Back in October, I wrote briefly about Capitol Records’ (a division of EMI Music) lawsuit against ReDigi, a service that allows users to store, stream, buy and sell “pre-owned” digital music.

At the time, I thought U.S. District Court Judge Richard Sullivan might have some difficulty in coming to a conclusion about Capitol’s claims, but in reading the order issued by Sullivan last week, it appears that he didn’t have much trouble at all reaching the conclusion that ReDigi infringes on Capitol’s distribution and reproduction rights under the Copyright Act.

I’m going to quote from Sullivan’s order at some length below, both because this is a significant case and issue, and because the context of his conclusions is important to understanding the logic used to arrive at those conclusions.

Noting that the “novel question” posed by the case is “whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine,” Judge Sullivan ultimate concludes that the short answer is “no.”

“Courts have consistently held that the unauthorized duplication of digital music files over the Internet infringes a copyright owner’s exclusive right to reproduce,” Sullivan writes. “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.”

Drawing on precedent set in London-Sire Records v. John Doe 1, Sullivan notes that previous courts that have dealt with peer-to-peer file-sharing systems “provide valuable guidance on the application of this {reproduction} right in the digital domain.”

Sullivan observes that in the London-Sire case, the court held that when a P2P user downloads a song from another user, “he receives into his computer a digital sequence representing the sound recording. That sequence is magnetically encoded on a segment of his hard disk (or likewise written on other media). With the right hardware and software, the downloader can use the magnetic sequence to reproduce the sound recording. The electronic file (or, perhaps more accurately, the appropriate segment of the hard disk) is therefore a ‘phonorecord’ within the meaning of the statute. Accordingly, when a user downloads a digital music file or ‘digital sequence’ to his ‘hard disk,’ the file is ‘reproduce[d]‘ on a new phonorecord within the meaning of the Copyright Act.”

Adding that this understanding it is “of course, confirmed by the law of physics,” Sullivan asserts that it is “simply impossible that the same ‘material object’ can be transferred over the Internet.”

“Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because 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 digital music file on a new hard disk is a reproduction within the meaning of the Copyright Act,” Sullivan writes.

With respect to Capitol’s claim that ReDigi infringes on the label’s distribution right under the Copyright Act, Sullivan notes that ReDigi itself “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.”

The problem with that assertion on ReDigi’s part, from Sullivan’s perspective, is that ReDigi’s fair use and first sale defenses are flawed at their core.

“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 fair use defense,” Sullivan writes. “ReDigi obliquely argues that uploading to and downloading from the Cloud Locker for storage and personal use are protected fair use. Significantly, Capitol does not contest that claim…. Instead, 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.”

Sullivan finds that each of the four statutory factors in the fair use test “counsels against a finding of fair use” in the case before him.

“The first factor requires the Court to determine whether ReDigi’s use ‘transforms’ the copyrighted work and whether it is commercial,” Sullivan writes. “Both inquiries disfavor ReDigi’s claim. Plainly, the upload, sale, and download of digital music files on ReDigi’s website does nothing to ‘add[] something new, with a further purpose or different character’ to the copyrighted works…. ReDigi’s use is also undoubtedly commercial. ReDigi and the uploading user directly profit from the sale of a digital music file, and the downloading user saves significantly on the price of the song in the primary market.”

Sullivan then moves on ReDigi’s first sale defense, noting first that “the fair use defense is, by its own terms, limited to assertions of the distribution right” and, since he has already conluded that ReDigi’s service violates Capitol’s reproduction right “the first sale defense does not apply to ReDigi’s infringement of those rights.”

Sullivan adds that the statute “protects only distribution by ‘the owner of a particular copy or phonorecord…. of that copy or phonorecord,” observing that ReDigi is not, in fact, the owner of the works in question, at all.

“Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk,” Sullivan writes. “But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her ‘particular’ phonorecord on ReDigi, the first sale statute cannot provide a defense. 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. The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.”

The upshot of Sullivan’s order comes in its highly quotable conclusion: “[T]o comply 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 clear that ReDigi 1.0 does not,” Sullivan writes.

ReDigi apparently issued a statement to the effect that the company was “disappointed” with Sullivan’s ruling, but “pleased” that the ruling didn’t impact version 2.0 of the service (although, in fact, Sullivan simply didn’t consider version 2.0 at all, so clearly he has not endorsed the legality of ReDigi 2.0; he just considered irrelevant to the case before him). I would link to the ReDigi statement, but it appears to have been removed from the ReDigi site, or moved from its original location, at least.