If you purchase a physical album, say a CD or vinyl record, you in part, become the owner of that content – or at least the reproduction of it – meaning you can sell it on if you wish in a second hand market. An entitlement that is taken for granted, but in the ever-emerging case of online and digital music, that same right isn’t so clear-cut, and the latest settlement in a legal battle could have set a restrictive precedent over digital music ownership.

An American lawsuit between record company giant Capitol Records and a website startup looking to create a second-hand digital market has been settled in a Manhattan Court, where Capitol have successfully sued ReDigi for infringing on music copyright laws by making illegal reproductions of “pre-owned” digital music.

ReDigi, which calls itself “the world’s first pre-owned digital marketplace”, allows listeners to trade music tracks at a fraction of the original cost of buying them on digital stores like iTunes. The platform, which launched its service in October 2011, makes money from fees placed on each transaction between its users.

The lawsuit began in January 2012 when Capitol Records sued the website citing a contribution to copyright infringement and demanded that ReDigi removed all Capitol-owned material, which includes music from artists such as The Beatles, Beastie Boys, Coldplay, and Katy Perry, noting ReDigi should pay $150,000 per track infringement.

Capitol were denied a preliminary injunction to shut down ReDigi in January 2012 because the record label failed to show the website was committing irreparable harm to the sale of its artists’ music.

“It is simply impossible that the same ‘material object’ can be transferred over the Internet… [ReDigi’s service] infringes Capitol’s reproduction rights under any description of technology.” – US District Judge Richard Sullivan

ReDigi is adamant in claiming they do not buy pre-owned digital music from their users, but rather allow consumers to buy and sell tracks direct from one user to another. Capitol Records objected that the platform allowed the unauthorised reproduction and distribution of said tracks, including through the streaming of 30-second clips.

As Reuters reports today however, a ruling by U.S. District Court dated March 30 said that ReDigi was not reselling the previously owned products but was making unauthorised copies.

In an 18-page decision, U.S. District Judge Richard Sullivan ruled that the music website’s service “infringes Capitol’s reproduction rights under any description of technology,” stating it was clear that ReDigi was facilitating and profiting from the sale of the copyrighted commercial recordings. 

“It is simply impossible that the same ‘material object’ can be transferred over the Internet,” claimed Judge Sullivan in a Manhattan Court, adding that: “It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.”

The ruling has serious implications for the future of digital sales and online marketplaces, Capitol having ceremoniously put their foot down in what could be a peak point in the debate over consumer rights in the digital age.

As Bill Rosenblatt, GiantSteps Media Technology Strategies President tells Reuters;“This will profoundly affect the economics of any digital re-sale marketplace.” Namely, the court ruling limits the sale of digital content solely to the copyright holders’ approval, and restricting the rights of the ‘owner’ of digital content – including music.

In order to get consumers to exercise their right to resell their digital property, ReDigi were attempting to support the interests of copyright holders, like Capitol Records, but have been found in a legal grey area which reveals consumers may not have any kind of ownership over their digital purchases.

O’Reilly Media, Inc General Manager and Publisher Joe Wikert, called the Capitol Records ruling over ReDigi “not a good first step” for establishing a secondhand digital marketplace. Asking for permission from copyright holders – such as record labels and artists – to re-sell digital content would be “impractical for all intents and purposes,” he said.

Wikert is “disappointed” in the ruling, namely because ReDigi were planning to give a cut of the proceeds from re-sales to copyright holders and the firm was escrowing money for record labels from completed digital music transactions on its nascent service.

In terms of competitors, Wikert believes companies like Amazon or Apple have been “sitting on the sidelines watching the ReDigi case” with renewed interest, chiefly because it affects the first-hand sales of their digital content.

Earlier this year, Amazon acquired a patent for an online mechanism which allows a customer to on-sell or transfer digital goods from the store; this will include E-books, MP3 songs and digital videos which usually cannot be resold once used. Meanwhile, Apple has applied for a patent covering a similar system, a move which Wikert believes is just an “insurance policy” for both the companies.

In what turned out to be just a ceremonious gaffe over consumer rights, late last year it was reported that actor Bruce Willis was set to sue Apple over his inability to leave his iTunes library to his daughters in his will, because legally, he didn’t own the material he paid for on the Apple store. Though the story turned out to be fake, it did raise many questions over digital ownership, namely over the traditional unspoken contract of a ‘purchase’, when in actual fact iTunes is merely offering a semi-permanent ‘lease’ of its music, separate from traditional views of customer ownership.

In an opinion piece last year we noted the increasingly digital shape of music collections, and as people increasingly purchase their music online and in the digital format, what does it mean for the future of music ownership? As it turns out, when purchasing music digitally, it’s the right to listen to the music that is being bought, and not the content itself.

Nowadays record companies like Capitol Records have the resources and power to hold these so-called “purchases” over consumer’s heads, citing outdated copyright laws which restrict the growing digital marketplace ReDegi were trying to create. Meaning that its the right owners that are the gatekeepers to what content can be bought, sold, and traded.