Capitol Records LLC, Capitol Christian Music Group Inc., and Virgin Records IR Holdings Inc. won a copyright infringement lawsuit against the online digital music resale company ReDigi.

The U.S. Court of Appeals for the Second Circuit ruled Dec. 12 that ReDigi, an online marketplace that brokered sales of legally-purchased music files, infringed on the rights of the copyright holders because the technology system made unauthorized copies of the songs.

The decision upholds a $3.5 million judgment for Capitol Records, Capitol Christian Music, and Virgin Records.

Terry Hart, legal policy and copyright counsel for copyright advocacy group Copyright Alliance, praised the “well-written, clear and correct” ruling. He said transmitting files digitally inherently creates a new file and goes beyond legal protections of the first-sale doctrine, whether the original is destroyed or not.

Hart also said the court was right to not skirt the letter of the law to validate ReDigi’s argument its service complied with its spirit. Advocates who believe allowing such transfers is good policy should “go to Congress, hash out disagreements and put something into law,” he said.

ReDigi argued that its method of transferring music from one user to another fit within the Copyright Act’s first-sale doctrine. That doctrine says that a copyright holder’s control over the distribution of a work terminates when the work is distributed to the first recipient.

But the right to control reproduction of a protected work remains in force under the first-sale doctrine, which was key to the Second Circuit’s decision.

ReDigi made substantial efforts with the mechanics of its online platform to migrate and destroy the lawfully-purchased files rather than simply duplicate and distribute them. But that doesn’t mean courts are “free to disregard the terms of the statute,” the Second Circuit said.

“The fixing of the digital file in ReDigi’s server, as well as in the new purchaser’s device, creates a new phonorecord, which is a reproduction” done without the permission of the copyright holder, the court said.

The court also rejected ReDigi’s fair use arguments. The ReDigi system doesn’t provide new commentary or context that would be considered “transformative” under the act, the court said. The system also creates a secondary market in which song “replicas were sold to the same consumers whose objective in purchasing was to acquire Plaintiff’s music” at reduced cost, the court said.

Finally, the court noted ReDigi’s economic ramification arguments and those of its amici were best directed to Congress rather than the courts.

Cowan, Liebowitz & Latman, P.C., represented Capitol Records. Baker & Hostetler LLP represented ReDigi.

The case is Capitol Records LLC v. ReDigi Inc., 2d Cir., No. 16-2321, 12/12/18.

—With assistance from Kyle Jahner