Case 1:12-cv-00095-RJS Document 109

Filed 03/30/13 Page 1 of 18

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK_____________________
No. 12 Civ. 95 (RJS)_____________________CAPITOL RECORDS, LLC,
Plaintiff,
VERSUS

REDIGI INC.,
Defendant.
__________________MEMORANDUM AND ORDER
March 30, 2013__________________RICHARD J. SULLIVAN, District Judge:
Capitol Records, LLC (“Capitol”), therecording label for such classic vinyls as
Frank Sinatra’s “Come Fly With Me” andThe Beatles’ “Yellow Submarine,” brings
this action against ReDigi Inc. (“ReDigi”), a
twenty-first century technology company
that touts itself as a “virtual” marketplacefor “pre-owned” digital music. What hasensued in a fundamental clash over culture,policy, and copyright law, with Capitol
alleging that ReDigi’s web-based service
amounts to copyright infringement inviolation of the Copyright Act of 1976 (the“Copyright Act”), 17 U.S.C. § 101, et seq.
Now before the Court are Capitol’s motion
for partial summary judgment and ReDigi’s
motion for summary judgment, both filed
pursuant to Federal Rule of Civil Procedure
56. Because this is a court of law and not acongressional subcommittee or technology

blog, the issues are narrow, technical, andpurely legal. Thus, for the reasons that
follow, Capitol’s motion is granted and
ReDigi’s motion is denied.
I. BACKGROUND
A. Facts
ReDigi markets itself as “the world’s firstand only online marketplace for digital usedmusic.” 1 (Capitol 56.1 Stmt., Doc. No. 50

1

The facts are taken from the pleadings, the parties’
Local Civil Rule 56.1 Statements, the affidavits
submitted in connection with the instant motions, andthe exhibits attached thereto.
The facts are
undisputed unless otherwise noted. Where one
party’s 56.1 Statement is cited, the other party does
not dispute the fact asserted, has offered no

Case 1:12-cv-00095-RJS Document 109(“Cap. 56.1”), ¶ 6.) Launched on October
13, 2011, ReDigi’s website invites users to“sell their legally acquired digital music
files, and buy used digital music from others
at a fraction of the price currently available
on iTunes.” (Id. ¶¶ 6, 9.) Thus, much likeused record stores, ReDigi permits its users
to recoup value on their unwanted music.
Unlike used record stores, however, ReDigi’ssales take place entirely in the digital domain.
(See ReDigi Reply 56.1 Stmt., Doc. No. 83(“RD Rep. 56.1”), 4 ¶ 16.)

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ReDigi’s upload process is a source ofcontention between the parties. (See RD
56.1 ¶¶ 14-23; Cap. Rep. 56.1 ¶¶ 14-23.)
ReDigi asserts that the process involves“migrating” a user’s file, packet by packet –“analogous to a train” – from the user’s
computer to the Cloud Locker so that data
does not exist in two places at any one
time. 2 (RD 56.1 ¶¶ 14, 36.) Capitol asserts
that, semantics aside, ReDigi’s upload
process “necessarily involves copying” a filefrom the user’s computer to the Cloud
Locker. (Cap. Rep. 56.1 ¶ 14.) Regardless,at the end of the process, the digital music
file is located in the Cloud Locker and noton the user’s computer. (RD 56.1 ¶ 21.)
Moreover, Media Manager deletes any
additional copies of the file on the user’s
computer and connected devices. (Id. ¶ 38.)

To sell music on ReDigi’s website, a user
must first download ReDigi’s “MediaManager” to his computer. (ReDigi 56.1
Stmt., Doc. No. 56 (“RD 56.1”), ¶ 8.) Once
installed, Media Manager analyzes theuser’s computer to build a list of digitalmusic files eligible for sale. (Id.) A file iseligible only if it was purchased on iTunes
or from another ReDigi user; music
downloaded from a CD or other file-sharing
website is ineligible for sale. (Id.) After
this validation process, Media Manager
continually runs on the user’s computer andattached devices to ensure that the user has
not retained music that has been sold or
uploaded for sale. (Id. ¶ 10.) However,Media Manager cannot detect copies storedin other locations. (Cap. 56.1 ¶¶ 59-61, 63;
see Capitol Reply 56.1 Stmt., Doc. No. 78(“Cap. Rep. 56.1”), ¶ 10.) If a copy isdetected, Media Manager prompts the user
to delete the file. (Cap. 56.1 ¶ 64.) The fileis not deleted automatically or involuntarily,
though ReDigi’s policy is to suspend theaccounts of users who refuse to comply. (Id.)

Once uploaded, a digital music fileundergoes a second analysis to verify
eligibility. (Cap. 56.1 ¶¶ 31-32.) If ReDigi
determines that the file has not been
tampered with or offered for sale by anotheruser, the file is stored in the Cloud Locker,
and the user is given the option of simply
storing and streaming the file for personaluse or offering it for sale in ReDigi’s
marketplace. (Id. ¶¶ 33-37.) If a user
chooses to sell his digital music file, hisaccess to the file is terminated andtransferred to the new owner at the time ofpurchase. (Id. ¶ 49.) Thereafter, the newowner can store the file in the Cloud Locker,
stream it, sell it, or download it to her
computer and other devices. (Id. ¶ 50.) No
money changes hands in these transactions.
(RD Rep. 56.1 5 ¶ 18.) Instead, users buy
music with credits they either purchased

After the list is built, a user may upload
any of his eligible files to ReDigi’s “Cloud
Locker,” an ethereal moniker for what is, infact, merely a remote server in Arizona.
(RD 56.1 ¶¶ 9, 11; Cap. 56.1 ¶ 22.)2

A train was only one of many analogies used todescribe ReDigi’s service. At oral argument, thedevice was likened to the Star Trek transporter –“Beam me up, Scotty” – and Willy Wonka’s
teleportation device, Wonkavision. (Tr., dated Oct. 5,2012 (“Tr.”), 10:2-12; 28:15-20.)

admissible evidence to refute that fact, or merely
objects to inferences drawn from that fact.

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Case 1:12-cv-00095-RJS Document 109

from ReDigi or acquired from other sales.
(Id.) ReDigi credits, once acquired, cannot
be exchanged for money. (Id.) Instead, they
can only be used to purchase additionalmusic. (Id.)

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B. Procedural History
Capitol, which owns a number of therecordings sold on ReDigi’s website,commenced this action by filing theComplaint on January 6, 2012.
(See
Complaint, dated Jan. 5, 2012, Doc. No. 1(“Compl.”); Cap. 56.1 ¶¶ 68-73.) In its
Complaint, Capitol alleges multiple
violations of the Copyright Act, 17 U.S.C.
§ 101, et seq., including direct copyright
infringement, inducement of copyright
infringement, contributory and vicarious
copyright infringement, and common law
copyright infringement. (Compl. ¶¶ 44-88.)
Capitol seeks preliminary and permanent
injunctions of ReDigi’s services, as well as
damages, attorney’s fees and costs, interest,
and any other appropriate relief. (Id. at 1718.) On February 6, 2012, the Court denied
Capitol’s motion for a preliminary injunction,
finding that Capitol had failed to establish
irreparable harm. (Doc. No. 26.)

