The following analysis by Kevin Smith, Dean of Libraries at the University of Kansas, originally appeared on In the Open on January 17 under a CC-BY license. We’re featuring it here to provide some context for the issues surrounding Controlled Digital Lending (CDL) in the wake of the recent decision in Capitol Records v. ReDigi. Authors Alliance’s statement in support of CDL can be read here. 

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The decision announced last month in the ReDigi case, more properly known as Capitol Records v. ReDigi, Inc. was, in one sense, at least, not a big surprise.  It was never very likely, given the trajectory of recent copyright jurisprudence, that the Second Circuit would uphold a digital first sale right, which is fundamentally what the case is about.  The Court of Appeals upheld a lower court ruling that the doctrine of first sale is only an exception to the distribution right and, therefore, does not protect digital lending because, in that process, new copies of a work are always made.  His reasoning pretty much closes the door on any form of digital first sale right, even of the “send and delete” variety that tries to protect against multiple copies of the work being transferred.

What is perhaps more surprising is that the 2nd Circuit also rejected a fair use defense for ReDigi’s system.  Some were particularly surprised that fair use was treated so dismissively by Judge Pierre Leval, who is one of the most respected jurists in regard to fair use, and the author of Toward a Fair Use Standard, the article upon which the Supreme Court relied when it transformed fair use thinking in the Campbell v. Acuff-Rose case.  For my part, however, I am inclined to be a little less surprised, and to still think that we can learn several things from this decision.

An excellent analysis of the case by Jon Band, on behalf of the Library Copyright Alliance, is available here.

The reason I am less surprised that Judge Leval did not find fair use in what ReDigi was doing is precisely because he wrote that famous article, which proposes the idea that activities that constitute fair use are those which are is some way transformative of the original work.  Even though the Supreme Court reminded us, in the Campbell case, that non-transformative uses can still be fair use, Judge Leval may be more inclined to reject such uses because the notion of transformation is so close to the heart of his thinking.  Once he found that ReDigi’s system was making a non-transformative use, and constituted a direct market substitution, he, perhaps even more than other judges, was not likely to find in favor of fair use.

I think there are several things we can learn from this decision, even though it appears to have mostly negative implications, especially when we consider Controlled Digital Lending (CDL), which is generating a lot of attention these days in library circles.  What is most significant about this Redigi opinion is the directions it points us in as we consider how we could defend the idea that CDL is fair use.

First, any fair use defense of CDL would need to lay very heavy stress on the non-commercial nature of library lending.  This is perhaps the biggest difference that suggests that CDL might be fair use even though Redigi’s facilitation of the resale of digital music was not.

While still thinking about the first factor, I also believe that there is a stronger argument that CDL would be transformative, even though, again, Redigi’s use was found not to be.  Judge Leval specifically endorses an interpretation from another Second Circuit case, Fox New v. TVEyes, that reads the famous Sony case (the Betamax decision) as saying that a use can be transformative when it “utilizes technology to achieve the transformative purpose of improving delivery of content without unreasonably encroaching on the commercial entitlements of the rights holder.”  Judge Leval felt that Redigi did not meet this test, but it is arguably a direct and succinct statement of what CDL is trying to do.  Combined with its non-commercial nature, I think CDL has a MUCH stronger case on the first fair use factor.

Here we have the classic situation of “arguing in the alternative,” a style of argument that allows lawyers to present different defenses that might seem to contradict each other – “my client did not shoot the victim, and, anyway, it was self-defense” – and let the court decide which is most applicable or credible.  In asserting that CDL is fair use, we can argue regarding the first factor that the use IS transformative and, in the alternative, that even non-transformative use may still be fair use.

I also do not believe that the Redigi decision really undermines the effort to support a fair use analysis by pointing to the Congressional policy expressed in the law in another place.  Specifically, the doctrine of first sale, found in section 109 of the copyright law, as well as section 108, which is specifically designed to support library activities, indicate that library lending is an important value.  Even though CDL would not qualify for the first sale exception, the policy behind these provisions should help support a first factor analysis for fair use.  Also, first sale indicates that rights holders should not be able to assert sales lost due to library lending in order to prove market harm; Congress has said that that market is simply not available to rights holders as a matter of policy.  So, again, the policy behind these exceptions supports fair use, on the fourth factor as well as the first.

It is important to note that the Redigi decision did not comment at all on this argument about the policy that underlies other exceptions and its impact on fair use.  Jon Band notes that this argument was made in the Library Copyright Alliance’s amici brief to the court, but that Judge Leval chose not to address it.  Jon finds this discouraging, which is understandable, but I want to emphasize that there was no comment one way or the other, and therefore nothing to undermine the argument in later fair use cases, where the analysis as a whole will be stronger, for the reasons discussed above.

Overall, I am optimistic that the fair use analysis for CDL is still strong, and that the ReDigi case did not seriously weaken it.  Nevertheless, I think the policy arguments – apart from fair use — are important, and point to a reason why Congress ought to address the issue of digital first sale.  The policy behind first sale is fundamentally that people should be able to resell their own property; this is a legal value called “free alienation of property,” and it underlies quite a bit of Anglo-American law.  The basic concept is that property will be used most efficiently when it is easy to transfer it from the hands of someone who no longer plans to use or exploit it to the hands of someone who will.  When we look at this policy, something that has been favored in our law for centuries, we can see that the radical distinction between reproduction and distribution is both technologically outdated and leads to outcomes that are contrary to sound policy.  It is time for us to rethink that distinction and to see if we can find a better approach, one that protects consumers in a digital environment and reinforces the sound reasons for allowing free alienation even of digital property.  There are several potential approaches here, such as restricting the ability to turn an apparent sale into a licensing transaction, or even by returning to the earliest U.S. copyright law and granting not a reproduction and distribution right, but simply a “right to vend” the protected work.  But that is material for another post; this one is complicated enough as it is.