A U.S. District Court in New York ruled on Saturday that reselling of old MP3 files violates copyright law. The decision by Judge Richard Sullivan was based on a request by Capitol Records which sought summary judgment against RiDigi.
The landmark decision would have an impact not only on RiDigi, which allows music owners to sell their MP3 files for as low as $0.49 per track, but also could affect Apple and Amazon which are planning to open similar second-hand digital content stores.
The decision means no trial for RiDigi, now liable for secondary copyright infringement even if the company pays 20 per cent to artists the sale of all pre-owned music revenue.
RiDigi, launched in 2011, argued before the court that it technically does not copy music files but transfers them instead to its servers to ensure the original owner does not hold on to the copy. It even monitors the seller's computer for unauthorised tracks.
However, Mr Sullivan rejected RiDigi's argument and ruled that the company distributed reproductions of the copyrighted code embedded in new material objects through its server in Arizona and the hard drives of users.
RiDigi said its business was based on the first sale doctrine that states an original publisher or issuer can dictate the first retail sale of a good, but not all future retail sales of the product. But Mr Sullivan said the doctrine excludes digital music because the music file is not the same as a material object.
With the court decision, RiDigi said it will move into a more updated version of its software excluded in the lawsuit. Capitol Record is expected to seek damages from RiDigi.