`Capitol Records, LLC et. al. v. ReDigi Inc., et. al.
`UNITED STATES COURT OF APPEALS
`FOR THE SECOND CIRCUIT
`
`
`
`
`
`
`
`
`
`August Term, 2017
`
`(Argued: August 22, 2017
`
`
`
`Decided: December 12, 2018)
`
`Docket No. 16‐2321
`_____________________________________
`
`Capitol Records, LLC, Capitol Christian Music Group, Inc., Virgin Records IR
`Holdings, Inc.,
`
`Plaintiffs‐Appellees,
`
`v.
`
`ReDigi Inc., John Ossenmacher, Larry Rudolph, AKA Lawrence S. Rogel,
`
`Defendants‐Appellants.
`_____________________________________
`
`
`
`
`Before:
`
`
`JON O. NEWMAN, PIERRE N. LEVAL, and ROSEMARY S. POOLER,
`Circuit Judges.
`
`
`
`
`Defendants, ReDigi Inc. and related persons, appeal from the grant of
`
`partial summary judgment and stipulated final judgment by the United States
`District Court for the Southern District of New York (Richard J. Sullivan, J.) in
`favor of Plaintiffs, record companies whose copyrighted sound recordings
`were resold through the ReDigi platform. The district court found copyright
`infringement. AFFIRMED.
`
`
`
`
`
`
`
`
`
`RICHARD S. MANDEL, New York,
`N.Y. (Jonathan Z. King, Cowan,
`Liebowitz & Latman, P.C., New York,
`N.Y., on the brief), for Plaintiffs‐Appellees.
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`29
`30
`31
`32
`33
`34
`35
`36
`37
`38
`39
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`
`7
`
`8
`
`9
`
`ROBERT C. WELSH, New York, N.Y.
`(C. Dennis Loomis, Baker & Hostetler
`LLP, Los Angeles, CA, on the brief) for
`Defendant‐Appellants.
`
`
`LEVAL, Circuit Judge:
`
`Defendant ReDigi, Inc. and its founders, Defendants Larry Rudolph
`
`and John Ossenmacher,1 appeal from the judgment of the United States
`
`District Court for the Southern District of New York (Richard J. Sullivan, J.) in
`
`10
`
`favor of Plaintiffs, Capitol Records, LLC, Capitol Christian Music Group, Inc.,
`
`11
`
`and Virgin Records IR Holdings, Inc. (“Plaintiffs”), finding copyright
`
`12
`
`infringement. Defendants had created an Internet platform designed to enable
`
`13
`
`the lawful resale, under the first sale doctrine, of lawfully purchased digital
`
`14
`
`music files, and had hosted resales of such files on the platform. The district
`
`15
`
`court concluded that, notwithstanding the “first sale” doctrine, codified in the
`
`16
`
`Copyright Act of 1976, 17 U.S.C. § 109(a), ReDigi’s Internet system version 1.0
`
`17
`
`infringed the Plaintiffs’ copyrights by enabling the resale of such digital files
`
`18
`
`containing sound recordings of Plaintiffs’ copyrighted music. We agree with
`
`19
`
`the district court that ReDigi infringed the Plaintiffs’ exclusive rights under 17
`
`
`1 Hereinafter “ReDigi” is used to designate all three Defendants, except where the context makes
`clear it refers solely to the company.
`
`2
`
`
`
`
`
`
`U.S.C. § 106(1) to reproduce their copyrighted works. We make no decision
`
`whether ReDigi also infringed the Plaintiffs’ exclusive rights under 17 U.S.C.
`
`§ 106(3) to distribute their works.2
`
`BACKGROUND
`
`I.
`
`Facts
`
`Plaintiffs are record companies, which own copyrights or licenses in
`
`sound recordings of musical performances. Plaintiffs distribute those sound
`
`recordings in numerous forms, of which the most familiar twenty years ago
`
`was the compact disc. Today, Plaintiffs also distribute their music in the form
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`of digital files, which are sold to the public by authorized agent services, such
`
`11
`
`as Apple iTunes, under license from Plaintiffs. Purchasers from the Apple
`
`12
`
`iTunes online store download the files onto their personal computers or other
`
`13
`
`devices.
