Capitol Records, LLC v. Redigi Inc.

Filing 10

FILING ERROR - DEFICIENT DOCKET ENTRY - DECLARATION of John Ossenmacher in Opposition re: 8 MOTION for Preliminary Injunction Order to Show Cause. Document filed by Redigi Inc.. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C)(Rogers, Morlan) Modified on 1/27/2012 (ldi).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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CAPITOL RECORDS, LLC,
Plaintiff,

Civil Action File No.
12 Civ 0095 RJS/AJP

-againstREDIGI INC.,
Defendant.
DECLARATION
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JOHN OSSENMACHER declares under penalty of perjury:
1. I am Chief Executive Officer and a founder of ReDigi Inc. I have had a very
successful corporate career at three major NYSE-listed companies including Sylvania Lighting
International (President, Electronic and Conservation Products), Parker Hannifin Corporation
(Director), and Pacific Scientific (President, Energy Products). I am a multiple patent holder and
primary inventor for controllable, energy efficient CFL’s which technology has become the
undisputed industry leader and is being sold, globally, at major retailers every day. I have led
teams that were responsible for advancing flight controls and systems that are in use on most
commercial and military aircraft flying today. I have been part of corporate governance and
public stock offerings. I have also had a successful career as an entrepreneur, founding and
building companies like Electro-Mag International, which developed revolutionary control
technologies and was subsequently acquired by Sylvania Lighting within 18 months of its launch,
and Conserving America Corporation, which was awarded some of the largest lighting efficiency
contracts ever issued, and served as a key supplier to the US government for Conserving

