by Lee Gesmer | Apr 16, 2013 | Copyright
Copyright owners who wish to file mass copyright suits based on a “BitTorrent Swarm” joinder theory—cases in which dozens (sometime hundreds) of anonymous defendants are joined in a single suit and then identified by serving subpoenas on their ISPs—are not welcome in Massachusetts.
I’ve written about the phenomenon of BitTorrent swarm mass copyright suits before, but it looks like the door has been all but closed to these cases in the District of Massachusetts. As a reminder, here’s how these cases work.
Assume you are the CFO of an adult movie publisher. Sales aren’t doing very well (given all the free porn on the Internet), and you’re under pressure to increase revenues. You hear about a gambit used by some other adult movie companies, and you decide to give it a try.
You know your movies are being downloaded from the Internet, infringing your copyrights. You sue a group of downloaders, all of whom are part of the same “Bit Torrent Swarm,” as “Does”—that is, anonymous defendants whose names will be substituted into the suit at a later date. You contend that the fact they are part of the same “swarm” justifies joining them all in a single case.*
*This argument relies on Rule 20(a)(1)) of the Federal Rules of Civil Procedure, which allows multiple defendants to be joined in a single case where the claims arise “out of the same transaction, occurrence, or series of transactions or occurrences.” The plaintiffs in this line of cases argue that the members of the same BitTorrent swarm fall under this rule, and therefore are properly joined.
This is is very efficient for you, since if you filed a separate suit against each defendant you’d have to pay a $350 filing fee in each case, while one suit against multiple defendants requires a one-time filing fee of $350. Not only do you save the cost of multiple filing fees, but you achieve economies of scale in the litigation itself by minimizing court appearances, consolidating discovery, and possibly conducting a single trial.
After filing suit* you request a subpoena from the court ordering the downloaders’ ISPs to disclose the downloaders’ names and addresses to you. Then, before you substitute each downloader’s real name into the lawsuit (thereby, presumably, causing the downloader no end of public scorn and humiliation), you let him or her know the suit is coming and settle each claim for five thousand dollars. Five grand here, five grand there, pretty soon you’re talking real money.
*Here is an example of a complaint showing how the anonymous defendants are identified by IP address.
Sounds too good to be true, and in Massachusetts it may be. Apart from the fact that a lot of defendants don’t roll over as easily as you might hope (“either I pay you five grand or you’re gonna tell my old lady and my employer? That’s an easy choice, dude. Can I give you their numbers?”), the Massachusetts federal judges just don’t cotton to this use of the courts. Last Fall I posted on an October 12, 2012 decision by U.S. District Court Judge William Young, who ruled that Third Degree Films could not sue 47 “Does” in one case and then use the court’s subpoena power to discover their identities. He held that Third Degree Films would have to file a separate lawsuit against each defendant. Third Degree could not use Rule 20 joinder to create a “low-cost, low-risk revenue model for the adult film companies.”*
*An earlier decision by Judge Young in this case is here.
At almost the time, on October 10, 2012, Massachusetts U.S. District Court Judge Richard Stearns dismissed a mass copyright infringement case (New Sensations, Inc. v. Does 1-201, Sept. 21. 2012), ordering that the cases be defended and litigated in separate causes of action. The same month Massachusetts U.S. District Court Judge F. Dennis Saylor issued a similar order in Third Degree Films v. Does 1-72 and Massachusetts Chief Magistrate Sorkin issued an order to show cause in a mass copyright case against 29 anonymous defendants. (Discount Video Center v. Does 1-29). In something of an understatement, Magistrate Sorkin noted that the “landscape has changed in several material respects” when it comes to the issue of joinder in mass copyright cases.
More recently, Massachusetts U.S. District Court Judge Mark Wolf signaled solidarity with these judges, questioning the right of adult film companies to use “mass copyright infringement lawsuits” to identify anonymous Doe defendants “intending to send demand letters and achieve prompt settlements for limited amounts rather than intending to actually litigate the claims asserted.”