`
`14
`
`ReDigi was founded by Defendants Ossenmacher and Rudolph in 2009
`
`15
`
`with the goal of creating enabling technology and providing a marketplace
`
`
`2 We do not adjudicate whether ReDigi’s system version 2.0 infringed any of the Plaintiffs’ rights as
`this question (although stipulated in the final judgment) was not litigated in the district court.
`Defendants stipulated that a judgment in Plaintiffs’ favor would enjoin the Defendants, as well as all
`persons in specified relationships with the Defendants, such as their “officers, agents, servants,
`representatives . . . and licensees,” from implementing version 2.0. Stipulated Final Judgment ¶5,
`Capitol Records, LLC. V. ReDigi, Inc., No. 12‐CV‐95 (RJS), ECF No. 222 (S.D.N.Y. June 3, 2015).
`
`
`3
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`for the lawful resale of lawfully purchased digital music files.3 Ossenmacher
`
`served as ReDigi’s Chief Executive Officer and Rudolph, who spent twelve
`
`years as a Principal Research Scientist at the Massachusetts Institute of
`
`Technology, served as ReDigi’s Chief Technical Officer. During the period
`
`addressed by the operative complaint, ReDigi, through its system version 1.0,
`
`hosted resales of digital music files containing the Plaintiffs’ music by persons
`
`who had lawfully purchased the files from iTunes.
`
`Considering the evidence in the light most favorable to ReDigi,
`
`ReDigi’s system version 1.0 operates as follows.
`
`10
`
`1. Music Manager: A person who owns a digital music file lawfully
`
`11
`
`purchased from iTunes and intends to employ ReDigi’s system to resell it (the
`
`12
`
`“user”) must first download and install onto her computer ReDigi’s “Music
`
`13
`
`Manager” software program (“Music Manager”). Once Music Manager has
`
`14
`
`been installed, it analyzes the digital file intended for resale, verifies that the
`
`15
`
`file was originally lawfully purchased from iTunes, and scans it for
`
`
`3 ReDigi was not making efforts in the shadows to infringe on copyrights. To the contrary, it invented
`a system designed in good faith to achieve a goal generally favored by the law of copyright,
`reasonably hoping the system would secure court approval as conforming to the demands of the
`Copyright Act.
`
`
`4
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`indications of tampering. If the file was lawfully purchased, Music Manager
`
`deems it an “Eligible File” that may be resold.4
`
`2. Data Migration: The ReDigi user must then cause the file to be
`
`transferred to ReDigi’s remote server, known as the “Cloud Locker.” To
`
`effectuate this transfer, ReDigi developed a new method that functions
`
`differently from the conventional file transfer. The conventional process is to
`
`reproduce the digital file at the receiving destination so that, upon completion
`
`of the transfer, the file exists simultaneously on both the receiving device and
`
`on the device from which it was transferred. If connectivity is disrupted
`
`10
`
`during such a standard transfer, the process can be repeated because the file
`
`11
`
`remains intact on the sender’s device.
`
`12
`
`Under ReDigi’s method—which it calls “data migration”—ReDigi’s
`
`13
`
`software “begins by breaking the [digital] music file into small ‘blocks’ [of
`
`14
`
`data] of roughly four thousand bytes in length.” Appellants Br. 24. Once the
`
`15
`
`file has been broken into blocks of data (“packets”), ReDigi’s system creates a
`
`16
`
`“transitory copy” of each packet in the initial purchaser’s computer buffer. Id.
`
`
`4 Music Manager will deem a file “Eligible” if it was purchased by the user from iTunes or it was
`purchased by the user through ReDigi, having been originally purchased lawfully by another from
`iTunes.
