ReDigi has resurfaced in the news again, as an appeals court takes its turn to consider the lawsuit the music industry brought against the company several years ago. Andrew Albanese at Publishers Weekly and Eriq Gardner at the Hollywood Reporter offer their takes on the matter (found via The Digital Reader and The Passive Voice, respectively).

The core of the matter is this: ReDigi wants to allow consumers to resell their “used” digital media. However, five years ago, record labels filed suit, and ReDigi subsequently went bankrupt in the legal battle (though it now says it has investors waiting in the wings should the lawsuits break its way).

I reported last year on ReDigi beginning its appeal process, and now it’s coming to fruition. An appeals court panel which includes noted fair use jurist Pierre Leval is hearing arguments in the case. And this promises to be a tricky one, which will more than likely end up having its day before the Supreme Court before they’re through.

The argument turns around ReDigi’s method of transferring “ownership” of the file from one person to another. To quote from Gardner’s piece:

In ReDigi’s view, it’s effectuating the transfer of a digital file. A song gets purchased on iTunes and it goes to a consumer’s computer. When the digital file is then resold on the ReDigi market, the purchaser’s copy is moved to ReDigi’s server, and later, to the second buyer’s computer. To show what happens, [ReDigi’s lawyer Robert] Welsh took a book in his left hand and then moved it over to his right hand.

“It’s the same book,” said Welsh. “That’s what ReDigi’s technology does.”

ReDigi has set up its process to mimic the process of selling a physical music recording as closely as possible. The owner hands it off, and then it’s deleted so they no longer have it anymore. ReDigi holds it in escrow, then hands it over to the new buyer, deleting it from its own system at the same time. No more than one copy of it exists in anyone’s hands at any given time. Seems kosher, right?

Except that even as it acts like reselling a physical version, it’s not, because it’s digital. Any act of “moving” a digital copy doesn’t actually “move” it; it copies it bit by bit to the new place and then erases it from the old one. By the legal definition, a copy was made—and, legally speaking, that’s a copyright violation. It doesn’t matter that ReDigi did everything it could to make sure that the transfer is effectively the same as transferring a physical copy—the law was written before digital media even existed, so by its very nature can’t encompass it.

It doesn’t matter that the law was written to assume that “copies” were physical duplications of physical artifacts, so it naturally can’t deal with the existence or implications of ephemeral digital copies that vanish as soon as they’re made. That sort of fiddly technicality is at the very heart of the law. (There’s a reason why annoying know-it-all loophole exploiters in role-playing games are called rules lawyers rather than, say, rules professors.)

When you get right down to it, that may well be why the Supreme Court will be needed—to say once and for all whether we continue to apply the restrictions of physical media to digital files, or whether we try to hew to the spirit rather than the letter of those restrictions.

That being said, there are three important issues lurking in the background, that may not be directly addressed in this case but nonetheless will have to be faced sooner or later.

One is the issue Nate Hoffelder brings up in his piece linked above, and explains at greater length in this older pieceSince ReDigi was originally sued, it has rejiggered its sales model so that it no longer has the user upload their files to ReDigi’s servers then the buyer re-download them. Instead, ReDigi’s server stands in for the user’s own hard drive, intercepting the digital file when it’s first downloaded from the iTunes store. The legal owner can then download a copy of it to their own computer, and play that copy.

Then, when the current owner wants to sell it to someone else, ReDigi simply transfers to the new user those sectors of its hard drive where that original digital file lives, and lets that new user download a copy of it. Hence, the original file as downloaded from the music store never moved, and never got copied—except by that file’s current owner, who was entitled by fair use to download their own copy to play while they owned it.

It’s more than a little rules-lawyery—but as I noted, the law runs on exactly that kind of technicality, which makes it a rather elegant solution. Indeed, Eriq Gardner describes Judge Leval expressing frustration that they won’t get to consider that new 2.0 model, because the lawsuit was over the original 1.0 version. So, even if ReDigi loses this case, might it still be able get investors to kick in for the new model, which will then kick off the cycle of lawsuits all over again? We may have to wait years to find out.

The second potential “gotcha” involves a problem fundamental to either of ReDigi’s models, and indeed the model of digital media sales in general: they can easily be copied and backed up. For iTunes music, that can be done especially easily, because iTunes music doesn’t use DRM—but even for DRMed media like movies or ebooks, there’s practically no DRM out there that hasn’t been cracked.

The nearest thing to ReDigi’s model in operation right now is ebook library checkout, as from Overdrive—but since Overdrive uses the same DRM as commercial ebook sales, anyone who’s set up to crack commercial ebooks to back them up can also check out a library book, crack it, and keep a copy of it, even as they “check back in” the DRMed library version.

How is ReDigi going to deal with people keeping copies of the media they “sell”? Sure, maybe ReDigi’s software could be set up to scour their computer free of those copies—but who’s to say they didn’t copy their library to some completely different computer not running ReDigi’s software, from which they can continue to play those “sold” files forever?

The third issue has to do with the issue of whether ebooks are sold or licensed. As Passive Guy put it:

PG says if you want to dig through Amazon’s and Nook’s and Kobo’s Terms of Use for ebooks (who wouldn’t?), you will discover that the TOU’s say ebooks are licensed, not sold, to their customers. Among other things, this is an attempt to avoid the first sale doctrine discussed in the OP.

On the other hand, a great many publishing agreements, including those of major New York publishers, include substantially different royalty rates for ebooks that are sold than for ebooks that are licensed. Publishers tend to pay authors at the “ebooks sold” royalty rate rather than the much higher “ebooks licensed” rate.

In 2011, rapper Eminem sued his record label over the way it was paying him the lower sales-level royalties from his iTunes music “sales,” while at the same time its contractual language said that the music was actually “licensed”. He won on appeal, and SCOTUS refused to hear the case.

Subsequently, author Sheldon Blau sued Simon & Schuster over the same matter, regarding ebooks—the different royalty rates for sales versus licenses. Blau subsequently dropped the suit when it came out that Simon & Schuster hadn’t actually published the ebook version of the book in question, and Blau apparently hasn’t re-filed it against the proper publisher since—but the next person who files such a suit might well have more persistence.

So publishers might be caught between a rock and a hard place: if they continue to insist consumers can’t resell the digital media they buy because it’s only “licensed,” not “sold,” they could end up on the hook for substantially greater royalties once the creators of those media wise up and start demanding to be paid the going rates for licenses rather than sales.

In any case, digital first sale is a contentious and complicated issue—as one might have been able to guess from all the reports generated when Congress held hearings on first sale three years ago. And worse, there’s an awful lot of money at stake for all sides, depending on how these decisions go. No matter what the appeals court decides, and the Supreme Court in its turn, I suspect that the greater brouhaha may only be beginning. It could be a very interesting next few years.

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