In one case (Exquisite Media v. Does 1-35), Judge Wolf ordered the film company to address, by January 31, 2013, the legal issues implicated by Exquisite’s joinder of 35 anonymous defendants in one lawsuit (an “order to show cause”). Exquisite failed to respond, and on April 12th,Judge Wolf dismissed the case as to all 35 Does. In a second case assigned to Judge Wolf, Kick Ass Pictures v. Does 1-25, the movie publisher filed Doe suits against 25 anonymous defendants. Again, Judge Wolf issued an order to show cause. Kick Ass, like Exquisite Media, failed to respond, and on April 12th Judge Wolf dismissed this case as well.
The message is clear: the District of Massachusetts is not a receptive venue for adult film companies seeking to file mass copyright cases joining multiple defendants based on the BitTorrent swarm theory.*
*This post has not attempted to collect every mass copyright BitTorrent case in Massachusetts.
by Lee Gesmer | Apr 2, 2013 | General
As I reluctantly predicted last week, U.S District Court Judge Richard Sullivan has ruled that Redigi’s digital resale business is not protected by the first sale doctrine. His March 30, 2013 decision falls squarely in line with the arguments made by Capitol Records and rejects all of Redigi’s positions.
I have written quite a bit on this case (here and here), and there is nothing new or surprising in the court’s decision. The court described the issue before it as “the novel question . . . whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine.” In answering this question the court emphasized that because it is “a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal.” Indeed, the court hewed closely to the statute. It noted that “the plain text of the Copyright Act makes clear that reproduction occurs when a copyright work is fixed in a new material object.”* The court states that “put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce. 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.”
*This includes phonorecords, which are the “material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 101.
The court rejected Redigi’s claim that files on users’ computers are “migrated” to the Redigi server. It found that when a user downloads a digital music file it is “reproduce[d]” on a new phonorecord within the meaning of the Copyright Act. When that user moves the file to the Redigi server the “file has moved from one material object – the user’s computer – to another – the ReDigi server – [and therefore] an [unauthorized] reproduction has occurred.” The court rejected the argument that Redigi’s system is protected under copyright fair use, noting that Capitol does not (in this case) challenge the use of cloud-based storage lockers for personal use or convenience. “Capitol asserts only that uploading to and downloading from the Cloud Locker incident to sale fall outside the ambit of fair use. The Court agrees.”
The court concluded that Redigi is liable for direct, secondary, contributory and vicarious infringement.
According to Time magazine online, Redigi has a new and different technology that was not at issue in the case (Redigi 2.0) and plans to appeal the March 30th decision. However, here is where Redigi will find itself deep in the weeds of federal civil procedure, which presents a new set of problems. The case is not over, and among other things Redigi faces a trial on damages, which could be as much as $150,000 per infringement. We don’t know what Redigi’s sales volume is, but it’s hard to think that Redigi’s potential liability will not reach millions of dollars. However, unless an injunction is issued (the court’s opinion was not accompanied by an injunction), any appeal may have to await final judgment, which will incude damages (and potentially Capitol’s attorney’s fees). However, Redigi will not be permitted to initiate an appeal unless it firsts posts a bond in the amount of the judgment. Typically, a small start-up like Redigi can obtain a bond only by providing the bonding company a cash amount equal to the bond. It seems unlikely that Redigi has sufficient assets to afford a bond to cover a large judgment.
In addition, Capitol may seek leave of court to add as defendants the individual owners and employees of Redigi that exercised control over or benefited from the infringement. While Redigi could oppose such as motion as coming too late in the case, a decision would be at the discretion of the judge. As Capitol Records showed in its copyright suit against MP3tunes and Michael Robertson, Capitol is not above suing not only corporate infringers but their founders and owners. (See: The Record Labels Want My Minivan).* The philosophy of the record companies in many copyright cases may best be described as, “never kick a man when he’s down, unless that’s the only way to keep him there.” Capitol may be preparing to put on its steel toe boots in this case.
*In the MP3tunes case Capitol insisted on proceeding against Robertson even after Mp3tunes filed for bankruptcy.
According to the court decision Redigi consulted legal counsel before launching Redigi and engaging the recording industry in a test case. One can only hope that the attorneys Redigi consulted reminded Redigi of the Chinese proverb, “A piece of paper, blown by the wind into a law court, may in the end only be drawn out again by two oxen.”
by Lee Gesmer | Apr 1, 2013 | Copyright
Do you think U.S. copyright law protects the author of this news snippet from copying? –
Job seekers can roll the dice to land work at another of the four casinos coming soon to Ohio. Hollywood Casino Toledo has posted more than 600 job listings on its website this week. . . . restaurant workers, slots and table games supervisors, groundskeepers and security officers. The casino is scheduled to open in the spring with . . .