`
`5
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`Upon copying (or “reading”) a packet into the initial purchaser’s computer
`
`buffer, ReDigi’s software sends a command to delete that packet of the digital
`
`file from permanent storage on the initial purchaser’s device. Rogel Decl.
`
`App’x 690‐91. ReDigi’s software then sends the packet to the ReDigi software
`
`to be copied into the buffer and deleted from the user’s device. Rogel Decl.
`
`App’x 691. During the data migration process, the digital file cannot be
`
`accessed, played, or perceived. If connectivity is disrupted during the data
`
`migration process, the remnants of the digital file on the user’s device are
`
`unusable, and the transfer cannot be re‐initiated. In such circumstances,
`
`10
`
`ReDigi (according to its brief) bears the cost of the user’s loss. Appellants Br.
`
`11
`
`25.5
`
`12
`
`Once all the packets of the source file have been transferred to ReDigi’s
`
`13
`
`server, the Eligible File has been entirely removed from the user’s device. The
`
`14
`
`packets are then re‐assembled into a complete, accessible, and playable file on
`
`15
`
`ReDigi’s server.
`
`
`5 It is unclear from the evidence cited in ReDigi’s Rule 56.1 statement whether ReDigi purchases a
`new file from iTunes to effectuate resale, pays the user to offset the loss of her file, or otherwise bears
`the cost of the loss. See App’x 1489 at ¶ 35. These alternatives do not affect our decision.
`6
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`ReDigi describes its primary technological innovation using the
`
`metaphor of a train (the digital file) leaving from one station (the original
`
`purchaser’s device) and arriving at its destination (in the first instance,
`
`ReDigi’s server). Under either the typical method or ReDigi’s method, packets
`
`are sent sequentially, such that, conceptually, “each packet is a car” moving
`
`from the source to the destination device. App’x 657. Once all the packets
`
`arrive at the destination device, they are reassembled into a usable file. Id. At
`
`that moment, in a typical transfer, the entire digital file in usable form exists
`
`on both devices. Id. ReDigi’s system differs in that it effectuates a deletion of
`
`10
`
`each packet from the user’s device immediately after the “transitory copy” of
`
`11
`
`that packet arrives in the computer’s buffer (before the packet is forwarded to
`
`12
`
`ReDigi’s server). In other words, as each packet “leaves the station,” ReDigi
`
`13
`
`deletes it from the original purchaser’s device such that it “no longer exists”
`
`14
`
`on that device. Id. As a result, the entire file never exists in two places at once.
`
`15
`
`Id.
`
`16
`
`After the file has reached ReDigi’s server but before it has been resold,
`
`17
`
`the user may continue to listen to it by streaming audio from the user’s Cloud
`
`7
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`Locker on ReDigi’s server. If the user later re‐downloads the file from her
`
`Cloud Locker to her computer, ReDigi will delete the file from its own server.
`
`3.
`
`Resale: Once an Eligible File has “migrated” to ReDigi’s server, it
`
`can be resold by the user utilizing ReDigi’s market function. If it is resold,
`
`ReDigi gives the new purchaser exclusive access to the file. ReDigi will (at the
`
`new purchaser’s option) either download the file to the new purchaser’s
`
`computer or other device (simultaneously deleting the file from its own
`
`server) or will retain the file in the new purchaser’s Cloud Locker on ReDigi’s
`
`server, from which the new purchaser can stream the music. ReDigi’s terms of
`
`10
`
`service state that digital media purchases may be streamed or downloaded
`
`11
`
`only for personal use.
