)

The Recording Industry Association of America (RIAA) unsurprisingly agreed, writing that “even if ReDigi’s software and system works as described by ReDigi (i.e. that it deletes the original copy before it makes the sale), ReDigi would still be liable for copyright infringement.”

On February 6, 2012, a judge denied Capitol’s request for a sales injunction, and the next court-based square-off is due to happen this October. At stake: Big money — $150,000 per track of Capitol-owned material, if Capitol wins. But perhaps more importantly: the future legal status of used digital goods and whether they’re resalable in the same sense that their non-digital counterparts are.

ReDigi CEO John Ossenmacher doesn’t sound worried. When I caught up with him last week, riding the Amtrak Acela from his home base in Massachusetts to Manhattan, he told me the company was expecting a legal salvo from the outset. “We started the concept of ReDigi in late 2009, and a lot of the initial work on the company was looking at copyright law and looking at building a new, novel technology that would give digital transactions the physicality that the law typically sees.”

Ossenmacher says most of the law in America was written around physical goods, and when these laws were laid out back in the early 1900s and later codified in the 1970s, the Internet and much of how we do things today didn’t exist. Part of ReDigi’s challenge was determining how to bring to digital a sense of physicality such that, from a transactional perspective, it could be viewed as similar to (or “even better than,” says Ossenmacher) what’s happening in the physical world.

“That was the initial work of the company, a lot of that intellectual thinking, talking, brainstorming, meeting with lots of people, and then filing for patents,” he continues. “One of the things we found, since nobody else had been into this market, was that it was pretty wide open in terms of intellectual property, so we decided that rather than just go out there and launch something, we’d spend a lot of time and a fair bit of money — close to a million dollars in patent work — to protect what we’re doing and the way transactions can work, so we could do things that haven’t been done before, like the transaction between a buyer and seller where there is no copying involved.”

Ossenmacher clearly views ReDigi as a vanguard project, a company that’s treading where no one’s tread before, intending to settle questions that have been on most people’s minds for years as the shift to digitally stored goods escalates. Questions like “Can we re-sell our digital goods?” and “Should we be able to?”

MORE: Music Industry Can See The Light After ‘Least Negative’ Sales Since 2004

Physical vs. Digital

Note that I’ve judiciously avoided the term “nonphysical.” That’s because if you ask a physicist whether a digital item is also a physical one, she’ll invariably answer “of course.” You can’t touch a digitally stored song with your hands and fingers the way you can a record, it’s true, but suggesting that a digital good is “nonphysical” flouts elementary physics. Digital products are still physical ones, we just interface with them differently. Ossenmacher agrees.

“That’s a core point,” he says. “When the law was written, it was not written to specifically include digital, nor was it written to specifically exclude digital, just like the law was not written to specifically include a CD versus an LP or a cassette tape. It was written in such a way that the good is copyrighted. So where the law has taken this, and we’ve seen it when the judge denied the preliminary injunction against Capitol, it’s…what we’re doing is, we’re still protecting the copyrighted good. Some people say ‘Is it tangible?’ You use the word physical. But is it tangible? Is it a tangible thing? Well, copyright protects something that’s tangible, so it’s a piece of art, it’s a book, it’s software and so forth. Software can be considered a different kind of tangible than a piece of artwork, for example, but what makes it tangible is that it does something.”

Consider music itself, says Ossenmacher, something that involves the use of one of our core senses. How do we interact with music? We listen to it, of course. So what does copyright law actually protect? “The thing you’re listening to,” says Ossenmacher, adding “What some people don’t fully understand, is that copyright law protects the copyright good, but there are also exclusions to copyright law.”

(MORE: How the Business of Streaming Music Will Change Culture…For the Better)

Ossenmacher is referring to something called “First Sale Doctrine,” a concept that originated in a landmark 1908 case involving R.H. Macy & Company (Macy’s), in which the department store wanted to sell books at discounted prices. One of the publishers of those books objected, placing notices in one of its books, a fictional biography of Lord Byron titled The Castaway, that read “The price of this book at retail is $1 net. No dealer is licensed to sell it at a lower price, and a sale at a lower price will be treated as an infringement of the copyright.”

The publisher eventually sued Macy’s and the case wound up in the Supreme Court, where the Court ultimately determined that the publisher could dictate the “first sale” of a book, but that it lacked “the authority to control all future retail sales” after exercising “the right to vend” and receiving “a price satisfactory to it.” In other words, publishers have a right to the first time sale of a book, but no claim on subsequent resale methods or profits. This so-called “First Sale Doctrine” was later codified in the Copyright Act of 1976, section 109, titled “Limitations on exclusive rights,” which stipulates that “…the owner of a particular copy or phonorecord [any "material object which embodies sounds"] lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

“Copyright holders have certain protections under the law, but so do consumers once they’ve purchased the copyrighted good,” says Ossenmacher. “First Sale Doctrine is what gives consumers the right to buy something that’s copyright protected, then resell it, give it as a gift, donate it to charity, or do whatever else you want to do with it in a lawful manner. The copyright holder’s ownership rights and ability to control distribution end as soon as they accept the royalty on the sale of the good.”

And digital goods? “They’re merely a different format,” says Ossemacher.

With ReDigi, the original copy of the digital good a user downloads gets uploaded to the ReDigi system and, according to Ossenmacher, the buyer and seller never simultaneously own it. “The transaction is similar to someone handing you $5 for a used CD,” he says. “When you sell something in the ReDigi market space, you instantaneously no longer own it. There is no copying in the transaction at all.”

(MORE: Big Media Goes Easy with ‘Six Strikes’ Anti-Piracy Measures)

ReDigi’s validation system hinges on a key concept: Scanning your computer and any connected media to determine whether you have other copies of the song you’re selling and removing them to ensure you’re not keeping backup copies for yourself (when you sell to ReDigi, you’re not allowed to retain what you’re selling in any way, shape or form). But what about people who keep copies of music backed up to CDs or DVDs, or other storage mediums that aren’t physically connected to the computer running ReDigi’s validation utility?

Ossenmacher answers by way of a rhetorical analogy: “Imagine someone went to Best Buy, bought a CD, ripped it to their iTunes library, it’s on their MP3 player, their iPhone, their iPad, whatever they have, say two or three devices including their computer hard drive, and then they go to eBay or Amazon and list it for sale without destroying their backup copies. Is that eBay or Amazon’s problem?”

It’s not ReDigi’s responsibility to play policeman, in other words, any more than it is Amazon’s or eBay’s or any other merchant’s if someone reselling an item chooses to operate in a way that’s unlawful and completely concealed from the merchant.

But wait — isn’t that basically the same argument outfits like Napster or Limewire and more recently The Pirate Bay have made? That they’re simply the vehicle or medium and not responsible for what users elect to share, legal or no?

“The reason those guys got in trouble was because what they were doing was unlawful distribution,” says Ossenmacher. “What happened there was, I the user of Limewire am posting my MP3 through the service, and millions of people using Limewire are downloading that MP3, so now Limewire is distributing that copy, which I may or may not have paid for or lawfully obtained. That distribution was totally unlawful.”

(In part two of my interview with Ossenmacher, coming tomorrow, we talk more about the technical aspects of ReDigi’s validation process, it’s new artist syndication program, how ReDigi handles files it suspects are unlawful and what streaming, subscription-based services like Spotify herald, long term, for ownership-based services.)

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