Capitol Records v. ReDigi: Why You Cannot Resell a Song the Way You Resell a Record

Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018), No. 16-2321, decided December 12, 2018, is the leading appellate decision on whether the first-sale doctrine extends to purely digital goods. Writing for the panel, Judge Pierre Leval — among the most influential copyright jurists in the country — held that ReDigi’s marketplace for “used” digital music files necessarily produced unauthorized reproductions in violation of the § 106(1) reproduction right, and that the first-sale doctrine of § 109(a), which limits only the distribution right, offered no defense. The case is the digital counterpoint to Kirtsaeng: first sale travels across borders, but it does not survive a transfer that requires making a new copy.

At a glance

• Case: Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018), No. 16-2321
• Decided: December 12, 2018; opinion by Judge Leval
• Holding: ReDigi’s transfer process infringed the § 106(1) reproduction right by creating new unauthorized copies; the § 109(a) first-sale defense applies only to the distribution right and so does not excuse that reproduction
• Fair use: Rejected, with the fourth factor (market harm) weighing decisively against ReDigi
• Aftermath: The Supreme Court denied certiorari in 2019, leaving the decision in force

The “used” digital marketplace

ReDigi launched as “the world’s first online marketplace for used digital music,” letting consumers resell tracks they had lawfully purchased from iTunes. The company understood the legal problem at the heart of digital resale — that moving a file ordinarily means copying it — and built its technology to address it. ReDigi’s version 1.0 used a “migration” process that, it claimed, transferred a file from the seller’s device to ReDigi’s server packet by packet, deleting each packet from the origin as it went, so that the file was never duplicated but rather relocated. Once on ReDigi’s server, the file could be resold to a buyer, with the seller’s access removed.

The pitch was that this digital handoff was the functional equivalent of selling a used CD: one copy existed before, one copy existed after, and the original owner no longer possessed it. Capitol Records sued, contending that the process infringed both its reproduction and distribution rights. The district court granted summary judgment to Capitol, and the Second Circuit affirmed.

The reproduction right and the impossibility of “moving” a file

Judge Leval’s analysis began — and largely ended — with the physical reality of digital storage. A musical file is a sequence of data fixed in a medium. When that data is transferred to a new device or server, the recording is, in the language of § 101, “fixed” in a new “phonorecord” or material object on the recipient’s hardware. That new fixation is, by definition, a reproduction under § 106(1), even if the source file is simultaneously or subsequently destroyed. The fact that ReDigi deleted the original as it built the copy did not change the analysis: the statute is triggered by the making of the new copy, not by the survival of the old one. As the court put it, the transfer “involves the creation of a new phonorecord” — and the reproduction right is implicated the moment that new object comes into existence.

This is the conceptual fault line between physical and digital resale. When you hand a used CD to a buyer, no new copy is made; the same material object simply changes hands, and only the distribution right is in play. When you “transfer” a digital file, the very mechanism of transfer manufactures a fresh copy. The reproduction right has no first-sale exception, so the moment a digital resale necessarily entails reproduction, § 109(a) drops out of the case.

Why first sale could not reach the problem

ReDigi’s central argument was that § 109(a) should be read to permit the resale of a lawfully purchased digital file, lest the doctrine become a dead letter in a marketplace that has moved from atoms to bits. The court was sympathetic to the policy concern but found it foreclosed by the statute’s text and structure. Section 109(a) is an express limitation on § 106(3) — the distribution right — and on that right alone. It says nothing about, and provides no shelter from, the § 106(1) reproduction right.

Because ReDigi’s system infringed the reproduction right before any distribution even occurred, the first-sale doctrine could not rescue it. The court declined ReDigi’s invitation to expand § 109(a) judicially to cover the reproductions inherent in digital transfer, reasoning that such a change — effectively creating a “digital first sale” regime — is a legislative judgment for Congress. Leval pointedly noted that the U.S. Copyright Office had already studied and declined to recommend a digital first-sale right, reinforcing that the policy choice belonged to the political branches rather than the courts.

Fair use and the market for lawful copies

ReDigi’s fallback was fair use. The court worked through all four § 107 factors and found them stacked against the company. The use was non-transformative and commercial: ReDigi made no new expression and resold the identical recordings for profit. The works — popular sound recordings — sat near the core of copyright protection. ReDigi copied the works in their entirety. And, most decisively, the fourth factor cut sharply against fair use: a market in “used” digital files that are indistinguishable from new ones would directly and severely undercut the primary market for the originals, since a used digital copy is a perfect substitute for a new one. That perfect-substitute quality is exactly what makes digital resale more threatening to rights holders than the secondhand market for worn physical goods.

Open questions

ReDigi closes the door on first-sale resale wherever the transfer mechanism makes a copy, but it leaves edges. The court expressly declined to decide whether a technology that could move a file without reproducing it — were such a thing possible — would fall outside § 106(1) and within first sale; that hypothetical remains open. The decision also says little about licensed digital transfer features that platforms themselves authorize (for example, family-sharing or platform-sanctioned gifting), which operate by permission rather than by exhaustion. And it sharpens, without resolving, the broader policy debate about whether Congress should enact a digital exhaustion right to preserve consumer resale and lending in an all-digital economy.

Implications

• For digital resale platforms: A business model premised on reselling “used” downloads is not viable under current law in the Second Circuit, because the transfer itself infringes the reproduction right and first sale cannot reach it.
• For consumers: Buying a digital download confers far thinner rights than buying a physical copy. There is no statutory right to resell, lend, or give away the file, absent the platform’s permission.
• For rights holders: The reproduction right anchors control over digital distribution; the perfect-substitute nature of digital copies makes the fourth fair-use factor a powerful shield.
• For the first-sale debate: The decision frames “digital exhaustion” as a question for Congress, not the courts, and stands as the principal precedent against judicially extending § 109(a) to bit-by-bit transfers.

Frequently asked questions

Why can I resell a used CD but not a downloaded song? Reselling a CD transfers the same physical object, implicating only the distribution right, which first sale limits. Transferring a digital file makes a new copy, implicating the reproduction right, which has no first-sale exception.

Didn’t ReDigi delete the original as it copied? Yes, but the court held that the reproduction right is triggered by the creation of the new copy regardless of whether the source is deleted. Deleting the original does not undo the fact that a new phonorecord was made.

Could Congress create a digital first-sale right? It could. The court treated digital exhaustion as a policy choice for the legislature, noting that the Copyright Office had studied and declined to recommend such a right. Until Congress acts, ReDigi controls.

Authorities and sources

• Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018), No. 16-2321 (Dec. 12, 2018). Opinion via Justia; case summary at Wikipedia.
• Reproduction-right and first-sale analysis: The National Law Review and IPWatchdog.
• Practitioner commentary: Loeb & Loeb LLP.