`
`12
`
`4. Duplicates: ReDigi purports to guard against a user’s retention of
`
`13
`
`duplicates of her digital music files after she sells the files through ReDigi. To
`
`14
`
`that end, Music Manager continuously monitors the user’s computer hard
`
`15
`
`drive and connected devices to detect duplicates. When a user attempts to
`
`16
`
`upload an Eligible File to ReDigi’s server, ReDigi “prompt[s]” her to delete
`
`17
`
`any pre‐existing duplicates that Music Manager has detected. If ReDigi
`
`18
`
`detects that the user has not deleted the duplicates, ReDigi blocks the upload
`
`8
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`of the Eligible File. After an upload is complete, Music Manager continues to
`
`search the user’s connected devices for duplicates. If it detects a duplicate of a
`
`previously uploaded Eligible File, ReDigi will prompt the user to authorize
`
`ReDigi to delete that duplicate from her personal device and, if authorization
`
`is not granted, it will suspend her account.
`
`Plaintiffs point out, and ReDigi does not dispute, that these precautions
`
`do not prevent the retention of duplicates after resale through ReDigi.
`
`Suspension of the original purchaser’s ReDigi account does not negate the
`
`fact that the original purchaser has both sold and retained the digital music
`
`10
`
`file after she sold it. So long as the user retains previously‐made duplicates on
`
`11
`
`devices not linked to the computer that hosts Music Manager, Music Manager
`
`12
`
`will not detect them. This means that a user could, prior to resale through
`
`13
`
`ReDigi, store a duplicate on a compact disc, thumb drive, or third‐party cloud
`
`14
`
`service unconnected to the computer that hosts Music Manager and access
`
`15
`
`that duplicate post‐resale.6 While ReDigi’s suspension of the original
`
`
`6 Defendants do not dispute that, under Apple iCloud’s present arrangements, a user could sell her
`digital music files on ReDigi, delete Music Manager, and then redownload the same files to her
`computer for free from the Apple iCloud. Apple’s iCloud service allows one who has purchased a file
`from iTunes to re‐download it without making a new purchase. App’x 1292 at ¶ 62.
`9
`
`
`
`
`
`
`purchaser’s ReDigi account may be a disincentive to the retention of sold files,
`
`it does not prevent the user from retaining sold files.
`
`
`
`II.
`
`Proceedings Below
`
`On January 6, 2012, Plaintiffs brought this action, originally solely
`
`against ReDigi, Inc., alleging inter alia, that in the operation of ReDigi’s system
`
`version 1.0, it infringed Plaintiffs’ copyrights by unauthorized reproduction
`
`and distribution of Plaintiffs’ copyrighted works. The parties cross‐moved for
`
`summary judgment. On March 30, 2013, the district court granted partial
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`summary judgment in Plaintiffs’ favor finding infringement. Plaintiffs
`
`11
`
`subsequently filed a first amended complaint, adding Ossenmacher and
`
`12
`
`Rudolph as individual defendants. On November 2, 2015, the parties
`
`13
`
`proposed a joint stipulation in which Ossenmacher and Rudolph waived their
`
`14
`
`right to contest liability independent of ReDigi, Inc. On June 6, 2016, the
`
`15
`
`district court entered a stipulated final judgment awarding damages to
`
`16
`
`Plaintiffs in the amount of three million five hundred thousand dollars
`
`17
`
`($3,500,000) and permanently enjoining Defendants from operating the
`
`10
`
`
`
`
`
`
`ReDigi system.7 In the stipulation, Defendants reserved the right to appeal
`
`solely from the district court’s finding of liability for reproduction and
`
`distribution as set forth in the summary judgment order. Defendants timely
`
`filed notice of this appeal on July 1, 2016. On August 11, 2016, the appeal was
`
`stayed as a result of the Defendants’ bankruptcy proceedings in the United
`
`States Bankruptcy Court for the Southern District of Florida. The stay was
`
`lifted on December 12, 2016.
`
`
`
`DISCUSSION
`
`I.
`
`The First Sale Doctrine
`
`The primary issue on appeal is whether ReDigi’s system version 1.0
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`lawfully enables resales of its users’ digital files. Sections 106(1) and (3) of the
`
`13
`
`Copyright Act respectively grant the owner of a copyright the exclusive right
`
`
`7 Notwithstanding that the operative complaint addressed only ReDigi’s system version 1.0 (making
`no mention of version 2.0, which ReDigi launched on June 11, 2012), and the record before the district
`court did not address version 2.0, the stipulated judgment is binding as to version 2.0 against
`defendants and persons in specified relationships with ReDigi, as explained supra in footnote 2.