To encourage activity in its marketplace,
ReDigi initially permitted users to preview
thirty-second clips and view album cover artof songs posted for sale pursuant to alicensing agreement with a third party. (SeeRD 56.1 ¶¶ 73-78.) However, shortly after
its launch, ReDigi lost the licenses. (Id.)
Accordingly, ReDigi now sends users toeither YouTube or iTunes to listen to andview this promotional material. (Id. ¶¶ 77,79.) ReDigi also offers its users a number of
incentives. (Cap. 56.1 ¶ 39.) For instance,
ReDigi gives twenty-cent credits to users
who post files for sale and enters active
sellers into contests for prizes. (Id. ¶¶ 39,42.) ReDigi also encourages sales byadvising new users via email that they can“[c]ash in” their music on the website,
tracking and posting the titles of sought aftersongs on its website and in its newsletter,
notifying users when they are low on credits
and advising them to either purchase morecredits or sell songs, and connecting users
who are seeking unavailable songs withpotential sellers. (Id. ¶¶ 39-48.)

On July 20, 2012, Capitol filed its motion
for partial summary judgment on the claims
that ReDigi directly and secondarily
infringed Capitol’s reproduction anddistribution rights. (Doc. No. 48.) ReDigi
filed its cross-motion the same day, seeking
summary judgment on all grounds ofliability,
including
ReDigi’sallegedinfringement of Capitol’s performance anddisplay rights. 4 (Doc. No. 54.) Both parties

Finally, ReDigi earns a fee for everytransaction. (Id. ¶ 54.) ReDigi’s website
prices digital music files at fifty-nine toseventy-nine cents each. (Id. ¶ 55.) Whenusers purchase a file, with credits, 20% of
the sale price is allocated to the seller, 20%
goes to an “escrow” fund for the artist, and
60% is retained by ReDigi. 3 (Id.)

in the Cloud Locker. (Id. ¶¶ 44-52.) However,
because ReDigi 2.0 launched after Capitol filed theComplaint and mere days before the close of
discovery, the Court will not consider it in this action.
(See Tr. 19:2-20:3.)
4

ReDigi’s arguments in this round of briefing differ
markedly from those it asserted in opposition to
Capitol’s motion for a preliminary injunction. (See
ReDigi Opp’n to Prelim. Inj., dated Jan. 27, 2012,
Doc. No. 14 (“ReDigi Opp’n to PI”).) For instance,
ReDigi no longer asserts an “essential step defense,”
nor does it argue that “copying” to the Cloud Locker
for storage is protected by the fair use defense. (Id. at

3

On June 11, 2012, ReDigi launched ReDigi 2.0,
new software that, when installed on a user’s
computer, purportedly directs the user’s new iTunes
purchases to upload from iTunes directly to the
Cloud Locker. (RD 56.1 ¶¶ 40-41.) Accordingly,
while access may transfer from user to user upon
resale, the file is never moved from its initial location

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Case 1:12-cv-00095-RJS Document 109

responded on August 14, 2012 and replied on
August 24, 2012. (Doc. Nos. 76, 79, 87, 90.)
The Court heard oral argument on October
5, 2012.

Filed 03/30/13 Page 4 of 181164, 1174 (S.D.N.Y. 1992). “That is, eachcross-movant must present sufficientevidence to satisfy its burden of proof on allmaterial facts.” U.S. Underwriters Ins. Co.
v. Roka LLC, No. 99 Civ. 10136 (AGS),
2000 WL 1473607, at *3 (S.D.N.Y. Sept.
29, 2000); see Barhold v. Rodriguez, 863
F.2d 233, 236 (2d Cir. 1988).

II. LEGAL STANDARD
Pursuant to Federal Rule of Civil
Procedure 56(a), a court may not grant a
motion for summary judgment unless “themovant shows that there is no genuine
dispute as to any material fact and themovant is entitled to judgment as a matter oflaw.” Fed. R. Civ. P. 56(a); see Celotex
Corp. v. Catrett, 477 U.S. 317, 322–23(1986). The moving party bears the burdenof showing that it is entitled to summary
judgment. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 256 (1986). The court“is not to weigh evidence but is instead
required to view the evidence in the lightmost favorable to the party opposing
summary judgment, to draw all reasonable
inferences in favor of that party, and toeschew credibility assessments.” Amnesty
Am. v. Town of W. Hartford, 361 F.3d 113,
122 (2d Cir. 2004) (internal quotation marks
omitted); accord Anderson, 477 U.S. at 249.
As such, “if there is any evidence in therecord from any source from which a
reasonable inference in the [nonmoving
party’s] favor may be drawn, the moving
party simply cannot obtain a summary
judgment.”
Binder & Binder PC v.
Barnhart, 481 F.3d 141, 148 (2d Cir. 2007)(internal quotation marks omitted).

III. DISCUSSION
Section 106 of the Copyright Act grants“the owner of copyright under this title”
certain “exclusive rights,” including theright “to reproduce the copyrighted work incopies or phonorecords,” “to distributecopies or phonorecords of the copyrighted
work to the public by sale or other transferof ownership,” and to publicly perform anddisplay certain copyrighted works.
17
U.S.C. §§ 106(1), (3)-(5). However, theseexclusive rights are limited by several
subsequent sections of the statute.
Pertinently, Section 109 sets forth the “firstsale” doctrine, which provides that “theowner 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 copyrightowner, to sell or otherwise dispose of thepossession of that copy or phonorecord.” Id.
§ 109(a). The novel question presented inthis action is whether a digital music file,lawfully made and purchased, may be resold
by its owner through ReDigi under the firstsale doctrine. The Court determines that it
cannot.

Inferences and burdens of proof on crossmotions for summary judgment are the sameas those for a unilateral motion. See Straube
v. Fla. Union Free Sch. Dist., 801 F. Supp.

A. Infringement of Capitol’s Copyrights
To state a claim for copyright
infringement, a plaintiff must establish thatit owns a valid copyright in the work at issue
and that the defendant violated one of the
exclusive rights the plaintiff holds in thework. Twin Peaks Prods., Inc. v. Publ’ns

9-14.) ReDigi has also abandoned its argument thatthe Digital Millenium Copyright Act, 17 U.S.C. §512, bars Capitol’s claim. (Id. at 22.) As such, theCourt will consider only those arguments made in the
instant motions.

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embodiments. These include phonorecords,
which are the “material objects in whichsounds . . . are fixed by any method now
known or later developed, and from which
the sounds can be perceived, reproduced, orotherwise communicated, either directly orwith the aid of a machine or device.” Id.
§ 101 (emphasis added). Thus, the plain textof the Copyright Act makes clear that
reproduction occurs when a copyrighted
work is fixed in a new material object. See
Matthew Bender & Co., Inc. v. W. Pub. Co.,
158 F.3d 693, 703 (2d Cir. 1998).

Int’l, Ltd., 996 F.2d 1366, 1372 (2d Cir.
1993) (citing Feist Publ’ns, Inc. v. Rural
Tel. Serv. Co., 499 U.S. 340, 361 (1991)). It
is undisputed that Capitol owns copyrights
in a number of the recordings sold on
ReDigi’s website. (See Cap. 56.1 ¶¶ 68-73;
RD Rep. 56.1 18-19, ¶¶ 68-73; Decl. of
Richard S. Mandel, dated July 19, 2012,
Doc. No. 52 (“Mandel Decl.”), ¶ 16, Ex. M;
Decl. of Alasdair J. McMullan, dated July19, 2012, Doc. No. 51 (“McMullan Decl.”),¶¶ 3-5, Ex. 1.) It is also undisputed that
Capitol did not approve the reproduction or
distribution of its copyrighted recordings on
ReDigi’s website. Thus, if digital music files
are “reproduce[d]” and “distribute[d]” on
ReDigi’s website within the meaning of the
Copyright Act, Capitol’s copyrights havebeen infringed.