How about this one? –
The military intelligence complex an hour outside Washington where the WikiLeaks case goes to court this week is known as a cloak-and-dagger sanctum off-limits to the public — a reputation that’s only partly true. . . . low-level clearance and a Lady Gaga CD. The prosecution can only hope that their arguments, or the evidence, will reveal the secrets of how, . . .
Would it make a difference if you knew that the 58 words in first excerpt are taken from a 109 word article, and the 61 words in the second article from a 540 word article, and that both articles were (as they appear) factual news pieces?
People constantly ask “how much can I copy and be safe” under copyright law? Thirty seconds from a several minute piece of music? 10% of a news article?*
*The “10% rule” and “30 second rule” have become the equivalent of legal urban legends. Neither has a basis under U.S. copyright law.
The answers to these questions are most often determined by application of the copyright doctrine of “fair use,” which is codified in the Copyright Act in 17 U.S.C. § 107. The question of whether 13 news excerpts (including the two above) copied from Associated Press violate AP’s copyright or are protected by fair use is the issue facing Judge Denise Cote, a highly experienced federal trial judge in the Southern District of New York in The Associated Press v. Meltwater US Holdings, Inc.
Fair use is a frequently litigated issue, and the outcome in any given case can be notoriously unpredictable. As the U.S. Copyright Office puts it, “The distinction between what is fair use and what is infringement in a particular case will not always be clear or easily defined.” This is something of an understatement. It’s not for nothing that copyright law has been described as one of the most metaphysical areas of the law, requiring distinctions that are very subtle and refined. Some cases involving fair use are black and white, but fair use is an ad hoc, case specific doctrine, and in many cases the outcome is often more in the eye of the beholder (usually the judge) than in the law books.
In the Meltwater case the defendant, Meltwater US Holdings, operates an online news clipping service similar to traditional, paper-based news clipping services. Meltwater scans 162,000 online news websites daily (who know there were so many?) and indexes and archives their content. AP holds the copyright to many of the news articles copied by Meltwater.
Meltwater’s paying customers provide it with keywords. If an article contains a hit, Meltwater sends its customer verbatim excerpts of the article, typically consisting of the headline, the lede (the opening sentence), a “Hit Sentence” (based on the search criteria) and a link to the original article. Customers can receive daily reports or do ad hoc searches. However, discovery showed that subscribers click-through to see the original article less than 1% of the time.
Meltwater did not seriously deny that it copied the 13 verbatim excerpts at issue and provided them to its subscribers in this manner. Depending on the length of the original AP article, the amount copied (based on word count) ranged from 4.5% to over 60% of the AP article. Nor did Meltwater argue that the AP articles were not protected by copyright law. Meltwater’s defense centered on its argument that it was protected from AP’s claim of copyright infringement under the doctrine of fair use.
This defense was soundly rejected by Judge Cote, who found that Meltwater had put the excerpts of the AP articles to commercial use (Meltwater and AP are competitors), that Meltwater’s use of the AP articles cheapened the value of AP’s work, that by copying the title, lede and materials surrounding the targeted keyword Meltwater had copied a qualitatively significant part of the AP articles (the “heart of the story”), and that Meltwater’s use of the AP stories was not transformative.*
*Transformative use is often an important consideration under the fair use doctrine. The judge did find that the fact that the material copied involved current news was a factor that favored Meltwater under the four-part fair use analysis.
The judge also rejected Meltwater’s contention that it is a search engine (akin to Google), noting (among other things) that Meltwater is a for-pay subscription service (Google is free, although it is advertiser supported), and that the click-through rate on Google News is over 60%, compared with a click-through rate of under 1% for Meltwater, suggesting that Meltwater does not perform a search function, but actually provides the information sought by its subscribers.