`Because neither we, nor the district court, have decided whether version 2.0 would infringe, this
`opinion does not decide on the lawfulness of the use—by persons who are independent of the
`Defendants—of systems functioning like version 2.0, at least to the extent that their systems differ
`from the aspects of version 1.0 that are adjudicated in this opinion.
`
`
`11
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`7
`8
`9
`10
`11
`12
`
`13
`
`to control the reproduction and the distribution of the copyrighted work.8 17
`
`U.S.C. § 106(1) & (3). Under the first sale doctrine, codified in § 109(a), the
`
`rights holder’s control over the distribution of any particular copy or
`
`phonorecord that was lawfully made effectively terminates when that copy or
`
`phonorecord is distributed to its first recipient. Section 109(a) provides:
`
`“Notwithstanding the provisions of section 106(3), the owner of
`a particular copy or phonorecord 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.”
`
`17 U.S.C. § 109(a).
`
`Under this provision, it is well established that the lawful purchaser of
`
`14
`
`a copy of a book is free to resell, lend, give, or otherwise transfer that copy
`
`15
`
`without violating the copyright holder’s exclusive right of distribution. The
`
`16
`
`copy so resold or re‐transferred may be re‐transferred again and again
`
`17
`
`without violating the exclusive distribution right. See Kirtsaeng v. John Wiley &
`
`18
`
`Sons, Inc., 568 U.S. 519, 530 (2013); Quality King Distribs. v. L’Anza Research
`
`19
`
`Int’l, Inc., 523 U.S. 135, 152 (1998); Bobbs‐Merrill Co. v. Straus, 210 U.S. 339, 351
`
`
`8 “Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights
`to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or
`phonorecords . . . [and] (3) to distribute copies or phonorecords of the copyrighted work to the public
`by sale or other transfer of ownership, or by rental, lease, or lending . . . .” 17 U.S.C. § 106(1), (3).
`12
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`(1908); see also 4 Patry on Copyright § 13:15 (“Placing a lawful copy of a work
`
`in commerce exhausts the distribution and display rights with respect to that
`
`particular copy . . . .”). It is undisputed that one who owns a digital file from
`
`iTunes of music that is fixed in a material object qualifies as “the owner of a
`
`particular . . . phonorecord lawfully made,” 17 U.S.C. § 109(a), and is thus
`
`entitled under § 109(a) “to sell or otherwise dispose of the possession of
`
`that . . . phonorecord,” id. (emphasis added), without violating § 106(3). On
`
`the other hand, § 109(a) says nothing about the rights holder’s control under §
`
`106(1) over reproduction of a copy or phonorecord.
`
`10
`
`The district court found that resales through ReDigi were infringing for
`
`11
`
`two reasons. The first reason was that, in the course of ReDigi’s transfer, the
`
`12
`
`phonorecord has been reproduced in a manner that violates the Plaintiffs’
`
`13
`
`exclusive control of reproduction under § 106(1); the second was that the
`
`14
`
`digital files sold through ReDigi, being unlawful reproductions, are not
`
`15
`
`subject to the resale right established by § 109(a), which applies solely to a
`
`16
`
`“particular . . . phonorecord . . . lawfully made.” 17 U.S.C. § 109(a). We agree
`
`17
`
`with the first reason underlying the district court’s finding of infringement.
`
`13
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`As that is a sufficient reason for affirmance of the judgment, we make no
`
`ruling on the district court’s second reason.
`
`ReDigi argues on appeal that its system effectuates transfer of the
`
`particular digital file that the user lawfully purchased from iTunes, that it
`
`should not be deemed to have reproduced that file, and that it should
`
`therefore come within the protection of 17 U.S.C. § 109(a). ReDigi makes two
`
`primary contentions in support of these arguments.