The legislative history of the CopyrightAct bolsters this reading. The House Reporton the Copyright Act distinguished between
sound recordings and phonorecords, statingthat “[t]he copyrightable work comprises theaggregation of sounds and not the tangible
medium of fixation.
Thus, ‘soundrecordings’ as copyrightable subject matterare distinguished from ‘phonorecords[,]’ thelatter being physical objects in which sounds
are fixed.” H.R. Rep. No. 94-1476, at 56(1976). Similarly, the House and Senate
Reports on the Act both explained:

1. Reproduction Rights
Courts have consistently held that theunauthorized duplication of digital music
files over the Internet infringes a copyrightowner’s exclusive right to reproduce. See,e.g., A&M Records, Inc. v. Napster, Inc.,239 F.3d 1004, 1014 (9th Cir. 2001).
However, courts have not previously
addressed whether the unauthorized transfer
of a digital music file over the Internet –where only one file exists before and after
the transfer – constitutes reproduction within
the meaning of the Copyright Act. The
Court holds that it does.

Read together with the relevant
definitions in [S]ection 101, the right“to reproduce the copyrighted workin copies or phonorecords” means
the right to produce a material object
in which the work is duplicated,transcribed, imitated, or simulated ina fixed form from which it can be“perceived, reproduced, or otherwise
communicated, either directly orwith the aid of a machine or device.”

The Copyright Act provides that a
copyright owner has the exclusive right “toreproduce the copyrighted work in . . .
phonorecords.”
17 U. S. C. § 106(1)(emphasis added). Copyrighted works aredefined to include, inter alia, “soundrecordings,” which are “works that result
from the fixation of a series of musical,
spoken, or other sounds.” Id. § 101. Suchworks are distinguished from their material

Id. at 61; S. Rep. No. 94-473, at 58 (1975).
Put differently, the reproduction right is the
exclusive right to embody, and to prevent
others from embodying, the copyrighted
work (or sound recording) in a new material
object (or phonorecord). See Nimmer on5Case 1:12-cv-00095-RJS Document 109

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This understanding is, of course,
confirmed by the laws of physics. It issimply impossible that the same “material
object” can be transferred over the Internet.
Thus, logically, the court in London-Sire
noted that the Internet transfer of a fileresults in a material object being “createdelsewhere at its finish.” Id. at 173. Because
the reproduction right is necessarily
implicated when a copyrighted work is
embodied in a new material object, andbecause digital music files must be
embodied in a new material object following
their transfer over the Internet, the Court
determines that the embodiment of a digitalmusic file on a new hard disk is a
reproduction within the meaning of the
Copyright Act.

Copyright § 8.02 (stating that “in order toinfringe the reproduction right, thedefendant must embody the plaintiff’s workin a ‘material object’”).
Courts that have dealt with infringementon peer-to-peer (“P2P”) file-sharing systems
provide valuable guidance on the applicationof this right in the digital domain. For
instance, in London-Sire Records, Inc. v.
John Doe 1, the court addressed whether
users of P2P software violated copyrightowners’ distribution rights. 542 F. Supp. 2d153, 166 & n.16 (D. Mass. 2008). Citing the“material object” requirement, the court
expressly differentiated between the
copyrighted work – or digital music file –and the phonorecord – or “appropriate
segment of the hard disk” that the file would
be embodied in following its transfer. Id. at171. Specifically,

This finding holds regardless of whether
one or multiple copies of the file exist.
London-Sire, like all of the P2P cases,
obviously concerned multiple copies of one
digital music file. But that distinction isimmaterial under the plain language of the
Copyright Act. Simply put, it is the creationof a new material object and not an
additional material object that defines the
reproduction right. The dictionary defines“reproduction” to mean, inter alia, “toproduce again” or “to cause to exist again or
anew.” See Merriam-Webster Collegiate
Edition 994 (10th ed. 1998) (emphasis
added). Significantly, it is not defined as “toproduce again while the original exists.”
Thus, the right “to reproduce thecopyrighted work in . . . phonorecords” isimplicated whenever a sound recording isfixed in a new material object, regardless ofwhether the sound recording remains fixedin the original material object.

[w]hen a user on a [P2P] network
downloads a song from another user,
he receives into his computer adigital sequence representing thesound recording. That sequence ismagnetically encoded on a segmentof his hard disk (or likewise written
on other media). With the righthardwareandsoftware,thedownloader can use the magnetic
sequence to reproduce the soundrecording. The electronic file (or,perhaps more accurately, theappropriate segment of the hard disk)
is therefore a “phonorecord” within
the meaning of the statute.
Id. (emphasis added). Accordingly, when auser downloads a digital music file or“digital sequence” to his “hard disk,” the fileis “reproduce[d]” on a new phonorecord
within the meaning of the Copyright Act.
Id.

Given this finding, the Court concludes
that ReDigi’s service infringes Capitol’s
reproduction rights under any description of
the technology. ReDigi stresses that it6

Case 1:12-cv-00095-RJS Document 109“migrates” a file from a user’s computer to
its Cloud Locker, so that the same file istransferred to the ReDigi server and no
copying occurs. 5 However, even if thatwere the case, the fact that a file has moved
from one material object – the user’s
computer – to another – the ReDigi server –means that a reproduction has occurred.
Similarly, when a ReDigi user downloads a
new purchase from the ReDigi website toher computer, yet another reproduction iscreated. It is beside the point that theoriginal phonorecord no longer exists. It
matters only that a new phonorecord has
been created.

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because “should defendant desire to makeone hundred ceramic plaques . . . , defendant
would be required to purchase one hundred
separate . . . prints.” C.M. Paula, 355 F.
Supp. at 191. ReDigi argues that, like thedefendant in C.M. Paula, its users must
purchase a song on iTunes in order to sell asong on ReDigi.
(ReDigi Mem. 13.)
Therefore, no “duplication” occurs. See
C.M. Paula, 355 F. Supp. at 191 (internal
quotation marks omitted).
ReDigi’sargument is unavailing.
Ignoring thequestionable merits of the court’s holding in
C.M.
Paula,
ReDigi’sserviceisdistinguishable from the process in that case.
There, the copyrighted print, or material
object, was lifted from the greeting card andtransferred in toto to the ceramic tile; no
new material object was created.
By
contrast, ReDigi’s service by necessity
creates a new material object when a digitalmusic file is either uploaded to or
downloaded from the Cloud Locker.

ReDigi struggles to avoid this conclusion
by pointing to C.M. Paula Co. v. Logan, a1973 case from the Northern District ofTexas where the defendant used chemicals
to lift images off of greeting cards and placethem on plaques for resale. 355 F. Supp.
189, 190 (N.D. Tex. 1973); (see ReDigi
Mem. of Law, dated July 20, 2012, Doc. No.
55 (“ReDigi Mem.”), at 13). The court
determined that infringement did not occur

ReDigi also argues that the Court’s
conclusion would lead to “irrational”
outcomes, as it would render illegal any
movement of copyrighted files on a hard
drive, including relocating files between
directories and defragmenting.
(ReDigi
Opp’n, dated Aug. 14, 2012, Doc. No. 79(“ReDigi Opp’n”), at 8.) However, thisargument is nothing more than a red herring.
As Capitol has conceded, such reproductionis almost certainly protected under otherdoctrines or defenses, and is not relevant to
the instant motion. (Cap. Reply, dated Aug.
24, 2012, Doc. No. 87 (“Cap. Reply”), at 5
n.1.)