America’s proprietary control systems. I have served on many industry organizations and
charitable groups. I have a wide breadth of education and experience which began with my
Bachelors of Science in Electro-Mechanical engineering from Michigan State University in 1981.
I left semi retirement to found ReDigi in 2009. I respectfully offer this declaration in opposition
to plaintiff’s motion for preliminary injunction.
ABOUT OUR BUSINESS
2. The home page of ReDigi’s web site, www.redigi.com, welcomes visitors to
the “Online Marketplace for Pre-Owned Digital Music” and offers “previously listened to songs
at used prices”. The technical details about our business are set forth in the accompanying
declaration of our Chief Technical Officer, Larry Rudolph, but in summary what we do is
provide cloud music storage in personal lockers, and a used digital music marketplace for
eligible, pre-owned mp3 and mp3-type files (hereinafter “MP3" files) which reside in those
lockers. The technology behind our sale process does not involve the making of even a single
copy, or even a RAM copy; the exact file is transferred in a manner whereby only the record
locator, or file pointer, is changed. The Eligible File remains in the same location in the ReDigi
Cloud and is not copied. Only a modification of the record locator, from the seller’s locker to the
buyer’s locker, has occurred. Our verification technology ensures that (a) no copies of a file
sought to be uploaded can remain on the user’s computer or attached devices, (b) in the event any
device is subsequently attached to the user’s computer, and a copy is located on the attached
device, the user must delete the file or the user’s account will be suspended, and (c) if a file is
downloaded, no copy may remain in the user’s cloud locker.
3. The only files which are eligible for our service – either for storage or for sale –
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are files which were lawfully purchased from iTunes, or subsequently from ReDigi, thereby
excluding music tracks copied from CDs, or downloaded from other online vendors or file
sharers, or obtained from any other source. The terms and conditions used by iTunes (exhibit A
to Ray Beckerman declaration) do not in any way prohibit any part of ReDigi’s business model.
Plaintiff’s citation of the terms and conditions used by Amazon.com is completely irrelevant
since Amazon files are not allowed to be uploaded to our service. Ultimately, we anticipate that
our business model will expand to include Eligible Files other than those downloaded from
iTunes, such as recordings sold by independent musicians, recordings sold by independent labels,
recordings sold by other online retailers, etc., once all technical, legal, and business issues are
worked out, and will also include new music sales, but to date we have not gotten to that point.
We may never get to that point if we are saddled with litigations like this.
4. Music cloud locker storage is a rapidly growing business. Among the
companies which provide general cloud locker storage to consumers are Dropbox, Microsoft
LiveMesh & SkyDrive, Apple MobileMe, Rackspace, Amazon AWS, Box.net, Google Docs /
GMail Drive, ADrive, Mozy, Asus webstorage, iDrive, and others. Among the companies which
provide cloud locker storage specifically for MP3's, and make it possible for their users to
privately stream their music from the cloud, are Apple iCloud, Google Music, Amazon Cloud
Drive and Player, Bitspace, Maestro.fm, Mougg, MusicPlayer.fm, Deezer, MP3tunes, and
others. A sampling of articles discussing this industry is attached hereto as exhibit A.
5. Two key features of our cloud music storage business are its (a) verification
technology and business model which preclude the existence of more than one copy, and limit
the eligible files to those lawfully purchased, and (b) used digital music marketplace, which does
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not implicate the reproduction right since there is no copy being made, and does not implicate the
distribution right because only the digital file, and no “material object” in which the digital file is
embedded, is sold.
6. As explained in Dr. Rudolph’s accompanying declaration, ReDigi’s structure
ensures that no copies of an Eligible File are made when a resale transaction occurs in the ReDigi
online marketplace. When another user purchases such a file, the record locator associating the
file with the seller’s cloud locker is modified to associate the file with the purchaser’s cloud
locker. In such a transaction only the record locator is changed; the file remains in the same
location in the ReDigi Cloud and is not copied.
7. The ReDigi website provides links to 30-second clips of music and artwork
which are on the website of Rdio, Inc., pursuant to a license agreement with Rdio, Inc., which
agreement states that Rdio is licensed to provide same by, among others, EMI Group Limited
(exhibit B), which is identified by plaintiff in its Rule 7.1 statement as one of its multitudinous
affiliates.
TIMING
8. The timing of plaintiff’s sudden “emergency” is curious indeed. Plaintiff has
been aware of our process and approach, and has been actually discussing it with us, since early
2010 – i.e., for the past two (2) years. Our initial discussions with plaintiff were with Ron Werre,
Chief Operating Officer of plaintiff’s parent company EMI, and Mark Piibe, a vice president of
EMI. They were very positive and supportive of the whole concept of ReDigi. We had multiple
discussions. Mr. Werre said he thought that the data that could be collected by consolidating
listening habits on each specific track could be significant in helping build solid, helpful
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marketing data for them. Mr. Piibe’s comments, which he indicated were based on his past
experience at Napster, were very favorable regarding our substantial technical and solid
verification and deletion approach. There wasn’t the slightest indication of any problem with our
business, or any request that we refrain from moving forward with it. We have at all times been
completely forthcoming about our business and business plans, issuing public press releases at
various junctures.
9. The first indication we received from the “Big 4" record companies (of which
plaintiff’s parent is one) of a negative attitude towards our business model was the vague
November 10th “cease and desist” letter included in plaintiff’s exhibits, which we learned of