`
`First, ReDigi asserts—as it must for its first sale argument to succeed—
`
`that the digital files should be considered “material objects” and therefore,
`
`10
`
`under 17 U.S.C. § 101’s definition of “phonorecords” as “material objects,”
`
`11
`
`should qualify as “phonorecords” eligible for the protection of § 109(a).
`
`12
`
`Second, ReDigi argues that from a technical standpoint, its process
`
`13
`
`should not be seen as making a reproduction. ReDigi emphasizes that its
`
`14
`
`system simultaneously “causes [packets] to be removed from the . . . file
`
`15
`
`remaining in the consumer’s computer” as those packets are copied into the
`
`16
`
`computer buffer and then transferred to the ReDigi server, Appellants Br. 24,
`
`17
`
`so that the complete file never exists in more than one place at the same time,
`
`18
`
`and the “file on the user’s machine continually shrinks in size while the file
`
`14
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`on the server grows in size.” App’x 691.9 ReDigi points out that the “sum of
`
`the size of the data” stored in the original purchaser’s computer and in
`
`ReDigi’s server never exceeds the “size of the original file,” which, according
`
`to ReDigi, “confirms that no reproductions are made during the transfer
`
`process.” Appellants Br. 25.
`
`As for ReDigi’s first argument, that the digital file it transfers is a
`
`phonorecord protected by § 109(a), we do not decide this issue because we
`
`find that ReDigi effectuates an unlawful reproduction even if the digital file
`
`itself qualifies as a phonorecord.10
`
`10
`
`As for ReDigi’s second argument, we reject it for the following reasons.
`
`11
`
`The Copyright Act defines phonorecords as “material objects in which sounds
`
`12
`
`. . . are fixed by any method now known or later developed, and from which
`
`13
`
`the sounds can be perceived, reproduced, or otherwise communicated, either
`
`14
`
`directly or with the aid of a machine or device.” 17 U.S.C. § 101. Accordingly,
`
`15
`
`when the purchaser of a digital music file from iTunes possesses that file,
`
`
`9 From October 13, 2011 until March 2012, ReDigi’s system sometimes made temporary archival
`copies that were deleted as soon as the migration process was complete. Those backup files have not
`been put at issue in this appeal.
`10 A conclusion that a digital file cannot be a phonorecord would have decisive implications for a
`system functioning like ReDigi’s version 2.0, as well as its version 1.0. Because our understanding of
`the technology is limited, as is our ability to appreciate the economic implications, we find it
`preferable to rule more narrowly.
`
`15
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`embodied “for a period of more than transitory duration” in a computer or
`
`other physical storage device, Cartoon Network LP v. CSC Holdings, Inc., 536
`
`F.3d 121, 127 (2d Cir. 2008) (quoting 17 U.S.C. § 101), that device—or at least
`
`the portion of it in which the digital music file is fixed (e.g., the location on the
`
`hard drive)—becomes a phonorecord. See London‐Sire Records, Inc. v. Doe, 542
`
`F. Supp. 2d 153, 171 (D. Mass. 2008) (holding that the segment of a hard disc
`
`on which an electronic music file is encoded is a “phonorecord” under the
`
`Copyright Act). In the course of transferring a digital music file from an
`
`original purchaser’s computer, through ReDigi, to a new purchaser, the
`
`10
`
`digital file is first received and stored on ReDigi’s server and then, at the new
`
`11
`
`purchaser’s option, may also be subsequently received and stored on the new
`
`12
`
`purchaser’s device.11 At each of these steps, the digital file is fixed in a new
`
`13
`
`material object “for a period of more than transitory duration.” Cartoon
`
`14
`
`Network, 536 F.3d at 127. The fixing of the digital file in ReDigi’s server, as
`
`15
`
`well as in the new purchaser’s device, creates a new phonorecord, which is a
`
`16
`
`reproduction. ReDigi version 1.0’s process for enabling the resale of digital
`
`17
`
`files thus inevitably involves the creation of new phonorecords by
`
`
`11 The new purchaser at his option may alternatively choose to leave the digital file in the new
`purchaser’s storage locker on ReDigi’s server and stream it for access.
