Will we someday be able to sell our used MP3s and e-books?

The rise of digital media sent Virgin Megastore and Borders to the grave -- and used book and record stores with them. Will used MP3 and e-book stores change the story?
Written by Laura Shin, Contributor

Few people alive today have second thoughts about re-selling a book or a CD after buying it.

Since 1908, the “first sale” doctrine has established that once you buy copyrighted content, you can do what you like with it, whether that’s re-sell or donate it -- the copyright owner only has the right to control the first sale. The Supreme Court even recently applied the doctrine to goods bought overseas when it ruled in favor of a man who was selling textbooks he had bought more cheaply overseas in the U.S.

But does the first-sale doctrine apply to digital files such as the MP3s in your iPod or the e-books on your Kindle? The answer to that billion-dollar question could have an impact on everyone from distributors of digital media such as Apple and Amazon to consumers to record labels and publishers to the artists themselves. So far, there's only been one answer -- and it has raised more questions than it has resolved.

In October 2011, ReDigi, which calls itself the world’s first pre-owned digital marketplace, launched to sell used MP3s. The company made pains not to raise the ire of the music industry by automatically signing users up to make donations to the artist each time they sold songs -- and ReDigi CEO John Ossenmacher says not a single user opted out.

The goodwill gesture didn’t matter. Three months later, Capitol Records sued the company for copyright infringement, and on March 30, a New York judge ruled in favor of Capitol Records, saying that ReDigi infringes on copyright by making unauthorized copies of digital music files.

The catch is that the judge only ruled against what Ossenmacher calls ReDigi 1.0; the site now runs 2.0 technology. Ossenmacher maintains the 1.0 version “picks up the blocks and bits a block at a time and physically moves them through the Internet. It doesn’t copy them.” The judge disagreed.

Ossenmacher says ReDigi 2.0, on the other hand, stores a ReDigi user’s songs in the “cloud” (i.e. the company's servers), and then “locks” each song, giving access only to the user with the title and key -- transferring ownership of songs much the way that a used car changes owners, and keeping the song on one server no matter who the owner. The problem for ReDigi is that 2.0 doesn't allow users to sell songs bought prior to signing up for ReDigi -- leaving behind what Ossenmacher estimates is about $300 billion of inventory that has already been downloaded in everything from music to games to software to e-books. That market potential may be why Apple and Amazon have patented technology for used digital media marketplaces. (Apple declined to comment, and Amazon did not respond to requests for comment. Disclosure: I own Apple stock.)

But while used digital media stores may be anticipating healthy revenues, one group of stakeholders looks likely to lose out: the artists themselves. Scott Turow, president of the Authors Guild, says, “Whatever way you look at it, authors get screwed.” In his assessment, distributors will win big, since, if the first-sale doctrine applies, Amazon will reap profits from secondhand sales but won’t have to pay publishers, who in turn won’t have to pay writers. “You’re going to have a market in which there will be one or two or three sellers as opposed to a world in which there are thousands of outlets to sell books. That just can’t be good for consumers,” he says.

Robert Levine, author of "Free Ride: How Digital Parasites Are Destroying the Culture Business, and How the Culture Business Can Fight Back," says that what makes used digital media stores so threatening is that they're so much more efficient than traditional used book and record stores. "If you need a book right away, you’re not going to go to a used bookstore, because they probably won’t have what you want," he said by phone from Berlin. But that disadvantage disappears on the Internet.

But Levine believes used digital media marketplaces could be created in a way that would be mostly agreeable to all parties -- for instance, delaying the purchaser's ability to sell a used digital good for, say, a year after it hits the market. Such a restriction would appease consumers who want to make money by selling used digital goods -- but it would also help ensure that creators could be paid in order to make it worth their time to make quality cultural products.

Photo courtesy ReDigi

This post was originally published on Smartplanet.com

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