This decision is an important fair use precedent for news aggregators, but it is likely to be limited (if upheld on appeal) to cases involving verbatim copying of qualitatively important news content. Other public (non-subscription) news aggregators are much more careful about how much they copy. Sites such as Drudge Report and The Huffington Post are careful to provide very brief descriptions of news articles (including AP articles) to which they link. In the meantime other subscriber-based closed systems like Meltwater (who may have already heard from AP and might have been awaiting this ruling before deciding which way to jump) will need to refine their systems in light of this decision, or risk defending their position in court, with Meltwater as a precedent.*
*The Southern District of New York is one of the busiest, and most influential, courts in the U.S. when it comes to copyright law.
While Meltwater may be planning an appeal and hoping the Second Circuit will see the case more favorably toward Meltwater, at present it is in a legally awkward position, to say the least. The 13 articles AP sued on are only the tip of the iceberg, and if Meltwater chooses to continue to distribute excerpts from AP articles it risks multiplying its damages by as much as $150,000/infringement if AP registers its articles with the Copyright Office (as it did with the 13 articles at issue in the case). If the court orders an injunction Meltwater will be able to appeal the injunction while the issue of damages goes to trial, but even that will shut Meltwater down (at least as to AP articles) for the year or so it takes for the Second Circuit to hear and decide the case. It customers may cancel their subscriptions and demand refunds (or stop purchasing subscriptions) if AP news excerpts are excluded from Meltwater’s service. So, if AP articles are important to Meltwater (as they appear to be, based on the decision), it is in a tight spot.
Of course, Meltwater has a theoretical workaround to the outcome in this case, albeit it won’t be able to use its web crawler to implement it. Meltwater would have to rely on its employees to review AP articles and summarize them using language original to Meltwater rather than AP. However, this expensive, labor-intensive alternative would undermine Meltwater’s business model, which relies on a low-cost, computer-automated process.
The decision also addresses Meltwater’s argument that AP’s failure to use the Robot Exclusion Standard (robots.txt) constitutes implied consent (it does not), that AP has engaged in copyright misuse (it has not), and that AP’s claims are barred by equitable estoppel (they are not). However, clearly the heart of this decision is the court’s ruling on fair use.
The Associated Press v. Meltwater US Holdings, Inc.
by Lee Gesmer | Mar 20, 2013 | Copyright
Last week I published a post on the lawsuit challenging the “first-sale” doctrine in the context of digital files. On Tuesday the Supreme Court issued a decision holding that the first-sale doctrine applies to copies of copyrighted works lawfully made abroad.
To understand the facts of this case picture this scenario.
You are a student in Thailand, and you use English-language textbooks in your studies there. You see that the textbooks are not pirated copies—they are legal copies, authorized for foreign publication. When you come to the United States to continue your education you see the same textbooks are sold at much higher prices. Why not get ahold of some of the books being sold in Thailand and sell them at below-U.S. prices but above Thailand prices? There is money to be made there!
Math student Supap Kirtsaeng recognized this arbitrage opportunity. He asked his family in Thailand to buy copies of foreign edition English language textbooks at Thai book shops and ship them to him in the U.S. He sold the textbooks on EBay, reimbursed his buyers and pocketed the difference. He was successful to the tune of almost a million dollars in sales and $100,000 in profits. However, the fact that Kirtsaeng was undercutting U.S. prices infuriated book publisher John Wiley & Sons, Inc., which sued Kirtsaeng in U.S. District Court in Manhattan, arguing that Kirtsaeng violated its copyright rights by reselling books manufactured and sold abroad. The district court and the Second Circuit agreed with Wiley, and awarded damages that, if upheld, would have cost Kirtsaeng far more than he had earned.
On Tuesday, in a Cinderella victory, the Supreme Court reversed, holding that the “first-sale” doctrine protected Kirtsaeng against Wiley’s claims of copyright infringement.
This case came down to a thorny issue of statutory construction under the first-sale doctrine, which provides that “the owner of a particular copy or 
phonorecord lawfully made under this title . . . 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). Kirtsaeng claimed that the first-sale doctrine protected him. Wiley argued that the books, printed in Thailand under a license from Wiley, were not made “under this title,” and therefore Kirtsaeng could not lawfully resell them. In other words, Wiley argued that there was a geographical limitation on the first-sale doctrine.
