The start-up ReDigi Inc has just lost a major battle against Capitol Records.  It has just been made public that Capitol Records won a court ruling against ReDigi.  The court ruled that ReDigi infringed Capitol Records music copyrights.  This ruling could have major implications for other startups and is a massive blow to efforts to create an online market for used digital goods.  The impact is also huge because of the amount of digital music sales.  In the past couple of years, digital music sales have surpassed that of physical music sales.

Capitol Records Wins Lawsuit on Recording Rights

ReDigi was launched in 2011 by Massachusetts Institute of Technology Professor Larry Rudolph and entrepreneur John Ossenmacher. ReDigi provided listeners with access to “pre-owned” digital music.  Users could swap music tracks rather than purchasing new tracks.  While ReDigi made money from fees on each transaction, the cost to users was only a small fraction of what it would cost to purchase a track from iTunes. ReDigi states that they are “the world’s first pre-owned digital marketplace.”

In the decision against ReDigi, the U.S. District Judge, Richard Sullivan, indicated that the service provided by ReDigi infringes upon Capitol’s reproduction rights and that ReDigi was not protected by the “first sale” doctrine.  “ReDigi facilitates and profits from the sale of copyrighted commercial recordings, transferred in their entirety, with a likely detrimental impact on the primary market for these goods, “ the judge wrote. “It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.”

For their part, ReDigi had planned to give part of the proceeds from the sales to copyright holders.  For those disappointed by the ruling, one major complaint is that it would be impractical to have to ask all copyright holders for permission to re-sell digital content.  It was not immediately clear what the impact will be on ReDigi, and whether the company will have to shut down.

[Image via violatordjs]