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Applying Copyright Law to New Technologies Continues to Prove Challenging

Applying Copyright Law to New Technologies Continues to Prove Challenging

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Published by gesmer
Original file or article published Massachusetts Lawyers Weekly, 9-9-13
Original file or article published Massachusetts Lawyers Weekly, 9-9-13

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Published by: gesmer on Sep 16, 2013
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10/25/2013

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Applying Copyright Law to New Technologies Continues to Prove ChallengingBy Lee T. GesmerGesmer Updegrove LLP
 Published in Massachusetts Lawyers Weekly 9-9-2013
Innovative and powerful computing technologies have generated challenging issuesunder U.S. copyright law in 2013. Two cases with a connection to Massachusetts illustrate theefforts of traditional content providers to use copyright law to attempt to block disruptivetechnologies. Thus far one case has succeeded, one has failed.
Capitol Records v. ReDigi
.
Capital Records, LLC v. ReDigi, Inc.
, 2013 WL 1286134(S.D.N.Y. Mar. 30, 2013), addressed the novel question of whether a digital music file, lawfullypurchased, may be resold by its owner under the “first-sale” doctrine. ReDigi, a Boston-basedstartup, devised a technical method to allow the resale of iTunes music files and attempt toensure that no more than one copy existed at a time. ReDigi verified that the file on the seller’scomputer had been purchased from Apple’s iTunes store, copied it to a ReDigi server (aka “thecloud”) and simultaneously deleted the copy on the seller’s computer. The seller could streamthe file until it was sold, but upon sale ownership was transferred to the buyer and the seller’saccess terminated. This technology ensured (unless the seller went to extremes to evade it) thatthe seller didn’t sell a copy and keep a copy.ReDigi intended its system to fit within the copyright statute’s traditional “first-sale”doctrine, which allows “the owner of a particular copy or phonorecord” lawfully made to “sell orotherwise dispose” of “that copy or phonorecord.” (17 U.S.C. § 109). This rule of copyright lawallows the purchasers of copyright-protected works (books, records, tapes, CDs, DVDs,paintings) to resell physical copies of the works without violating the rights of the copyrightowner. Indeed, without “first-sale” there would be no market for second-hand books.
 
 2Capital Records, however, challenged the premise underlying ReDigi’s reliance on thefirst-sale doctrine. It argued that the law is limited to copyrighted works embodied in
 physical
 objects (e.g., a book or CD), not
electronic
files. The sale of a digital file, Capital argued, doesnot involve the transfer of a “particular copy,” but rather a “reproduction” of the file that is anexclusive right of the copyright holder.ReDigi is based in Boston, but Capital filed suit in the Southern District of New York.The trial court denied Capital’s motion for a preliminary injunction, and the parties filed cross-motions for summary judgment.The summary judgment motion required the District Court to squarely face the questionwhether the first-sale doctrine applies to digital recordings—that is, to evaluate Capitol’sassertion that the first-sale doctrine does not apply to the resale of a digital file unless it isembodied in a material object. The court’s summary judgment ruling, issued March 30, 2013,concurred with the recording industries’ view of the first-sale doctrine. The court held that thefirst-sale doctrine “is limited to material items, like records, that the copyright owner puts intothe stream of commerce.” The doctrine does not apply to “reproductions of the copyrighted codeembedded in new material objects,” in this case the ReDigi server. Central to the court’sconclusion was its finding that when a user moved a music file to the ReDigi server anunauthorized reproduction occurred. The court did not find (and Capital did not claim) that theuse of Redigi as a cloud-based personal storage locker alone constituted the creation of anunauthorized copy, reflecting the broad consensus that such “space shifting” is protected by thecopyright doctrine of fair use.The court did not enter final judgment or a preliminary injunction, and it denied ReDigi’srequest for an interlocutory appeal. Therefore, a trial on damages will be conducted before
 
 3ReDigi can appeal from a final judgment. Whether ReDigi will be able to withstand apotentially substantial damages verdict and post an appeal bond remains to be seen. If it cannot,this novel issue of law may not reach the Second Circuit in this case. The absence of a federalcircuit court decision will leave a significant degree of uncertainty as to whether the first-saledoctrine applies to digital works.
WNET v. Aereo
. The second copyright case with a Massachusetts connection is
WNET,Thirteen v. Aereo, Inc.
, 712 F. 3d 676 (2d Cir. 2013). Although this case was decided for Aereoby the Second Circuit, Aereo has been sued on the same grounds in federal court in Boston,requiring that the same legal issues be decided by the district court, and likely the First Circuit.Aereo’s service allows subscribers to watch network TV on Internet-enabled devices,such as laptop and tablet computers, while paying no fees to the networks. Because the networks(such as CBS and NBC) receive billions of dollars in “retransmission fees” from the cablecompanies, this has the potential to reduce carrier fees and accelerate the trend toward Internet-based TV.Aereo’s system takes advantage of a copyright loophole created by the Second Circuitdecision in
Cartoon Network LP v. CSC Holdings, Inc.
, 536 F.3d 121 (2d Cir. 2008)(“
Cablevision
”). Aereo uses thousands of mini-antennas arranged on antenna boards to receiveover-the-air TV broadcast signals, which it retransmits to its subscribers at low cost over theInternet. A subscriber who is watching a show has one antenna assigned to him. If the userwants to watch a show without saving it the show is converted to an Internet-friendly format,saved to an Aereo hard drive, transmitted to the subscriber and almost immediately deleted fromthe Aereo drive. If the user chooses to save the show it is received on the second mini-antennaand saved on an Aereo hard drive in a directory assigned to that user alone.

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