The Court’s opinion (written by Justice Breyer) involves some hair-splitting statutory analysis and a good deal of legislative and historical analysis in support of its conclusion. The bottom line is that a six-Justice majority found Wiley’s geographical limitation argument unsupportable under the statute, and concluded that there is “no basic principle of copyright law that suggests that publishers are especially entitled to . . . charge different prices for the same book in different geographic markets.”*
*The Court also took into consideration the “practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial, and consumer activities.” How would used book stores and libraries (for example) know that they had the right sell or loan books that had originated abroad?
The Court dismissed its 1998 dictum in Quality King v. L’Anza Research International that copies made by a British publisher would not be “lawfully made under this title,” stating, “is the Court having once written dicta calling a tomato a vegetable bound to deny that it is a fruit forever after?”
The implications of a decision legalizing the importation of “gray market” copyrighted works created outside the United States are significant for publishers, but this battle may be far from over. There can be little doubt that the U.S. publishing industry is strategizing over how restrict the importation of copyrighted works in light of this decision. In fact, Justice Kagan wrote a concurring opinion outlining at least one option: since the Supreme Court’s decision interprets a federal statute (the Copyright Act), the law can be amended to prohibit the importation of foreign-manufactured copyrighted works, but to avoid some of the collateral harm that influenced the Court’s decision. However, opposition to such a change in the law is already ready to do battle.*
*See Owners Rights Initiative.
Sellers might also attempt to restrict importation by licensing (rather than selling) their products, a strategy that has been somewhat successful under U.S. law in the case of software. (For a post discussing this issue see here). On this strategy the line between digital and physical goods blurs—for example, even now Amazon uses licensing to /restrict the purchase of territorially licensed e-books from outside the U.S. And, whether a license would be recognized under the laws of foreign countries where the transaction first takes place (and when the transaction is arguably a sale) remains open to question.
Every Supreme Court opinion generates massive press coverage. For a partial collection of articles and posts see this collection at SCOTUS blog. I also recommend Terry Hart’s discussion on Copyhype and Margot Kaminski’s post on Concurring Opinions, both of which contain valuable observations about how Congress and the publishing industry might respond to this decision.
Kirtsaeng v. John Wiley & Sons, Inc.
by Lee Gesmer | Mar 14, 2013 | Copyright
Last week’s New York Times article on digital resales, Imagining a Swap Meet for E-Books and Music, is a reminder that U.S. District Court Judge Richard Sullivan’s decision on the pending cross-motions for summary judgment in Capitol v. Redigi can be expected quite soon. The motions were argued on October 5, 2012 (transcript), and six months is a fairly long time for a judge to decide motions of this sort. (For my earlier blog post on this case see Redigi Case Poses A Novel Copyright Question on the Resale of Digital Audio Files – Is “Digital First Sale” Legal?)
Ever since copyright protection began to be applied to software in the early 1980s the industry has complained that the law lags behind the technology. The Redigi case is another example of this lag. The hearing transcript illustrates the difficulty of applying copyright law to new digital technologies, as the lawyers and the judge stuggle to find an analogy that will help them apply the copyright “first sale” doctrine to the Redigi “forward and delete” system.
The Redigi System. To briefly recap, Redigi can be used to copy (reproduce, migrate, transport, all verbs used by the parties) an iTunes file from a consumer’s computer to a Redigi server (aka the “cloud”), during which process it deletes the file from the owner’s computer. The file, although located on Redigi’s servers, remains accessible only by the original owner until it is purchased by a customer of Redigi, at which point it can be accessed only by the purchaser, who may stream it from the Redigi server or download it to the purchaser’s computer. Either way, the original owner (or more precisely Apple licensee) loses all rights to the file.
The “First Sale” Doctrine. The legality or illegality of this system rests on the court’s interpretation of the copyright statute’s “first sale” doctrine, which states as follows:
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).
“Phonrecords,” in turn, are defined as:
material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.