`16
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`reproduction, even if the standalone digital file is deemed to be a
`
`phonorecord.
`
`As for the argument that, as ReDigi copies a packet of data, it deletes
`
`the equivalent packet in the user’s device so that the amount of data extant in
`
`the transfer process remains constant, this does not rebut or nullify the fact
`
`that the eventual receipt and storage of that file in ReDigi’s server, as well as
`
`in the new purchaser’s device (at his option), does involve the making of new
`
`phonorecords. Unless the creation of those new phonorecords is justified by
`
`the doctrine of fair use, which we discuss and reject in a later portion of this
`
`10
`
`opinion, the creation of such new phonorecords involves unauthorized
`
`11
`
`reproduction, which is not protected, or even addressed, by § 109(a).
`
`12
`
`ReDigi makes several additional arguments designed to characterize its
`
`13
`
`process as involving the transfer of its users’ lawfully made phonorecords,
`
`14
`
`rather than the creation of new phonorecords. None of these arguments
`
`15
`
`negates the crucial fact that each transfer of a digital music file to ReDigi’s
`
`16
`
`server and each new purchaser’s download of a digital music file to his device
`
`17
`
`creates new phonorecords. ReDigi argues, for example, that during a transfer
`
`18
`
`through ReDigi’s data migration technology, each packet of data from the
`
`17
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`original source file resides in a buffer “for less than a second” before being
`
`overwritten, Appellants Br. 27, and thus fails to satisfy the requirement that a
`
`sound recording must be embodied “for a period of more than transitory
`
`duration” to qualify as a phonorecord, 17 U.S.C. § 101; Cartoon Network, 536
`
`F.3d at 127. Even if, during transfer, ReDigi’s system retains each digital file in
`
`a computer buffer for a period of no more than transitory duration, those files
`
`subsequently become embodied in ReDigi’s server and in the new purchaser’s
`
`device, where they remain for periods “of more than transitory duration.”
`
`Cartoon Network, 536 F.3d at 127. ReDigi’s server and the resale purchaser’s
`
`10
`
`device on which the digital music files are fixed constitute or contain new
`
`11
`
`phonorecords under the statute.
`
`12
`
`ReDigi next argues that, in the course of transferring a user’s file to
`
`13
`
`ReDigi’s own server, and to the resale purchaser’s device, ReDigi sees to it
`
`14
`
`that all of the original purchaser’s preexisting duplicates are destroyed. As an
`
`15
`
`initial matter, as noted above, ReDigi here overclaims. It does not ensure
`
`16
`
`against retention of duplicate phonorecords created by the original owner.
`
`17
`
`ReDigi’s assertion that “there is never an instance when [an] Eligible File
`
`18
`
`could exist in more than one place or be accessed by more than one user” is
`
`18
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`simply not supported by ReDigi’s own evidence. Def. 56.1 Statement, App’x
`
`1490. In addition, even if ReDigi effectively compensated (by offsetting
`
`deletions) for the making of unauthorized reproductions in violation of the
`
`rights holder’s exclusive reproduction right under § 106(1), nonetheless
`
`ReDigi’s process itself involves the making of unauthorized reproductions
`
`that infringe the exclusive reproduction right unless justified under fair use.12
`
`We are not free to disregard the terms of the statute merely because the entity
`
`performing an unauthorized reproduction makes efforts to nullify its
`
`consequences by the counterbalancing destruction of the preexisting
`
`10
`
`phonorecords.
