Who calls the tune on ownership of digital downloads?

What is happening?

In much the same way that a thriving market has grown up in sales of previously owned CDs and DVDs the path appears to have been cleared for a similar market to become established to allow pre-owned digital downloads – such as those acquired from Apple’s iTunes store – to be resold.

Why is this happening?

Two important cases – one in the EU and one in the US – may pave the way for what could be the next big thing in the music world.

The Court of Justice in the European Union has ruled that if someone has lawfully purchased the right of distribution of a computer program that person has the right to then resell that program if they wish and the person they sell it to is regarded as having lawfully acquired it.

In another case involving pre-used digital products, the US Supreme Court is currently examining a case against US-based website ReDigi, which publicises itself as “The World’s First Pre-Owned Digital Marketplace”.

Capitol Records – part of EMI – has brought the case against ReDigi, claiming that the service which permits users to buy and sell previously purchased digital downloads is essentially a clearing-house for copyright infringement.

How does ReDigi work?

Launched in 2011, ReDigi’s business model is broadly that via its website, users sell digital downloads they have previously purchased and/or buy digital downloads which others have purchased and ReDigi will take a percentage from every sale.

Songs sell for approximately 40 cents, cheaper than on iTunes. ReDigi use a Verification Engine (i.e. software to validate that the song was bought legally) and once verified the user can then store the song on their ReDigi cloud and offer it for sale.

Once a user has sold a song via the site, ReDigi software ensures that users delete the song from their hard drive and devices. Users who refuse to delete a song once sold have their account suspended.

Why is Capitol taking ReDigi to court?

Capitol Records argues that the ‘first sale doctrine’ which is applicable under US law does not apply to digital music in the same way it applies to music bought on CD or vinyl. The first sale doctrine broadly means that whoever first bought the item effectively owns it and can therefore resell it if they so wish. We have a similar concept in English law called exhaustion of rights.

For its part, ReDigi argues that such an approach means that people who lawfully buy music and books via digital downloads have spent money on things which have effectively no residual value.

Besides clarifying whether the first sale doctrine applies in the digital arena it is anticipated that there will be other key issues to be resolved in the ReDigi case including the meaning of a “copy” for copyright purposes and whether a “public performance” takes place in transmission of copies.

The case has still to be decided, although ReDigi has said it plans to launch in Europe this year and observers say the recent Court of Justice ruling would make its business model a legal one under English law.

However even if it is legal, users will need to check the terms and conditions they have agreed to when they purchased the digital download from iTunes or any other digital retailer, as they may be contractually prohibited from transferring the download to a third party.

What effect will this have on the music industry?

The debate over ReDigi and similar services goes to the heart of what has been a contentious issue since the start of the digital music revolution – who owns copies of songs which are stored in a non-physical format?

The music industry may argue that if the likes of ReDigi are allowed to resell digital downloads, it could spell disaster for musicians and record labels with another drain on already dwindling income from music sales.

Digital music purchasers, on the other hand, could argue they are being taken advantage of and that a commonly understood rule on property – if you buy something, you own it – is being denied them.

The ReDigi case is being keenly watched by both sides of the debate since the outcome could have a profound influence on the future shape and direction of the music industry in the digital age.

How can I find out more?

For further information on the issues raised by this update, or matters such as copyright, music or technology protection and licensing, please get in touch.