Last year, in a sprawling post about digital music and the “first sale doctrine” — which allows consumers to re-sell lawfully aquired goods — we mentioned a “used MP3” service called ReDigi. At the time, ReDigi was just starting to feel some legal heat from Capitol Records for alleged copyright infringement.

Well, this week, a New York City federal court passed (partial) summary judgement against ReDigi [PDF], ruling that the service is liable for infringement. In doing so, the court strongly rejected ReDigi’s claims that their activities are covered under “fair use,” as well as the aforementioned first sale doctrine.

What does this matter to musicians? Well, first off, musicians are also music consumers. Second, creator compensation looks different in a used marketplace (typically nonexistent). ReDigi did supposedly hold a percentage of revenue from “used” sales in “escrow,” but it’s a bit fuzzy how this money would get to artists.

In this post, we’ll look at some of the legal factors involved in the court decision. You can tell us what you think in the comments.

Before we delve deeper, it’s probably helpful to describe ReDigi’s business model. Launched in 2011, the service claimed to be “the world’s first, real legal alternative to expensive online music retailers and to illegal file sharing.” ReDigi created a system that allows users to re-sell music purchased from iTunes to other users via their platform. Employing a technology called “Marketplace,” ReDigi was supposedly able to verify that a user’s music was purchased legitimately and also delete the file from their computer upon upload to their “cloud.”

In its argument, ReDigi characterized this transaction as “migration,” similar to taking one physical item from over here and moving it over there. Judge Richard J. Sullivan wasn’t buying that, finding ReDigi to have infringed on copyright owners’ exclusive rights to reproduction and distribution.

Judge Sullivan determined that ReDigi transactions create a new copy (for sale), and are therefore unlawful. This finding is based on Section 101 of the Copyright Act, which describes “copies” as “material objects.” The fact that ReDigi nukes the original file makes no difference, because a copy was made without permission of the rightsholder.

Going further, according to the ruling, the act of re-selling that copy to new users infringes on the copyright owner’s right to distribute.

ReDigi’s defense claimed that its service was shielded by “fair use,” which allows exceptions based on:

• the purpose and character of the use
• the nature of the copyrighted work
• the amount and substantiality of the portion taken, and
• the effect of the use upon the potential market.

Judges weigh these factors in making a decision about whether a use is “fair.” Here, the court rejected at least three out of four: the new use is an identical copy (not “transformative”); it’s created for sale; and it affects the market for identical copies of the music sold at full price.

ReDigi also pressed the case that their service is protected by the first sale doctrine, which we described at the top of this post. A recent hot-topic all the way up to the Supreme Court, first sale allows those who lawfully purchase a good to re-sell that good. ReDigi claimed that this is simply what their platform lets users do.

This is where reproduction once again comes into play. The judge was unambiguous here, saying that “ReDigi, by virtue of its design, is incapable of compliance with the law.” Basically, because the service creates an unauthorized “material” reproduction, no other factors need apply.

But what about other technologies that create “copies,” cuz that’s just what they do? Some good points are made over at the Copyright and Technology blog:

It’s hard to see how this gibes with the many “new copies” of digital files made during normal content distribution processes, including streaming as well as downloads.  In other words, if ReDigi is infringing, then so are countless other technologies.  Some such copies are considered “incidental” (not requiring permission from the copyright holder); the judge didn’t explain why copies made by the ReDigi system don’t qualify as incidental.

ReDigi is apparently planning to appeal in the case, and we’re guessing that they may pick up this line of argument. Still, Judge Sullivan’s opinion doesn’t leave a lot of defensive wiggle room.

Now, pretend you are the judge — should a digital item transmitted over the internet be eligible for first sale protections? Tell us in the comments.