`
`11
`
`ReDigi further argues, citing ABKCO Music, Inc. v. Stellar Records, Inc.,
`
`12
`
`96 F.3d 60 (2d Cir. 1996), that the computer hard drive into which the original
`
`13
`
`purchaser’s digital file is embedded cannot be her lawfully made
`
`14
`
`phonorecord. A computer hard drive, ReDigi argues, cannot qualify as a
`
`
`12 We recognize that the use of computers with digital files of protected matter will often result in the
`creation of innocuous copies which we would be loath to consider infringements because doing so
`would effectively bar society from using invaluable computer technology in relation to protected
`works. We believe this precedent will not have that undesirable effect for reasons discussed below in
`the section on fair use. What we consider here is that the making of unauthorized reproductions in
`pursuit of an objective to distribute protected matter in competition with the rights holder. The production of
`innocuous, unauthorized reproductions through the unavoidable function of a computer, when done
`for purposes that do not involve competing with the rights holder in its exclusive market, is outside
`the scope of this dispute.
`
`19
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`phonorecord under § 101 because it contains more than a sound recording.
`
`This argument misinterprets ABKCO. We held in ABKCO that a license to
`
`publish a phonorecord did not authorize the publication of compact discs for
`
`use in karaoke that contained both sound recordings and visual depictions of
`
`song lyrics. 96 F.3d at 64. The ABKCO opinion undertook to construe the
`
`breadth of a compulsory license. The opinion does not support the conclusion
`
`that a compact disc that stores visual depictions of words as well as recorded
`
`music does not contain a phonorecord. To be sure, a license to distribute
`
`phonorecords of a particular song would not by its terms authorize the
`
`10
`
`distribution of whatever other copyrighted content is contained in a computer
`
`11
`
`hard drive that also contains the recording of the song. But it does not follow
`
`12
`
`that a device or other “material object[] in which sounds . . . are fixed . . . and
`
`13
`
`from which the sounds can be perceived, reproduced, or otherwise
`
`14
`
`communicated,” 17 U.S.C. § 101, is not a phonorecord, merely because it
`
`15
`
`contains other matter as well. We reject ReDigi’s argument.13
`
`
`13 ReDigi also draws our attention to the Ninth Circuit’s decision in Recording Industry Association of
`America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072 (9th Cir. 1999). In Diamond, the Ninth
`Circuit held that “a hard drive is excluded from the definition of digital music recordings” under the
`Audio Home Recording Act (“AHRA”) because § 1001(5)(B) expressly provides that a “digital music
`recording” does not include material objects “in which one or more computer programs are fixed,”
`and “a hard drive is a material object in which one or more [computer] programs are fixed.” Id. at
`
`
`20
`
`
`
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`Finally, ReDigi argues that the district court’s conclusion makes no
`
`sense because it would “require a customer to sell her [valuable] computer in
`
`order to be able to sell a[n] . . . iTunes music file” that was lawfully purchased
`
`for under $1.00. Appellants Br. 28. Of course it would make no economic
`
`sense for a customer to sell her computer or even a $5.00 thumb drive in order
`
`to sell “a[n] . . . iTunes music file” purchased for $1.00. But ReDigi far
`
`overstates its economic argument when it asserts that the “district court’s
`
`ruling . . . eliminat[es] any meaningful competition from resellers” as “no
`
`secondary market . . . can ever develop if consumers are required to give
`
`10
`
`away their computer hard disks as part of any resale.” Appellants Br. 35. A
`
`11
`
`secondary market can readily be imagined for first purchasers who cost‐
`
`12
`
`effectively place 50 or 100 (or more) songs on an inexpensive device such as a
`
`13
`
`thumb drive and sell it. See U.S. Copyright Office, Library of Cong., Digital
`
`14
`
`Millennium Copyright Act § 104 Report 78 (2001) (“DMCA Report 2001”)
`
`15
`
`(“Physical copies of works in a digital format, such as CDs or DVDs, are
`
`16
`
`subject to section 109 in the same way as physical copies of works in analog
`
`
`1076. Even if we were to accept the Ninth Circuit’s construction of the term