5

It bears noting that ReDigi made numerous
admissions to the contrary at the preliminary
injunction stage. For instance, in its opposition to
Capitol’s motion, ReDigi stated that, “The only
copying which takes place in the ReDigi service
occurs when a user uploads music files to the ReDigi
Cloud, . . . or downloads music files from the user’s
Cloud Locker.” (See ReDigi Opp’n to PI at 9(emphasis added).) ReDigi also stated that, after adigital music file was uploaded to the Cloud Locker,“the copy from which it was made was actually
deleted from the user’s machine.” (Id. at 14(emphasis added).) ReDigi’s officers made similarstatements in their depositions, and ReDigi’s patentapplication for its upload technology states that “tobe offered for sale, [a music file] is first copied to theremote server and stored on the disc.” (See CapitolMem. of Law, dated July 20, 2012, Doc. No. 49(“Cap. Mem.”), at 8-9, n.6 (emphasis added).) But,
as earlier stated, these semantic distinctions are
immaterial as even ReDigi’s most recent descriptionof its service runs afoul of the Copyright Act.

Accordingly, the Court finds that, absent
the existence of an affirmative defense, thesale of digital music files on ReDigi’s
website infringes Capitol’s exclusive rightof reproduction.

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ReDigi’s website infringes
exclusive right of distribution. 6

2. Distribution Rights
In addition to the reproduction right, acopyright owner also has the exclusive right“to distribute copies or phonorecords of the
copyrighted work to the public by sale orother transfer of ownership.” 17 U. S. C.
§ 106(3). Like the court in London-Sire, theCourt agrees that “[a]n electronic filetransfer is plainly within the sort oftransaction that § 106(3) was intended toreach [and] . . . fit[s] within the definition of‘distribution’ of a phonorecord.” LondonSire, 542 F. Supp. 2d at 173-74. For thatreason, “courts have not hesitated to findcopyright infringement by distribution incases of file-sharing or electronictransmission of copyrighted works.” Arista
Records LLC v. Greubel, 453 F. Supp. 2d961, 968 (N.D. Tex. 2006) (collecting
cases); see, e.g., Napster, 239 F.3d at 1014.
Indeed, in New York Times Co., Inc. v.
Tasini, the Supreme Court stated it was“clear” that an online news database violated
authors’ distribution rights by sellingelectronic copies of their articles fordownload. 533 U.S. 483, 498 (2001).

Capitol’s

3. Performance and Display Rights
Finally, a copyright owner has the
exclusive right, “in the case of . . . musical. . . works, to perform the copyrighted work
publicly.” 17 U. S. C. § 106(4). Public
performance includes transmission to the
public regardless of “whether the membersof the public . . . receive it in the same place
or in separate places and at the same time orat different times.” Id. § 101. Accordingly,
audio streams are performances because a“stream is an electronic transmission that
renders the musical work audible as it isreceived by the client-computer’s temporary
memory. This transmission, like a television
or radio broadcast, is a performance because
there is a playing of the song that isperceived
simultaneouslywiththetransmission.” United States v. Am. Soc. Of
Composers, Authors, & Publishers, 627
F.3d 64, 74 (2d Cir. 2010). To state a claim
for infringement of the performance right, aplaintiff must establish that (1) the public
performance or display of the copyrighted
work was for profit, and (2) the defendant
lacked authorization from the plaintiff or the

There is no dispute that sales occurred on
ReDigi’s website. Capitol has establishedthat it was able to buy more than onehundred of its own recordings on ReDigi’s
webite, and ReDigi itself compiled a list of
its completed sales of Capitol’s recordings.
(Cap. 56.1 ¶¶ 68-73; RD Rep. 56.1 ¶¶ 6873.) ReDigi, in fact, does not contest that
distribution occurs on its website – it only
asserts that the distribution is protected by
the fair use and first sale defenses. (See,e.g., ReDigi Opp’n 15 (noting that “anydistributions . . . which occur on the ReDigi
marketplace are protected”).)

6

Capitol argues that ReDigi also violated its
distribution rights simply by making Capitol’srecordings available for sale to the public, regardlessof whether a sale occurred. (See Cap. Mem. 11 n.8(citing Hotaling v. Church of Jesus Christ of LatterDay Saints, 118 F.3d 199, 201 (4th Cir. 1997)).
However, a number of courts, including one in this
district, have cast significant doubt on this “makeavailable” theory of distribution. See, e.g., Elektra
Entm’t Grp., Inc. v. Barker, 551 F. Supp. 2d 234, 243(S.D.N.Y. 2008) (“[T]he support in the case law for
the “make available” theory of liability is quite
limited.”); London-Sire, 542 F. Supp. 2d at 169(“[T]he defendants cannot be liable for violating theplaintiffs’ distribution right unless a ‘distribution’actually occurred.”). In any event, because the Court
concludes that actual sales on ReDigi’s website
infringed Capitol’s distribution right, it does notreach this additional theory of liability.

Accordingly, the Court concludes that,absent the existence of an affirmative
defense, the sale of digital music files on8

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plaintiff’s representative. See Broad. Music,
Inc. v. 315 W. 44th St. Rest. Corp., No. 93
Civ. 8082 (MBM), 1995 WL 408399, at *2(S.D.N.Y. July 11, 1995).

its alleged infringement of these exclusive
rights is denied.

The copyright owner also has the
exclusive right, “in the case of . . . pictorial[and] graphic . . . works[,] . . . to display the
copyrighted work publicly.” 17 U.S.C.
§ 106(5).
Public display includes“show[ing] a copy of [a work], either
directly or by means of a film, slide,
television image, or any other device orprocess.” Id. § 101. The Ninth Circuit has
held that the display of a photographic
image on a computer may implicate thedisplay right, though infringement hinges, inpart, on where the image was hosted.
Perfect 10, Inc. v. Amazon.com, Inc., 508
F.3d 1146, 1160 (9th Cir. 2007).

Having concluded that sales on ReDigi’s
website infringe Capitol’s exclusive rightsof reproduction and distribution, the Court
turns to whether the fair use or first saledefenses excuse that infringement. For thereasons set forth below, the Court
determines that they do not.

