Evan Schuman's StorefrontBacktalk

Retailers eyeing the repurposed (aka used) content space may want to rethink whether the effort to prepare to resell those e-books, audio files, videos, apps, games or ringtones makes much sense, given a federal court ruling Monday (April 1). That ruling, in favor of Capitol Records, said that getting around copyright rules by arguing fair use won’t fly anymore. At least not with New York City-based U.S. District Court Judge Richard Sullivan.

The ruling dealt with the narrow area of recreated music, once the original producer has stopped selling the initial song. But the court’s decision is likely to be applied to many kinds of resale efforts, at least in terms of copyright restrictions. In other words, pay once and sell many may have some new retail hurdles.

Created by technology entrepreneur John Ossenmacher and Massachusetts Institute of Technology Professor Larry Rudolph, ReDigi was launched in October 2011, and calls itself “the world’s first pre-owned digital marketplace,” according to Reuters. The platform allows listeners to swap music tracks at a fraction of the cost of buying them on iTunes. ReDigi makes money from fees on each transaction. Capitol complained that the platform allowed the unauthorized reproduction and distribution of its music, including through the streaming of 30-second clips.

“Simply put, it is the creation of a new material object and not an additional material object that defines the reproduction right,” the court ruled. “The dictionary defines ‘reproduction’ to mean ‘to produce again’ or ‘to cause to exist again or anew.’ Significantly, it is not defined as ‘to produce again while the original exists.’ Thus, the right ‘to reproduce the copyrighted work in phonorecords’ is implicated whenever a sound recording is fixed in a new material object, regardless of whether the sound recording remains fixed in the original material object. Given this finding, the Court concludes that ReDigi’s service infringes Capitol’s reproduction rights under any description of the technology.”

The judge had to figure out whether the exact digital process that was used by ReDigi could legitimately avoid copyright. He concluded that it couldn’t.

“ReDigi stresses that it ‘migrates’ a file from a user’s computer to its Cloud Locker, so that the same file is transferred to the ReDigi server and no copying occurs. However, even if that were 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,” Sullivan wrote. “Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.”

The judge also took issue with ReDigi’s suggestion that ruling against them would prevent consumers from, among other things, being able to defrag harddisks. “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,” the judge said. “However, this argument is nothing more than a red herring. As Capitol has conceded, such reproduction is almost certainly protected under other doctrines or defenses and is not relevant to the instant motion.”

Given the evolving area of law involving digital assets, this certainly won’t be the last federal ruling on this issue. But the strong tone will likely make quite a few retail corporate counsel lawyers to sit back and refuse to approve some repurpose activities, at least until a higher court — or federal legislation — changes the issues.