through a New York Times reporter (the RIAA sent the letter to the press three (3) or four (4)
days before sending it to us). One might wonder why, if the plaintiff and the RIAA believed
ReDigi was committing copyright infringement as of November 10th, and if they believed it was
truly causing them “irreparable harm”, they never identified a single act of copyright
infringement, never sent any kind of DMCA notice, and waited more than two (2) months to
submit a preliminary injunction motion... and still haven’t identified a single act of infringement.
HARM TO PLAINTIFF
10. Even if plaintiff were right that ReDigi’s used music marketplace business
somehow infringes its copyrights, this infringement would be fully compensable in damages.
ReDigi keeps detailed records of all of the purchase and sale transactions, including the buyer
and the seller, the date and time of the transaction, and the metadata of the music file, including
title, artist, album, owner (seller), store identification, original store, and the hash of the
acoustics. So plaintiff would be able to identify each infringed work, and if it can prove damages
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by reason of those transfers, or that ReDigi improperly profited, plaintiff will be entitled to
calculate its damages and obtain a money judgment.
HARM TO REDIGI
11. An injunction would put us out of business, pure and simple.
12. We are a startup company. We are still in beta. We are employing people and
creating jobs.
13. The cloud of plaintiff’s “cease and desist” letter and lawsuit, needless to say,
are already making it difficult or impossible to enter into new relationships with other companies
and investors that would enable us to grow our business.
14. A preliminary injunction would devastate ReDigi, effectively shutting it down
and putting it out of business before the case is resolved on the merits.
STATUS QUO
15. The present status quo is that plaintiff is a long established giant in the
recording industry. A fairly small number of its mp3 recordings, and only those which have been
lawfully purchased through iTunes, on which plaintiff has already received compensation in the
neighborhood of 70% of the retail price of each file, are being sold through a fledgling company,
in a new industry, which employs less than 15 people, and which is careful to protect the
plaintiff’s right not to have multiple copies floating around, and to protect against any form of
unregulated copying. This small company is using revolutionary new, patent-pending,
technology, which performs a service for all copyright owners by forensically analyzing mp3
files to protect against unauthorized copying. The process adds value to new mp3's sold by
plaintiff each day, by (a) adding, to lawfully acquired mp3 files which otherwise have no
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economic value, a true economic value -- an actual resale price -- and on the other hand (b)
making pirated copies of which consumers may have possession economically worthless, since
they cannot be resold and therefore have no resale value. Our fledgling company is providing a
valuable service to the public and to copyright holders. We have created a service that is far
superior in copyright protection than the existing systems currently readily accepted on the resale
of CD’s. For example; the ReDigi service continually monitors and requires deletion of any and
all copies that may have been previously made by the user, no matter when or where they are
found, thereby helping users maintain compliance with copyright laws, unlike CD resales where
there is no required ongoing or follow-up mechanism to aid in compliance.
16. That is the status quo. Denying an injunction would preserve the status quo.
Granting an injunction would put a fledgling company, creating jobs in a new technology, out of
work, and squash an entirely unique service to consumers and to music makers.
ALLEGED STREAMING AND ARTWORK
17. Plaintiff falsely accuses ReDigi of streaming infringing 30-second clips, and
hosting infringing artwork. All they would have had to do was right click their mouses for the
artwork, or play any one of the 30-second clips, to know that this accusation was false. Right
clicking the artwork shows that the artwork is located not on our site, but at Rdio’s, with links in
this format: http://media.rd.io/[...].jpg And playing any of the 30 second clips would likewise
have shown that the music is located not on our site, but at Rdio’s, with links in this format:
http://www.rdio.com/[...] And Mr. McMullan’s unsubstantiated allegation that the users store
copies of the clips on ReDigi is likewise false, as all that is retained in the “memory bank” of
viewed clips is a list of pointers to the offsite links, which Mr. McMullan could likewise have
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easily ascertained by clicking one of them. Copies of our agreements with Rdio, Inc., licensing
us to use this material, are annexed hereto as exhibit B. The Rdio agreement specifically states:
Certain Transmitted Content is provided by third party licensors of
Rdio, including, without limitation, Universal Music Group, Sony
Music Entertainment, Warner Music, Inc., EMI Group Limited,
IODA, Orchard Enterprises, NY, Inc., Isolation Network, Inc., and
IRIS (collectively, the Transmitted Content Providers”). (emphasis
supplied)
It is therefore highly unlikely that Mr. McMullan, who identifies himself as “Executive VicePresident of Legal Affairs for EMI Music North America (“EMI”)” was unaware, when he signed
his declaration, that Rdio is an authorized licensee of EMI Group Limited, since the latter
company is listed in plaintiff’s Rule 7.1 Statement as having an ownership interest in plaintiff.
18. Neither is the private streaming by a user of the stored songs in his personal
cloud locker, through an internet-connected device using the user’s secure login to access his or
her ReDigi account, a “public performance”, as it can be viewed only by the user. Each ReDigi
user agrees to “(I) keep [the user’s password secure and confidential, (ii) not permit others to use
[the user’s] account, (iii) refrain from using other users’ accounts, (iv) refrain from selling,
trading, or otherwise transferring [the user’s] account to another party”. (Exhibit C) No copy of a
music file so “streamed” is stored; rather, as with any digital music player, the recording is
loaded into RAM, and disappears when the song stops playing. I.e., no “public performance” is
permitted.

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