It is the “first sale” that allows the purchaser of a copyrighted work—such as a book, record, tape, CD or DVD—to resell that physical copy without violating the rights of the copyright owner. Hence, the existence of (for example) used bookstores, whether brick-and-mortar or online. However, Capitol argues that the first sale doctrine is limited to copyrighted works embodied in physical objects (paper, records, tapes, CDs, DVDs). It does not, Capitol claims, apply to digital files. In the case of Redigi the sale of a digital copy, Capitol argues, involves not the transfer of a “particular copy,” but rather the “reproduction” of the electronic file on the Redigi cloud. And reproduction, Capitol rightly argues, is an exclusive right of the copyright holder which is not protected by the first sale doctrine. By reproducing a copyrighted file on a Redigi server Redigi violates that right.
Redigi responds that the transmission of a digital work that is simultaneously deleted from the sender’s computer is the digital equivalent of giving, lending, or selling a book, consistent with long-standing copyright law under the first sale doctrine. The key factor, it argues, is that the original owner has no further rights (and no access) to the file once it has been sold.
The Summary Judgment Hearing (and the Star Trek Transporter). Judge Sullivan will have to decide which side is correct, and the summary judgment transcript shows how the judge and the parties have struggeled to fit Redigi’s system under the Copyright Act’s first sale doctrine:
Judge Sullivan: I guess [Redigi is] saying it’s not a copy, right? They’re saying that [the actual file] it’s transported from one place to another, . . . I’m not a Trekkie, but I kept thinking it’s the difference from Captain Kirk going from the Enterprise to the planet through that transporter thing, where he’s not duplicated, to the cloning where there’s a good and a bad Captain Kirk where they’re both running around. I think one is a copy and the other is — the other was transported and it’s only one Captain Kirk. (Transcript pp. 9-10).
Redigi’s lawyer (possibly in jest, it’s hard to tell): one of the examples I was thinking of was Willy Wonka. Remember when they put Tommy on the stage. They beamed him, and you saw the particles go across the top and, boom, there he was, miniaturized, but still him in that TV. What’s so hard to believe?*
*Redigi’s lawyer also described the process as “like a train. . . . Redigi grabs the file on the [customer’s local] hard drive and . . . pulls it in a matter of seconds to the cloud hard drive”
Perhaps the best analogy came from Judge Sullivan, where he described Redigi’s process as “if I combined my photocopier and my shredder so that I made a photocopy and the original, instead of coming out of the bin where I can pick it up, goes straight to the shredder. The two don’t exist at the same time, but it seems to me the other one is still a copy.” Redigi objected to this analogy, which is harmful to its position, but was challenged to distinguish it.
Judge Sullivan knows this is an important case: it is the first of its kind, and many eyes are watching. He also knows there is a good chance the losing party will appeal his decision to the Second Circuit Court of Appeals. He made it clear that his job is to apply the copyright statute, not make copyright policy—that would be up to Congress. At the same time, he is obviously struggling with the implications of Capitol’s position. The first sale doctrine has been a mainstay of U.S. copyright law since it was first established by the Supreme Court in 1908, and it seems intuitively unfair that it should not be expanded to encompass digital works.*
*In fact, a recent court ruling on this issue by the Court of Justice of the European Union held that held that a licensor of software made available for download over the Internet may not prevent the resale of perpetual licenses by its licensees. (UsedSoft GmbH v. Oracle International Corp., July 12, 2012), setting up the possibility that U.S. and E.U. law will differ on this issue. Unfortunately, Redigi and other potential resellers do not have the option of escaping more restrictive U.S. laws by moving their businesses to Europe, since the Court of Justice held that the first sale must occur within the European Union.
Nevertheless, under the current statute the Redigi case requires the court to identify the “phonorecord” in which the iTunes files are fixed, and determine whether Redigi is enabling the sale of that phonorecord. Capitol argues that the phonorecord is the hard drive, just as the material object in which the letters of a book are fixed is the printed page.
At the heart of Redigi’s response lies its assumption that the bits themselves are the phonorecord, and that its technology enables the transfer to the Redigi cloud of the specific bits the user downloaded from iTunes. However, although neither party seems to have argued the point,* as a technical matter Redigi seems to have the losing end of this argument. A digital file (such as an MP3 of AAC file) is nothing more than the alteration of the polarities of a magnetic medium (in the case of a hard drive) and the storage of electrons in the case of flash drives. In the case of a hard drive the only thing that is transfered is the set of instructions that set the magnetic polarities; in the case of a flash drive the electrons in the first user’s drive are not physically transferred to the Redigi cloud. Thus, Redigi’s argument that it “migrates” the file seems to have missed the mark as a technical matter. The most reasonable interpretation of the statute leads to the conclusion that the hard drive or flash drive is the “phonorecord” or “material object” in which “sounds are fixed,” and Redigi’s system does not involve the resale of the drives.
