Capitol Records, LLC, Capitol Christian Music Group, Inc., Virgin Records IR Holdings, Inc., Plaintiffs-Appellees,
ReDigi Inc., John Ossenmacher, Larry Rudolph, AKA Lawrence S. Rogel, Defendants-Appellants.
Argued: August 22, 2017
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),
C. WELSH, New York, N.Y. (C. Dennis Loomis, Baker &
Hostetler LLP, Los Angeles, CA, on the brief) for
Before: JON O. NEWMAN, PIERRE N. LEVAL, and ROSEMARY S.
POOLER, Circuit Judges.
ReDigi, Inc. and its founders, Defendants Larry Rudolph and
John Ossenmacher,  appeal from the judgment of the United
States District Court for the Southern District of New York
(Richard J. Sullivan, J.) in favor of Plaintiffs,
Capitol Records, LLC, Capitol Christian Music Group, Inc.,
and Virgin Records IR Holdings, Inc.
("Plaintiffs"), finding copyright infringement.
Defendants had created an Internet platform designed to
enable the lawful resale, under the first sale doctrine, of
lawfully purchased digital music files, and had hosted
resales of such files on the platform. The district court
concluded that, notwithstanding the "first sale"
doctrine, codified in the Copyright Act of 1976, 17 U.S.C.
§ 109(a), ReDigi's Internet system version 1.0
infringed the Plaintiffs' copyrights by enabling the
resale of such digital files containing sound recordings of
Plaintiffs' copyrighted music. We agree with the district
court that ReDigi infringed the Plaintiffs' exclusive
rights under 17 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.
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 of
digital files, which are sold to the public by authorized
agent services, such as Apple iTunes, under license from
Plaintiffs. Purchasers from the Apple iTunes online store
download the files onto their personal computers or other
was founded by Defendants Ossenmacher and Rudolph in 2009
with the goal of creating enabling technology and providing a
marketplace for the lawful resale of lawfully purchased
digital music files. 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
the evidence in the light most favorable to ReDigi,
ReDigi's system version 1.0 operates as follows.
Music Manager: A person who owns a digital music file
lawfully purchased from iTunes and intends to employ
ReDigi's system to resell it (the "user") must
first download and install onto her computer ReDigi's
"Music Manager" software program ("Music
Manager"). Once Music Manager has been installed, it
analyzes the digital file intended for resale, verifies that
the file was originally lawfully purchased from iTunes, and
scans it for indications of tampering. If the file was
lawfully purchased, Music Manager deems it an "Eligible
File" that may be resold.
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
during such a standard transfer, the process can be repeated
because the file remains intact on the sender's device.
ReDigi's method-which it calls "data
migration"-ReDigi's software "begins by
breaking the [digital] music file into small 'blocks'
[of data] of roughly four thousand bytes in length."
Appellants Br. 24. Once the file has been broken into blocks
of data ("packets"), ReDigi's system creates a
"transitory copy" of each packet in the initial
purchaser's computer buffer. Id. 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, ReDigi (according to its brief) bears the cost
of the user's loss. Appellants Br. 25.
all the packets of the source file have been transferred to
ReDigi's server, the Eligible File has been entirely
removed from the user's device. The packets are then
re-assembled into a complete, accessible, and playable file
on ReDigi's server.
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 each packet from the
user's device immediately after the "transitory
copy" of that packet arrives in the computer's
buffer (before the packet is forwarded to ReDigi's
server). In other words, as each packet "leaves the
station," ReDigi deletes it from the original
purchaser's device such that it "no longer
exists" on that device. Id. As a result, the
entire file never exists in two places at once. Id.
the file has reached ReDigi's server but before it has
been resold, the user may continue to listen to it by
streaming audio from the user's Cloud 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.
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 service
state that digital media purchases may be streamed or
downloaded only for personal use.
Duplicates: ReDigi purports to guard against a
user's retention of duplicates of her digital music files
after she sells the files through ReDigi. To that end, Music
Manager continuously monitors the user's computer hard
drive and connected devices to detect duplicates. When a user
attempts to upload an Eligible File to ReDigi's server,
ReDigi "prompt[s]" her to delete any pre-existing
duplicates that Music Manager has detected. If ReDigi detects
that the user has not deleted the duplicates, ReDigi blocks
the upload 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.
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 file after she sold it. So long as the user
retains previously-made duplicates on devices not linked to
the computer that hosts Music Manager, Music Manager will not
detect them. This means that a user could, prior to resale
through ReDigi, store a duplicate on a compact disc, thumb
drive, or third-party cloud service unconnected to the
computer that hosts Music Manager and access that duplicate
post-resale. While ReDigi's suspension of the
original purchaser's ReDigi account may be a disincentive
to the retention of sold files, it does not prevent the user
from retaining sold files.
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 summary judgment
in Plaintiffs' favor finding infringement. Plaintiffs
subsequently filed a first amended complaint, adding
Ossenmacher and Rudolph as individual defendants. On November
2, 2015, the parties proposed a joint stipulation in which
Ossenmacher and Rudolph waived their right to contest
liability independent of ReDigi, Inc. On June 6, 2016, the
district court entered a stipulated final judgment awarding
damages to Plaintiffs in the amount of three million five
hundred thousand dollars ($3, 500, 000) and permanently
enjoining Defendants from operating the ReDigi
system. 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.
The First Sale Doctrine
primary issue on appeal is whether ReDigi's system
version 1.0 lawfully enables resales of its users'
digital files. Sections 106(1) and (3) of the Copyright Act
respectively grant the owner of a copyright the exclusive
right to control the reproduction and the distribution of the
copyrighted work. 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 ...