B. Affirmative Defenses

1. Fair Use“The ultimate test of fair use . . . iswhether the copyright law’s goal of‘promot[ing] the Progress of Science anduseful Arts’ would be better served byallowing the use than by preventing it.”Castle Rock Entm’t, Inc. v. Carol Publ’g
Grp., Inc., 150 F.3d 132, 141 (2d Cir. 1998)(quoting U.S. Const., art. I, § 8, cl. 8).
Accordingly, fair use permits reproductionof copyrighted work without the copyrightowner’s consent “for purposes such as
criticism, comment, news reporting,teaching (including multiple copies forclassroom use), scholarship, or research.”
17 U.S.C. § 107. The list is not exhaustive
but merely illustrates the types of copying
typically embraced by fair use. Castle Rock
Entm’t, Inc., 150 F.3d at 141. In addition,
four statutory factors guide courts’application of the doctrine. Specifically,
courts look to:

Capitol alleges that ReDigi infringed its
copyrights by streaming thirty-second songclips and exhibiting album cover art topotential buyers.
(Compl. ¶¶ 25-26.)
ReDigi counters that it only posted suchcontent pursuant to a licensing agreement
and within the terms of that agreement.
(ReDigi Mem. 24-25.) ReDigi also assertsthat it promptly removed the content when
its licenses were terminated, and instead sent
users to YouTube or iTunes for previews.
(Id.) Capitol, in response, claims that
ReDigi’s use violated the terms of thoselicenses and did not cease at the time thelicenses were terminated. (Compare RD
56.1 ¶¶ 73-79, with Cap. Rep. 56.1 ¶¶ 7379.) As such, there are material disputes as
to the source of the content, whether ReDigi
was authorized to transmit the content, whenauthorization was or was not revoked, andwhen ReDigi ceased providing the content.
Because the Court cannot determine whether
ReDigi infringed Capitol’s display andperformance rights on the present record,
ReDigi’s motion for summary judgment on(1) the purpose and character of theuse, including whether such use is of
a commercial nature or is fornonprofit educational purposes;(2) the nature of the copyrighted
work; (3) the amount andsubstantiality of the portion used inrelation to the copyrighted work as awhole; and (4) the effect of the use

9Case 1:12-cv-00095-RJS Document 109

upon the potential market for orvalue of the copyrighted work.

Filed 03/30/13 Page 10 of 18“add[] something new, with a further
purpose or different character” to the
copyrighted works. Id.; see, e.g., Napster,239 F.3d at 1015 (endorsing district court
finding that “downloading MP3 files does
not transform the copyrighted work”).
ReDigi’s use is also undoubtedlycommercial. ReDigi and the uploading user
directly profit from the sale of a digitalmusic file, and the downloading user saves
significantly on the price of the song in the
primary market.
See Harper & Row
Publishers, Inc. v. Nation Enters., 471 U.S.
539, 562 (1985) (“The crux of the
profit/nonprofit distinction is not whether
the sole motive of the use is monetary gain
but whether the user stands to profit from
exploitation of the copyrighted material
without paying the customary price.”).
ReDigi asserts that downloads for personal,
and not public or commercial, use “must be
characterized as . . . noncommercial,nonprofit activity.”(ReDigi Mem. 16(quoting Sony, 464 U.S. at 449).) However,
ReDigi twists the law to fit its facts. When auser downloads purchased files from the
Cloud Locker, the resultant reproduction isan essential component of ReDigi’s
commercial enterprise.
Thus, ReDigi’s
argument is unavailing.

17 U.S.C. § 107. Because fair use is an“equitable rule of reason,” courts are “free toadapt the doctrine to particular situations on
a case-by-case basis.” Sony Corp. of Am. v.
Universal City Studios, Inc., 464 U.S. 417,
448 n.31 (1984) (quoting H. Rep. No. 941476, at 65-66); see Iowa State Univ.
Research Found., Inc. v. Am. Broad. Cos.,
621 F.2d 57, 60 (2d Cir. 1980).
On the record before it, the Court has
little difficulty concluding that ReDigi’s
reproduction and distribution of Capitol’s
copyrighted works falls well outside the fairuse defense. ReDigi obliquely argues that
uploading to and downloading from the
Cloud Locker for storage and personal use
are protected fair use. 7 (See ReDigi Mem.
15.) Significantly, Capitol does not contest
that claim. (See Tr. 12:8-23.) Instead,
Capitol asserts only that uploading to anddownloading from the Cloud Locker
incident to sale fall outside the ambit of fairuse. The Court agrees. See Arista Records,
LLC v. Doe 3, 604 F.3d 110, 124 (2d Cir.
2010) (rejecting application of fair use touser uploads and downloads on P2P filesharing network).

The second factor – the nature of the
copyrighted work – also weighs against
application of the fair use defense, as
creative works like sound recordings are“close to the core of the intended copyrightprotection” and “far removed from the . . .
factual or descriptive work more amenable
to fair use.” UMG Recordings, Inc. v.
MP3.Com, Inc., 92 F. Supp. 2d 349, 351(S.D.N.Y. 2000) (alteration and internal
quotation marks omitted) (citing Campbell,
510 U.S. at 586). The third factor – theportion of the work copied – suggests asimilar outcome because ReDigi transmits
the works in their entirety, “negating any
claim of fair use.” Id. at 352. Finally,

Each of the statutory factors counsels
against a finding of fair use. The first factor
requires the Court to determine whether
ReDigi’s use “transforms” the copyrighted
work and whether it is commercial.
Campbell v. Acuff-Rose Music, Inc., 510
U.S. 569, 578-79 (1994). Both inquiries
disfavor ReDigi’s claim.
Plainly, theupload, sale, and download of digital music
files on ReDigi’s website does nothing to
7

ReDigi’s argument is, perhaps, a relic of theargument it previously levied that “copying” to the
Cloud Locker is protected as “space shifting” under
the fair use doctrine. (See ReDigi Opp’n to PI at 10.)10Case 1:12-cv-00095-RJS Document 109

Filed 03/30/13 Page 11 of 18

Notwithstanding the provisions ofsection 106(3), the owner of aparticular copy or phonorecord
lawfully made under this title, or any
person authorized by such owner, isentitled, without the authority of the
copyright owner, to sell or otherwise
dispose of the possession of thatcopy or phonorecord.

ReDigi’s sales are likely to undercut the“market for or value of the copyrighted
work” and, accordingly, the fourth factor
cuts against a finding of fair use. Cf. Arista
Records, LLC v. Doe 3, 604 F.3d at 124(rejecting application of fair use to P2P filesharing, in part, because “the likely
detrimental effect of file-sharing on thevalue of copyrighted compositions is well
documented.”(citing
Metro-GoldwynMayer Studios Inc. v. Grokster, Ltd., 545
U.S. 913, 923 (2005)). The product sold in
ReDigi’ssecondarymarketisindistinguishable from that sold in thelegitimate primary market save for its lower
price. The clear inference is that ReDigi
will divert buyers away from that primarymarket.
ReDigi incredibly argues that
Capitol is preempted from making a marketbased argument because Capitol itself
condones downloading of its works on
iTunes. (ReDigi Mem. 18.) Of course,
Capitol, as copyright owner, does not forfeit
its right to claim copyright infringement
merely because it permits certain uses of its
works. This argument, too, is therefore
unavailing.

17 U.S.C. § 109. Under the first saledefense, “once the copyright owner places a
copyrighted item [here, a phonorecord] inthe stream of commerce by selling it, he has
exhausted his exclusive statutory right tocontrol its distribution.”
Quality King
Distribs., Inc. v. L’anza Research Int’l, Inc.,
523 U.S. 135, 152 (1998); see Kirtsaeng v.
John Wiley & Sons, Inc., No. 11-697, 2013
WL 1104736, at *4 (U.S. Mar. 19, 2013).
ReDigi asserts that its service, which
involves the resale of digital music files
lawfully purchased on iTunes, is protectedby the first sale defense. (ReDigi Mem. 19.)
The Court disagrees.
As an initial matter, it should be notedthat the fair use defense is, by its own terms,
limited to assertions of the distribution right.
17 U.S.C. § 109 (referencing Section
106(3)); see Nimmer on Copyright § 8.12.
Because the Court has concluded that
ReDigi’sserviceviolates
Capitol’s
reproduction right, the first sale defense
does not apply to ReDigi’s infringement of
those rights.
See Design Options v.
BellePointe, Inc., 940 F. Supp. 86, 91(S.D.N.Y. 1996).