*The parties submitted expert affidavits, but they are so heavily redacted that it is impossible to know whether this argument was made. However, during oral argument Capitol’s lawyer stated that he did not “think it’s necessary to delve into the technology.”
While this conclusion will almost certainly leave many people deeply dissatisfied, Judge Sullivan is likely to conclude that a clear application of the law extending the first sale doctrine to digital files must come from Congress, not from the courts. Of course, Congress may take no action on this issue for years (if ever), leaving the legality of resales of digital works in limbo or, if Capitol’s position becomes case law, illegal.
An exchange between the judge and Capitol’s lawyer shows that the first sale doctrine is not a complete dead letter in the context of digital files, at least in theory. During the preliminary injunction hearing a year ago the judge asked Capitol’s lawyer whether the first sale doctrine would permit him to sell his iPod to his law clerk. Capitol responded that this would be permissible. (I discussed this exchange toward the end of my first post on this case). The judge raised this hypothetical again in October, and this time Capitol’s lawyer backed away from it:
Judge Sullivan: . . . last time we were here . . . I asked you if I could sell my iPod to somebody and you said I could.
Capitol’s Lawyer: Yes, and you know, it’s interesting you say that because I would actually have to say that I think that answer probably was not a correct one.
Clearly, Capitol’s lawyer did answer this question incorrectly the first time, at least from the perspective of his client. One can imagine someone who repeatedly copies his 10,000 song iTunes music collection to an iPod or a very inexpensive portable player, and sells the player and the entire collection for 10 cents on the dollar, hypothetically depriving the record industry of $10,000 in revenues with each sale. However, this begs the question of whether the original purchaser could use the first sale doctrine to justify the sale of the original device to which he downloaded these files (perhaps an inexpensive computer). It seems likely that he could under the first sale doctrine, but no court has ruled directly on this issue.
Fair Use Confusion. A surprising amount of the argument in this case seems to have confused principles of fair use with issues associated with first sale. For example, at one point Capitol’s lawyer was asked whether cloud storage alone (without an associated sale) violated the Copyright Act. Capitol’s lawyer, more cautious this time, answered that Capitol didn’t challenge cloud storage in this case. The correct answer seems to be that cloud storage alone (without resale, and without allowing third-party access) is protected by fair use, and Capitol seemed to acknowledge this (describing it as “pure storage”).
Redigi’s lawyer, for his part, improperly interjected issues of fair use when he argued that since a downloaded music file can be moved around on the users hard drive (from one directory to another, for example), it must be permissible for the user to upload the file to the Redigi cloud drive: “why is it okay to move files on my own hard drive and that doesn’t violate the [reproduction right], but to move my file to a cloud does violate reproduction? It doesn’t seem to make sense to me.” However, this argument ignores a basic principle of fair use, specifically that the use be non-commercial. The Redigi system moves the file not for the convenience of the person that downloaded the file from iTunes, but for the commercial purpose of selling it.
A Tactical Error By Redigi Early in the Case. As an aside, it seems unfortunate that Redigi dug itself into a legal hole by admitting, earlier in the case, that the customer’s local file is deleted. If “File A” is deleted, then “File B” must, by logic, be something other than File A (a copy or reproduction), and not the result of a “migration” from the Redigi customer’s hard drive to the Redigi cloud. Capitol argued that this judicial admission was fatal to Redigi’s attempts to describe its process differently at this point in the case, and the judge seemed receptive to Capitol’s argument that this was a binding admission, stating that Redigi “admitted certain acts that are going to be fatal.”
As I noted at the beginning of this post, it’s been six months since summary judgment was argued, and that’s a long time. It’s dangerous to try to interpret a judge’s comments during oral argument, and judges are known to disfavor, during oral argument, the side they ultimately rule for. However, I think that the judge in this case is likely to feel bound by a strict reading of the statute, and to rule in favor of Capitol. We shall know soon.
October 5, 2012 Transcript of Summary Judgment Hearing
