Out-Law News | 18 Jan 2013 | 4:31 pm | 4 min. read
Intellectual property law specialist Indradeep Bhattacharya of Pinsent Masons, the law firm behind Out-Law.com, said that there is a reasonable chance that rights holders may not be able to prevent the second trade of digital music files by Redigi, a cloud storage provider. However, he cautioned that a lot will depend on how, and on what terms, the files had been first put onto the EU market.
Redigi is a US company that sells second hand legally-downloaded digital music tracks. It is set to launch its business into the European market, according to a report by the Financial Times.
EMI, one of the world's biggest record companies, has sued Redigi in the US alleging that the business is infringing its copyrights. However, Bhattacharya said that a ruling by the EU's highest court last summer could help Redigi defend against any similar legal challenge brought within the trading bloc. The expert said that is "almost certain" that Redigi's re-sale operation would be subject to a legal challenge by rights holders if it set up business in the EU.
"Redigi's business model is entirely reliant on it being allowed to sell on copyrighted works which have already been put onto the market," Bhattacharya said. "The ruling by the Court of Justice of the European Union (CJEU) in the case of UsedSoft v Oracle last year will be important in determining whether Redigi will be held liable."
In July last year the Court of Justice of the European Union (CJEU) said that software owners exhaust their rights to control the resale of their copyrighted products after they have sold them within the EU, regardless of whether the sale concerns a physical product or one downloaded from the internet.
It said that, as a result, the original purchaser of software can sell on 'used' copies to others providing they delete any copy they have made for their own use when they make that sale.
The CJEU's judgment was issued on its reading of the EU's Computer Programs Directive. The Directive provides content creators with exclusive rights to control "any form of distribution to the public, including the rental, of the original computer program or of copies thereof". However, that right is 'exhausted' following the "first sale" of a copy of their computer programs under the terms of the Directive "with the exception of the right to control further rental of the program or a copy thereof".
Bhattacharya said that the CJEU's findings could aid Redigi in any legal challenge to its business model.
"Although the CJEU's judgment was based on its reading of the Computer Programs Directive and not on provisions of more mainstream EU copyright laws its findings on the 'exhaustion' of distribution rights could be said to apply to digital music and video files," he said.
"The key point that stems from the UsedSoft case is the issue of when rights holders can be said to have transferred ownership of, rather than merely licensed the use of, digital products. In the UsedSoft case the CJEU was persuaded that digitally available software could be said to have been 'sold' where the right to use the software was transferred for an 'unlimited period' of time in return for 'payment of a fee'. The court said that it did not matter if such arrangements were labeled as a licensing agreement," Bhattacharya said.
"Many software licenses, though, come with restrictions over the use of those works. One can see that having these limitations, such as restrictions on the purposes for which that software can be used, the geographic region in which it can be used or the number of people who can use it, may give grounds for software companies to argue that it has not "sold" their products," he said.
"However, for digital music and video files it is less common for restrictions to be placed on the use of those files by purchasers. Therefore, it is easier to argue that the licensing of a music file is more akin to a transfer of ownership. Taking the CJEU's findings in the UsedSoft case to its logical conclusion, there is a good chance that Redigi could successfully argue that rights holders lose their rights to control the distribution of music files when they first make those files available to consumers for an unlimited period, even if this arrangement is termed as a licence," Bhattacharya said.
The expert said, though, that rights holders still have the right make it "technically impossible" for digital music files to be reproduced in order to be further distributed, after the CJEU deemed such action to be legitimate in the UsedSoft case.
"A copyright holder ... is entitled, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from his website, to ensure by all technical means at his disposal that the copy is made unusable," the CJEU said in its judgment.
Users of Redigi upload their files for storage in their own private cloud. They can then 'stream' the music from there to listen to or list the tracks for sale. Redigi only allows files that are legally downloaded to be stored and do not allow tracks to be copied from CDs or other media and uploaded to the cloud. Redigi takes a percentage cut from the sale of the second hand tracks and users earn credits which they can use to buy new music.
The company has previously admitted that whilst it has a system for verifying whether music files have been illegally copied, it cannot guarantee that its customers do not make copies of their files and store them on other devices before selling them through the company.