In sum, ReDigi facilitates and profits
from the sale of copyrighted commercial
recordings, transferred in their entirety, witha likely detrimental impact on the primarymarket for these goods. Accordingly, theCourt concludes that the fair use defense
does not permit ReDigi’s users to uploadand download files to and from the Cloud
Locker incident to sale.
2. First Sale

In addition, the first sale doctrine does
not protect ReDigi’s distribution of
Capitol’s copyrighted works.
This isbecause, as an unlawful reproduction, a
digital music file sold on ReDigi is not“lawfully made under this title.” 17 U.S.C.
§ 109(a). Moreover, the statute protects

The first sale defense, a common law
principle recognized in Bobbs-Merrill Co. v.
Straus, 210 U.S. 339, 350 (1908) and now
codified at Section 109(a) of the CopyrightAct, provides that:

11Case 1:12-cv-00095-RJS Document 109

Filed 03/30/13 Page 12 of 18

argument fails for two reasons. First, while
technological change may have rendered
Section 109(a) unsatisfactory to many
contemporary observers and consumers, it
has not rendered it ambiguous. The statuteplainly applies to the lawful owner’s“particular” phonorecord, a phonorecordthat by definition cannot be uploaded andsold on ReDigi’s website.
Second,amendment of the Copyright Act in linewith ReDigi’s proposal is a legislative
prerogative that courts are unauthorized andill suited to attempt.

only distribution by “the owner of aparticular copy or phonorecord . . . of thatcopy or phonorecord.” Id. Here, a ReDigi
user owns the phonorecord that was created
when she purchased and downloaded a songfrom iTunes to her hard disk. But to sellthat song on ReDigi, she must produce a
new phonorecord on the ReDigi server.
Because it is therefore impossible for theuser to sell her “particular” phonorecord on
ReDigi, the first sale statute cannot provide
a defense. Put another way, the first saledefense is limited to material items, likerecords, 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 inArizona and its users’ hard drives. The firstsale defense does not cover this any morethan it covered the sale of cassetterecordings of vinyl records in a bygone era.

Nor are the policy arguments asstraightforward or uncontested as ReDigi
suggests. Indeed, when confronting this
precise subject in its report on the Digital
Millenium Copyright Act, 17 U.S.C. § 512,
the United States Copyright Office (the“USCO”) rejected extension of the first sale
doctrine to the distribution of digital works,
noting that the justifications for the first sale
doctrine in the physical world could not be
imported into the digital domain. See
USCO, Library of Cong., DMCA Section
104 Report (2001) (“DMCA Report”); seealso Cartoon Network LP v. CSC Holdings,
Inc., 536 F.3d 121, 129 (2d Cir. 2008)(finding that the DMCA report is entitled todeference under Skidmore v. Swift & Co.,
323 U.S. 134, 140 (1944)). For instance, the
USCO stated that “the impact of the [firstsale] doctrine on copyright owners [is]limited in the off-line world by a number offactors, including geography and the gradualdegradation of books and analog works.”
DMCA Report at xi. Specifically,

Rejecting such a conclusion, ReDigi
argues that, because “‘technological change
has rendered its literal terms ambiguous, theCopyright Act must be construed in light of[its] basic purpose,’” namely, to incentivize
creative work for the “ultimate[] . . . causeof promoting broad public availability ofliterature, music, and the other arts.” Sony,
464 U.S. at 432 (quoting Twentieth Century
Music Corp. v. Aiken, 422 U.S. 151, 156(1975)). Thus, ReDigi asserts that refusal toapply the first sale doctrine to its service
would grant Capitol “a Court sanctioned
extension of rights under the [C]opyright[A]ct . . . which is against policy, and should
not be endorsed by this Court.” (ReDigi
Mem. 24.)[p]hysical copies of works degradewith time and use, making used
copies less desirable than new ones.
Digital information does notdegrade, and can be reproduced
perfectly on a recipient’s computer.
The “used” copy is just as desirable
as (in fact, is indistinguishable from)The Court disagrees. ReDigi effectively
requests that the Court amend the statute toachieve ReDigi’s broader policy goals –goals that happen to advance ReDigi’s
economic interests.
However, ReDigi’s
12

Case 1:12-cv-00095-RJS Document 109

Filed 03/30/13 Page 13 of 18

C. Liability

a new copy of the same work. Time,space, effort and cost no longer act
as barriers to the movement ofcopies, since digital copies can betransmitted nearly instantaneously
anywhere in the world with minimal
effort and negligible cost. The needto transport physical copies of works,
which acts as a natural brake on theeffect of resales on the copyrightowner’s market, no longer exists in
the realm of digital transmissions.
The ability of such “used” copies tocompete for market share with newcopies is thus far greater in thedigital world.

Having determined that sales on ReDigi’s
website infringe Capitol’s copyrights, theCourt turns to whether ReDigi is directly
and/or secondarily liable for that
infringement.
Direct liability requires“volitional conduct” that “causes” thereproduction or distribution to be made. See
Cartoon Network, 536 F.3d at 131.
Secondary infringement occurs when adefendant contributed to or benefitted from athird party’s infringement such that it is“just” to hold the defendant accountable forthe infringing activity. Sony, 464 U.S. at
435. For the reasons stated below, the Court
finds that ReDigi directly and secondarily
infringed Capitol’s copyrights.

Id. at 82-83 (footnotes omitted). Thus,
while ReDigi mounts attractive policy
arguments, they are not as one-sided as it
contends.

1. Direct Infringement
To be liable for direct infringement, adefendant must have “engaged in somevolitional conduct sufficient to show that [it]actively” violated one of the plaintiff’s
exclusive rights. Arista Records LLC v.
Usenet.com, Inc., 633 F. Supp. 2d 124, 148(S.D.N.Y. 2009). In other words, “‘toestablish direct liability under . . . the Act,something more must be shown than mereownership of a machine used by others tomake illegal copies. There must be actual
infringing conduct with a nexus sufficiently
close and causal to the illegal copying that
one could conclude that the machine ownerhimself trespassed on the exclusive domainof the copyright owner.’” Cartoon Network,
536 F.3d at 130 (quoting CoStar Group, Inc.
v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir.
2004)) (citing Religious Tech. Ctr. v.
Netcom On-Line Commc’n Servs., Inc., 907
F. Supp. 1361, 1370 (N.D. Cal. 1995)).

Finally, ReDigi feebly argues that the
Court’s reading of Section 109(a) would in
effect exclude digital works from themeaning of the statute. (ReDigi Mem. 21.)
That is not the case. Section 109(a) still
protects a lawful owner’s sale of her“particular” phonorecord, be it a computer
hard disk, iPod, or other memory device
onto which the file was originally
downloaded. While this limitation clearlypresents obstacles to resale that are different
from, and perhaps even more onerous than,those involved in the resale of CDs andcassettes, the limitation is hardly absurd –the first sale doctrine was enacted in a world
where the ease and speed of data transfer
could not have been imagined. There aremany reasons, some discussed herein, forwhy such physical limitations may bedesirable. It is left to Congress, and not thisCourt, to deem them outmoded.

