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Case could pave way for reselling digital music, other products

Case involving Cambridge’s ReDigi could end with a landmark ruling

John Ossenmacher (left) and Larry Rudolph created ReDigi.com, which resells songs purchased from iTunes.

BRIAN FEULNER FOR THE BOSTON GLOBE

John Ossenmacher (left) and Larry Rudolph created ReDigi.com, which resells songs purchased from iTunes.

When Pete Brown got tired of his Don Henley album, he did what music fans have done for decades. He sold it.

But Brown’s version of the rock classic was digital. The 31-year-old liquor distributor from Indianapolis downloaded it from Apple’s iTunes music store and resold it on ReDigi.com, the Web’s first consignment shop for digital music, which a Cambridge start-up launched in October.

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He earned a few bucks but may have broken the law in the process, though iTunes’s terms and conditions do not explicitly prohibit users from reselling their purchases. Capitol Records is suing ReDigi for allegedly violating copyright law and running a business “built on widespread, unauthorized copying of sound recordings.”

The case is making its way through federal court and is expected to determine the legitimacy of a secondary marketplace for these downloads. But it could also bring a landmark decision on how copyright law applies to digital albums, electronic books, and feature films that are downloaded on the Web, according to legal scholars.

If the court rules in favor of ReDigi, it could pave the way for used digital music and other digital products to be resold, just like CDs and books at stores.

“I want people to treat virtual goods like physical goods,” said Larry Rudolph, the Massachusetts Institute of Technology computer science professor who founded ReDigi with John Ossenmacher, a technology entrepreneur.

The two started the company on the premise that if people buy digital media, they should have the right to sell it, too. That way, said Rudolph, a more vigorous virtual marketplace will emerge and fewer people will illegally download songs if they know they can eventually turn around and resell it. “Having a used market shows that virtual stuff is not free. It has value,” he said.

‘When technology is developing so quickly, it’s hard to predict where the law needs to be.’

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Capitol Records doesn’t see it that way.

“While ReDigi touts its service as the equivalent of a used record store, that analogy is inapplicable: used record stores do not make copies to fill their shelves,” according to the record company’s lawsuit, filed in January in federal court in New York. Oral arguments on the case are scheduled for the fall.

Capitol’s lawyers would not comment further for this article. The company wants ReDigi to strip its recordings from its service and pay the maximum damages of $150,000 per song. ReDigi would not say how many songs it has resold but about 100,000 people have used the service.

Music and movie companies have a long history of challenging how new technologies transmit or duplicate their copyrighted material. In the 1980s, for instance, Universal Studios sued Sony Corp. about development of VHS tapes. The Supreme Court eventually decided in favor of Sony and ruled that making individual copies of TV shows for personal use did not amount to a copyright violation.

ReDigi’s case will determine how some of those same legal principles apply in the Internet era, said Rick Sanders, a Nashville copyright and intellectual property attorney who works with both technology and entertainment companies. “This court is going to have to make a decision that no other court has had to make,” he said.

The issues are more pressing than ever, as digital downloads are skyrocketing. Last year, digital music sales surpassed physical purchases for the first time and accounted for 50.3 percent of all music sales, according to Nielsen SoundScan, which tracks recorded music transactions.

ReDigi works by using sophisticated technology to transfer music tracks from one computer to the next. When someone signs up to use its service, the company places a software application on the user’s computer that transfers songs into a cloud-based storage locker on the Web. When a buyer purchases the song, usually for 69 or 79 cents, ReDigi removes it from the locker and transfers it to the new owner.

The company says its software ensures that once a song is sold, it is no longer on the original owner’s hard drive and can’t be played on devices like iPods that sync with their computers. And, the company says, it can also tell if songs have been legally obtained.

The ReDigi app will not let users upload music copied from CDs, since the original owner could keep the CD. It’s currently selling songs downloaded only from Apple’s iTunes music store because it does not explicitly prohibit reselling purchases. Other sites such as Amazon.com do, so ReDigi does not allow users to resell those music downloads.

Apple does not have an official relationship with ReDigi and would not comment on the company or whether it has a position on reselling its digital media.

The technology that ReDigi has developed to create its virtual marketplace for music is not foolproof, and ReDigi cannot be certain its users have not made a copy of the music they are selling, according to Capitol and some legal experts.

“What they are seeking to achieve is unachievable,” said Matt Oppenheim, a copyright attorney in Maryland who has previously represented record labels in copyright lawsuits. He is not involved in this case.

The process of creating a marketplace for digital goods is complex, and the legal questions the ReDigi case will address are complicated.

A key issue is whether the so-called first-sale doctrine in US copyright law covers digital songs and e-books, which ReDigi said it could sell in the future. The doctrine gives anyone who buys a physical album or book the right to resell it on the secondary market and was first recognized by the Supreme Court in 1908. It created the basis for the used book market and video rental stores.

“The first-sale doctrine absolutely applies to digital downloads,” said Gary Adelman, a New York copyright attorney who is representing ReDigi.

Not so, said Oppenheim. The reason, he said, is that in order to sell a digital download the owner has to make a copy of it. “You are simply not allowed to copy, that’s not permissible,” said Oppenheim, the copyright lawyer.

But is a digital transfer from one owner to the next a copy? ReDigi says no. Capital Records says yes. And if it is a copy, is it permitted by copyright law? The answers to those questions have implications beyond ReDig, and could affect the fast-growing cloud storage business, which lets users store digital music files on the Web.

ReDigi is operating in a legal gray area and pushing the bounds of copyright law, said Sarah Abelson, a recent graduate from at the University of Colorado Law School, who wrote a scholarly article on ReDigi that was published this year by the American Bar Association. “When technology is developing so quickly, it’s hard to predict where the law needs to be.”

Michael B. Farrell can be reached at michael.farrell@globe.com.
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