## Facts

- Record companies owning copyrights in sound recordings sued ReDigi Inc. and its executives over an online marketplace for “used” digital music files.
- ReDigi’s system required users to install software that verified certain files were lawfully acquired (commonly from iTunes).
- To list a file for resale, ReDigi transferred the file to its servers in small segments while deleting corresponding segments from the seller’s storage, aiming to prevent simultaneous possession by seller and buyer.
- After transfer, a buyer could stream the file from ReDigi’s servers or download it to a device.
- The plaintiffs alleged that these operations made unauthorized reproductions and distributions of their recordings.
- The district court granted partial summary judgment for plaintiffs on infringement of the reproduction right and later entered a stipulated final judgment with damages and a permanent injunction; ReDigi appealed.

## Issues

1. Whether ReDigi’s transfer and resale process created unauthorized reproductions of plaintiffs’ sound recordings under 17 U.S.C. § 106(1).
2. Whether the first sale doctrine, 17 U.S.C. § 109(a), permitted ReDigi’s digital resale system notwithstanding copying during transfer.
3. Whether ReDigi’s copying was protected as fair use under 17 U.S.C. § 107.
4. Whether the court needed to decide any alleged infringement of the distribution right under 17 U.S.C. § 106(3).

## Decision

- The Second Circuit affirmed judgment for the record companies.
- ReDigi’s system, as part of effectuating a resale, made at least one new fixed copy (on ReDigi’s servers and/or the buyer’s device), infringing the reproduction right under § 106(1).
- The first sale doctrine did not excuse that copying because it limits only downstream disposition of a lawfully made particular copy/phonorecord and does not authorize reproduction.
- ReDigi’s conduct was not fair use: the use was commercial and non-transformative, involved copying entire works, and threatened substantial market harm because “used” digital files are identical substitutes for new downloads.
- The court did not decide whether ReDigi infringed the distribution right, finding reproduction liability sufficient to affirm.

## Legal Principles

- A transfer of a digital music file between devices that results in fixation in a new material object constitutes making a new “copy” or “phonorecord” and implicates the reproduction right under § 106(1).
- Section 109(a) (first sale) limits the copyright owner’s distribution right as to a particular lawfully made copy/phonorecord but does not authorize creating additional copies in order to transfer ownership.
- Fair use is unlikely where a commercial service enables consumers to obtain identical, non-transformative copies of copyrighted works and competes directly with the rights holder’s primary market; market harm is especially significant when secondary copies are perfect substitutes.
- Courts treat major policy arguments for digital exhaustion as matters for Congress rather than judicial revision of the statutory scheme.

## Conclusion

The Second Circuit held that a digital “resale” platform that must copy recordings to complete transfers infringes the reproduction right, and that neither the first sale doctrine nor fair use permits making those new copies, leaving any broader digital resale solution to legislative action.


Capitol Recs., LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018)