In Cartoon Network, the Second Circuit
addressed whether the cable television
provider Cablevision had directly infringed
the plaintiff’s copyrights by providing

Accordingly, the Court concludes that thefirst sale defense does not permit sales ofdigital music files on ReDigi’s website.
13

Case 1:12-cv-00095-RJS Document 109

Filed 03/30/13 Page 14 of 18503, 512-13 (N.D. Ohio 1997). Moreover,unlike Cablevision, ReDigi infringed both
Capitol’s reproduction and distribution
rights. ReDigi provided the infrastructure
for its users’ infringing sales andaffirmatively brokered sales by connecting
users who are seeking unavailable songs
with potential sellers.
Given thisfundamental and deliberate role, the Court
concludes
that
ReDigi’sconduct“transform[ed] [it] from [a] passive
provider[] of a space in which infringing
activities happened to occur to [an] active
participant[] in the process of copyright
infringement.” Usenet.com, 633 F. Supp. 2d
at 148. Accordingly, the Court grants
Capitol’s motion for summary judgment on
its claims for ReDigi’s direct infringementof its distribution and reproduction rights. 8

digital video recording devices to its
customers. 536 F.3d 121. The court
determined that it had not.
ThoughCablevision had “design[ed], hous[ed], andmaintain[ed]” the recording devices, it was
Cablevision’s customers who “made” thecopies and therefore directly infringed theplaintiff’s reproduction rights. Id. at 131-32.
The court reasoned that, “[i]n determining
who actually ‘makes’ a copy, a significant
difference exists between making a request
to a human employee, who then volitionallyoperates the copying system to make thecopy, and issuing a command directly to asystem,whichautomaticallyobeyscommands and engages in no volitional
conduct.” Id. at 131. However, the court
allowed that a case may exist where “one’s
contribution to the creation of an infringing
copy [is] so great that it warrants holdingthat party directly liable for the
infringement, even though another party has
actually made the copy.” Cartoon Network,
536 F.3d at 133.

2. Secondary Infringement“The Copyright Act does not expressly
render anyone liable for infringement
committed by another.” Sony, 464 U.S. at
434.
However, common law doctrines
permit a court to impose secondary liability
where “just” and appropriate. Id. at 435.
Capitol asserts that ReDigi is secondarily
liable for its users’ direct infringement under
three
such
doctrines:
contributory

On the record before it, the Court
concludes that, if such a case could everoccur, it has occurred with ReDigi.
ReDigi’s founders built a service where only
copyrighted work could be sold. Unlike
Cablevision’s programming, which offered amix of protected and public television,
ReDigi’s Media Manager scans a user’s
computer to build a list of eligible files thatconsists solely of protected music purchasedon iTunes. While that process is itself
automated, absolving ReDigi of direct
liability on that ground alone would be a
distinction without a difference. The factthat ReDigi’s founders programmed theirsoftware to choose copyrighted content
satisfies the volitional conduct requirement
and renders ReDigi’s case indistinguishable
from those where human review of content
gave rise to direct liability. See Usenet.com,
633 F. Supp. 2d at 148; Playboy Enters.,
Inc. v. Russ Hardenburgh, Inc., 982 F. Supp.

8

Capitol also asserts a claim for common law
copyright infringement arising from sales of its pre1972 recordings on ReDigi’s website. (Compl.
¶¶ 82-88.)
Capitol correctly argues in its
memorandum that the elements for a direct
infringement claim under federal law mirror those forinfringement of common law copyright under statelaw. See Capitol Records, Inc. v. Naxos of Am., Inc.,
4 N.Y.3d 540, 563 (2005); (Cap. Mem. 4.)
Accordingly, the Court also Court grants Capitol’s
motion for summary judgment with respect to
ReDigi’s direct infringement of Capitol’s distribution
and reproduction rights in its pre-1972 recordings.
However, because neither Capitol nor ReDigi
addressed the question of secondary infringement ofcommon law copyrights, the Court does not reachthat claim.

14

Case 1:12-cv-00095-RJS Document 109

infringement, inducement of infringement,
and vicarious infringement. (Cap. Mem. 1316.) The Court agrees with respect tocontributory and vicarious infringement, andtherefore does not reach the inducement
claim.

Filed 03/30/13 Page 15 of 18

at 1022; see, e.g., Usenet.com, 633 F. Supp.
2d at 155.
The Court has little difficulty concludingthat ReDigi knew or should have known thatits service would encourage infringement.
Despite the fact that ReDigi boasted on its
website that it was “The Legal Alternative”
and insisted “YES, ReDigi is LEGAL,”
ReDigi warned investors in its subscription
agreements that “the law cannot be said tobe well-settled” in this area and that it could
not guarantee ReDigi would prevail on its
copyright defenses. (Cap. 56.1 ¶¶ 65-66.)
The Recording Industry Association ofAmerica (“RIAA”) sent ReDigi a cease-anddesist letter in November 2011, advising
ReDigi that its website violated Capitol’sand other RIAA members’ copyrights.
(Compl. ¶ 41.)
Further, ReDigi was
ensnared in a licensing dispute over songclips and cover art shortly after its launch,plainly indicating that infringement could be
afoot. (RD 56.1 ¶¶ 74-75, 77.) ReDigi was
also, of course, aware that copyrightprotected content was being sold on its
website – a fact central to its business modeland promotional campaigns. (Cap. 56.1 ¶¶70-73). Finally, ReDigi’s officers claim tohave “researched copyright law [and]consulted with attorneys” concerning theirservice, and also to have met with record
companies “to get input, get marketing
support[,] and enter into deals with thelabels.” (RD Rep. 56.1 2 ¶ 5, 5 ¶ 20.) By
educatingthemselves,theofficers
presumably understood the likelihood thatuse of ReDigi’s service would result in
infringement.
Indeed, though ReDigi
attempts to use its consultations withcounsel as a shield, it is telling that ReDigi
declined to reveal any of the advice it
received on the subject. (See Cap. Reply 9).
ReDigi’s lone rebuttal to this surfeit ofevidence could only be that it “sincerely”
believed in the legality of its service.

a. Contributory Infringement
Contributory infringement occurs where“one . . . with knowledge of the infringing
activity, induces, causes or materiallycontributes to the infringing conduct ofanother.” Arista Records, LLC v. Doe 3,
604 F.3d at 118 (quoting Gershwin Publ’gCorp. v. Columbia Artists Mgmt., Inc., 443
F.2d 1159, 1162 (2d Cir. 1971)); see, e.g.,
Grokster, 545 U.S. at 930. The knowledge
requirement is “objective” and satisfied
where the defendant knew or had reason toknow of the infringing activity. See Arista
Records, LLC v. Doe 3, 604 F.3d at 118.
Further, the support must be “more than amere quantitative contribution to theprimary infringement . . . [, it] must be
substantial.” Usenet.com, 633 F. Supp. 2d124, 155 (S.D.N.Y. 2009). However, even
where a defendant’s contribution is material,
it may evade liability if its product is“capable of substantial noninfringing uses.”Sony, 464 U.S. at 442 (the “Sony-Betamaxrule”).
In weighing the knowledge requirement,
courts consider evidence of actual andconstructive knowledge, including ceaseand-desist letters, officer and employee
statements, promotional materials, andindustry experience. See, e.g., Napster, 239
F.3d at 1020-21, 1027; Arista Records LLC
v. Lime Grp. LLC, 784 F. Supp. 2d at 432;
Usenet.com 633 F. Supp. 2d at 155. In
addition, courts have consistently found thatmaterial support existed where file-sharing
systems provided “the site and facilities” fortheir users’ infringement. Napster, 239 F.3d

15

Case 1:12-cv-00095-RJS Document 109

However, the Court has not found and will
not create a subjective, good faith defense tocontributory liability’s objective knowledge
requirement, and therefore concludes that,based on the objective facts, ReDigi wasaware of its users’ infringement.

