advertisement Allows Users to Sell Used Digital Goods

Redigi wants to help people resell digital content they’ve purchased. But first, it could use a little help of its own. Allows Users to Sell Used Digital Goods

John Ossenmacher and Larry Rudolph are not philosophers, but the company they started certainly produces a lot of deep questions., as they named it in 2010, was founded upon the belief that digital goods should be treated like physical goods. That means buyers of e-products–music, books, games, movies, software, apps, whatever–should be able to resell their purchases at will. A century ago, a U.S. Supreme Court case established the idea of a “first-sale doctrine,” which essentially holds that a vendor loses rights to a product after sale to the consumer. Why should it matter, Ossenmacher asks, that products are composed of electronic bits rather than vinyl or paper? Why can’t we have markets in used digital goods?


The question is more complicated than it looks. Whether a product is digital or physical matters a lot to lawyers, content creators, and studios and labels such as Capitol Records, which has sued ReDigi in federal court alleging copyright violations. The concerns are understandable. What happens to new digital goods (and the associated royalties) if consumers can buy them cheaper used? And what if content owners make copies before selling off the digital originals? When a business like ReDigi threatens to upend the digital marketplace, which is currently built upon “licensing” products to buyers rather than transferring ownership to them, it may require a whole new set of rules.

The short answer to all of these concerns is that a used digital marketplace is inevitable and likely a good thing. The very idea of ReDigi stems from a question asked some years back by Ossenmacher’s daughter, who wondered why it was so difficult to give her digital music library to charity. And indeed, much of the judicial concern over used digital markets hinges on how you sell a digital good rather than whether it’s ethical. Logic and the law suggest that a digital good that’s unauthorized–a song ripped from a CD, say, or downloaded via BitTorrent–shouldn’t be eligible for resale. From the start, Rudolph, ReDigi’s technology architect, focused on creating a method that trades only in verifiable legal downloads. Once an eligible song or book is sold, it isn’t copied by ReDigi and then deleted from your files. Instead, it’s effectively “moved” in a way that’s akin to how banks move money in digital transactions. In time, ReDigi envisions all of its users’ digital goods being located in the cloud, so buyers and sellers will never actually move a book or song. They’ll merely transfer the title the way we transfer titles to houses.

That’s the (relatively) easy part. The real challenge is in convincing content creators and distributors that the ReDigi market won’t completely undermine the sales of new digital goods. Ossenmacher believes that exactly the opposite will occur; that the used market drives the new market. Much of the money spent on new video games, he asserts, comes from gamers selling their used stuff at places like GameStop. The new-car market depends on trade-ins, too. Ossenmacher is convinced that a portion of the revenue from selling used books and songs will be redirected to buying new books and songs. And there is evidence from research that this might hold true. According to Carnegie Mellon economist Rahul Telang, creating secondary markets can slightly erode sales (and increase prices) of new products–as was the case when Amazon entered the used book market. But the crucial point, Telang notes, is that a used market tends to benefit consumers and increase total demand.

“There’s $40 billion to $45 billion a year being downloaded in the U.S. on games, books, movies. If we add software, that number gets even bigger,” Ossenmacher says. “Those digital goods are now just sitting on computers.” If his company could unleash the value of personal content libraries, he believes the digital commerce business will profit handsomely. That includes everyone. At the moment, ReDigi offers a gratuity of 10% to 20% of the purchase price to artists and producers whenever their used goods are sold, which helps offset any drop in the sales of new content. If it’s sold again, they get another gratuity. It’s a revolutionary idea baked into a Machiavellian gambit: Nothing forces ReDigi to pay the gratuity–and nothing ensures it will continue to do so in the future. On the other hand, it helps the company woo industry allies, and holds the tantalizing possibility of this model becoming an industry standard that rewards content creators not once, but in perpetuity.

This reality is all predicated on ReDigi remaining the market leader in digital reselling–an eventuality that is far from certain. The company has a slew of patents now pending on its technology, but so do Amazon and Apple, which have both recently revealed an interest in selling used digital goods. If the legal landscape for ReDigi is cleared (at press time, the federal judge had not ruled on whether ReDigi was liable for copyright infringement), there will be a crowd of competitors. To Jason Schultz, a law professor at the University of California, Berkeley, who observed the ReDigi hearing, it’s likely the ReDigi case is only the beginning of a broad legal and commercial effort to test the nature and limits of digital commerce. Still, he believes the judge seemed intent on finding a balance between allowing owners to resell digital products and ensuring the goods were not being reproduced illegally. “The idea that you don’t own anything–contrary to the reality of you buying something, listening to it, and walking around with it?” says Schultz. “Then we’re in a very bad world.” But don’t count on that happening. The future of reselling may in time look much like it did in the past. You just won’t have to drive to the flea market anymore.

[Illustration by Craig and Karl]