Filed 03/30/13 Page 16 of 18– and therefore business model – isfundamentally flawed.
Accordingly, tocomply with the law, either the law or
ReDigi must change. While ReDigi 2.0, 3.0,
or 4.0 may ultimately be deemed to comply
with copyright law – a finding the Court
need not and does not now make – it is clearthat ReDigi 1.0 does not.
Given thefundamental disconnect between ReDigi and
the Copyright Act, and ReDigi’s failure toprovide any evidence of present or potential
noninfringing uses, the Court concludes that
the Sony-Betamax rule cannot save ReDigi
from contributory liability.

The Court also finds that ReDigi
materially contributed to its users’
infringement. As ReDigi has admitted,“more than any other website that permits
the sale of music, ReDigi is intimately
involved in examining the content that will
be sold and supervising the steps involved in
making the music available for sale andselling it.” (Cap. 56.1 ¶ 35; RD Rep. 56.1
15 ¶ 35.) ReDigi thus provided the “site andfacilities” for the direct infringement. See,e.g., Napster, 239 F.3d at 1022; Usenet.com,
633 F. Supp. 2d at 155; Lime Grp., 784 F.
Supp. 2d at 434. Without ReDigi’s Cloud
Locker, no infringement could haveoccurred. Indeed, Media Manager ensured
that only infringement occurred by limiting
eligible files to iTunes tracks. Contrary to
any conception of remote conduct, ReDigi’s
service was the hub and heart of its users’
infringing activity.

Accordingly, the Court grants Capitol’s
motion for summary judgment on its claim
for ReDigi’s contributory infringement of its
distribution and reproduction rights. 9
b. Vicarious Infringement
Vicarious
liabilityfor
copyright
infringement exists where the defendant“‘has the right and ability to supervise theinfringing activity and also has a direct
financial interest in such activities.’”
Napster, 239 F.3d at 1022 (quoting
Gershwin Pub. Corp., 443 F.2d at 1162); see
Grokster, 545 U.S. at 930.
Unlikecontributory infringement, knowledge is not
an element of vicarious liability. Gershwin,

The Court finally concludes that
ReDigi’s service is not capable ofsubstantial noninfringing uses. The SonyBetamax rule requires a court to determine
whether a product or service is capable ofsubstantial noninfringing uses, not whether
it is currently used in a non-infringing
manner.
Napster, 239 F.3d at 1021
(discussing Sony, 464 U.S. at 442-43). But,
put simply, ReDigi, by virtue of its design,
is incapable of compliance with the law.
ReDigi’s business is built on the erroneous
notion that the first sale defense permits theelectronic resale of digital music. As such,
ReDigi is built to trade only in copyrightprotected iTunes files.
However, as
determined above, ReDigi’s legal argument9

As noted above, Capitol has alleged a separate
cause of action for inducement of infringement.
(Compl. ¶¶ 51-60.)
Disagreement exists overwhether “inducement of infringement” is a separate
theory of liability for copyright infringement or
merely a subset of contributory liability. Compare
Flava Works, Inc. v. Gunter, 689 F.3d 754, 758 (7thCir. 2012) (describing inducement as “a form ofcontributory infringement”), with Lime Grp., 784 F.
Supp. 2d at 424 (“In Grokster, the Supreme Court
confirmed that inducement of copyright infringement
constitutes a distinct cause of action.”). Regardless,because the Court concludes that ReDigi is liable forcontributing to its users’ direct infringement ofCapitol’s copyrights, it does not reach Capitol’s
inducement claim.

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Case 1:12-cv-00095-RJS Document 109

443 F.2d at I 162; see Fonovisa, Inc. v.
Cherry Auction, Inc., 76 F.3d 259, 262-63(9th Cir. 1996).

Filed 03/30/13 Page 17 of 18

market for copyrighted materials.
C ngress has the constitutional authority
an the institutional ability to accommodate
fu ly the varied permutations of competingin erests that are inevitably implicated bysu 'h new technology." Sony, 464 U.S. at
431. Such deference often counsels for a
Ii itedinterpretationofcopyright
pr tection. However, here, the Court cannotof its own accord condone the wholesale
ap lication of the first sale defense to thedi ital sphere, particularly when Congress
its If has declined to take that step.
A cordingly, and for the reasons stated
ab ve, the Court GRANTS Capitol's motion
fo summary judgment on its claims for
Re igi's direct, contributory, and vicarious
ingement of its distribution androduction rights.
The Court also
NIES ReDigi's motion in its entirety.

Clearly, ReDigi vicariously infringed
Capitol's copyrights. As discussed, ReDigi
exercised complete control over its
website's content, user access, and sales.
Indeed, ReDigi admits that it "is intimately
involved in . . . supervising the steps
involved in making the music available forsale and selling it" on the website. (Cap.
56.1 ~ 35; RD Rep. 56.1 '135); see, e.g.,
Lime Grp., 784 F. Supp. 2d at 435 (finding
right to supervise where P2P file sharing
system could filter content and regulate
users).
In addition, ReDigi financiallybenefitted from every infringing sale when it
collected 60% of each transaction fee. See,e.g., Shapiro, Bernstein & Co. v. Ii L.
Green Co., 316 F.2d 304, 308 (2d Cir. 1963)(finding a direct financial benefit where thedefendant received a share of the grossreceipts on every infringing sale). Notably,
ReDigi failed to address any of thesearguments in its opposition brief, instead
insisting that it was not vicariously liable forinfringement that occurred outside the
ReDigi service, for instance, when a user
impermissibly retained
files on his
computer.
(See ReDigi Opp'n 22-23.)
However, this argument is inapposite to theinstant motions. Accordingly, the Court
grants Capitol's motion for summary
judgment on its claim for ReDigi's vicarious
infringement of its distribution andreproduction rights.

Because issues remain with respect to
Ca ito1's performance and display rights,
an ReDigi's secondary infringement ofCapitol's common law copyrights, as well as
da~ages, injunctive relief, and attorney's
fees.
IT IS HEREBY ORDERED THAT theI'
pal'ies shall submit a joint letter to the Courtno later than April 12,2013 concerning thene t contemplated steps in this case.
The Clerk of Court is respectfully
dir cted to terminate the motions pending at
Do . Nos. 48 and 54.

f

IV. CONCLUSION
ARD
At
base,
ReDigiseeks judicial
amendment of the Copyright Act to reach its
desired policy outcome. However, "[s]ound
policy, as well as history, supports [theCourt's] consistent deference to Congress
when major technological innovations alterc~~.~ttIVANi

Da1ed: March 30,2013
New York, New York

*
17

*

*

Case 1:12-cv-00095-RJS Document 109

Plaintiff is represented by Richard
Stephen Mandel, Jonathan Zachary King,and Robert William Clarida of Cowan,
Liebowitz & Latman, P.c., 1133 Avenue ofthe Americas, New York, New York 10036.

Filed 03/30/13 Page 18 of 18('"'nf\;:.'~-1,-" ..J ..

~

, .,

~
,

,

Defendant is represented by Gary PhilipAdelman of Davis Shapiro Lewit & Hayes
LLP, 689 Fifth Avenue, Fifth Floor, New
York, New York 10022.

18: "\,T,

II