Capitol Records, LLC v. Redigi Inc.

Filing 169

MEMORANDUM OF LAW Regarding the Application of Res Judicata, Collateral Estoppel, and Law of the Case. Document filed by John Ossenmacher, Larry Rudolph. (Attachments: # 1 Affidavit Declaration of James J. Pizzirusso, # 2 Exhibit 1-5, # 3 Exhibit 6-10, # 4 Exhibit 11-15, # 5 Certificate of Service)(Giddings, Nathaniel)

Exhibit 1

(Page Intentionally Left Blank)

DSL
Dav is Shapiro & Le wit, LLP
N e w Yo rk

Bev erly Hills

August 7, 2013
VIA ELECTRONIC MAIL
Hon. Richard J. Sullivan, U.S.D.J.
[e-mail]
Re:

Capitol Records, LLC v. ReDigi Inc. (12CV0095) (RJS)

Hon. Judge Sullivan:
We represent defendant ReDigi Inc., (“ReDigi”) in the above referenced action. We write in
accordance with Rule 2.A of Your Honor’s Individual Practices in response to Plaintiff Capitol
Records, LLC’s (“Capitol”) letter dated August 2, 2013 regarding Capitol’s request to: (i) amend its
Complaint to supplement the list of copyrighted recordings that have been allegedly infringed; and
(ii) join the principals of ReDigi as defendants in the within action.1
It is ReDigi’s position that Capitol should not be given leave to amend its Complaint to
include tracks that were merely offered for sale through the ReDigi marketplace. Capitol’s
contention that tracks merely “made available” are infringements was already addressed by this
Court in the March 30, 2013 Memorandum and Order, when the Court noted that “a number of
courts, including one in this district, have cast significant doubt on this ‘make available’ theory” . . .
but “because the Court concludes that actual sales on ReDigi’s website infringed Capitol’s
distribution right, it does not reach this additional theory of liability”. See 3/30/13 Order at 8, n.6.
See also London-Sire Records, Inc., 542 F. Supp. 2d 153, 169 (D. Mass. 2008) (defendants cannot
be liable for violating the plaintiffs’ distribution right unless a “distribution” actually occurred);
Natl Car Rental Sys., Inc., v. Computer Assocs Int’l, Inc., 991 F.2d 426, 434 (8th Cir. 1993) (stating
that infringement of the distribution right requires the actual dissemination of copies or
phonorecords); Elektra Entm’t Grp., Inc. v. Barker, 551 F. Supp. 2d 234, 243 (S.D.N.Y. 2008) (the
support in the case law for the “make available” theory of liability is quite limited). This Court has
already declined to decide that making a work available is an infringement. As such, tracks that
were merely offered for sale through the ReDigi marketplace, but never sold, cannot be considered
as “infringements”2 for the purposes of calculating statutory damages at trial in this action.
Capitol is now claiming that these tracks that were merely “made available” should be added
to the damages calculation by arguing that the Court “conclu[ded] on summary judgment that
ReDigi violates the reproduction right when users upload recordings from their home computers to
ReDigi’s cloud server absent some affirmative defense.” See 8/2/13 Cap. Let. at 2. Although the
Court found that a reproduction occurred during the upload process, the decision is clear that an
infringement only occurs through sale. Contrary to Capitol’s mis-paraphrasing of the Courts
1

Capitol has also stated its intent to eliminate the portions of its complaint that relate to the alleged infringement of its
display and performance rights. ReDigi has no objection to this.
2

ReDigi does not concede that any other instance is an infringement that warrants damages.
414 West 14th Street

Fifth Floor

New York, New York 10014

August 7, 2013
Page 2 of 3

decision the Court found that “absent the existence of an affirmative defense the sale of digital
music files on ReDigi’s website infringes Capitol’s exclusive right of reproduction.” See 3/30/13
Order at 7 (emphasis added). Buttressing this conclusion, when discussing the applicability of fair
use the Court noted it was only uploading to and downloading form the Cloud locker “incident to
sale” that fell outside of the ambit of fair use. Id at 10. The Court’s Order did not find that uploads
to the cloud that were never actually sold were infringements. In fact the Order specifically
declined to make this finding, and instead found that it was the sale on ReDigi’s website that
infringed the exclusive right of reproduction. As the Court has already decided that mere uploads
that were offered for sale and never sold are not infringements, it would be futile and a waste of
resources for Capitol to be allowed to supplement their Complaint to add these tracks now.
Next, Capitol’s request to add John Ossenmacher and Larry Rudolph as defendants in the
instant action should be denied, as neither the spirit nor the letter of the law support allowing
Capitol to implead Mr. Ossenmacher and Mr. Rudolph at this stage. First, contrary to Capitol’s
statement, Mr. Rudolph and Mr. Ossenmacher do not satisfy the legal standard for personal liability.
Individually, neither Mr. Ossenmacher nor Mr. Rudolph own a controlling share of ReDigi.
Moreover, although Mr. Ossenmacher and Mr. Rudolph exercise some decision making power, they
are not solely in charge of the company—they sit on a board that is comprised of 4 active members.
Lastly, neither individual has been paid a salary or received any other form of remuneration from
ReDigi, and as such haven not benefitted from the allegedly infringing activity.
The facts here are wholly unlike the cases cited by Capitol and other cases where imposition
of liability on individuals may have been appropriate. C.f. Arista Records LLC v. Lime Grp. LLC,
784 F. Supp. 2d 398, 438 (S.D.N.Y. 2011) (imposing individual liability on CEO who knew about
infringement being committed through LimeWire, actively marketed LimeWire to Napster users,
operated multiple companies as one, and owned majority share of LimeWire); Arista Records LLC
v. Usenet.com, Inc., 633 F. Supp. 2d 124, 158 (S.D.N.Y. 2009) (individual defendant Reynolds was
moving force behind entire business of both corporate defendants, was the sole employee of
company who carried out business of defendant companies, director and sole shareholder of both
companies and encouraged employees to take steps that were found to intend to foster
infringement); Microsoft Corp. v. Tech. Enterprises, LLC, 805 F. Supp. 2d 1330, 1333 (S.D. Fla.
2011) (individual defendant was moving force behind his company's infringement, owned 99
percent of company and was the its only employee); Stumm v. Drive Entm't, Inc., 00 CIV. 4676,
2002 WL 5589 (S.D.N.Y. Jan. 2, 2002) (individual liability was appropriate for CEO who was the
only employee receiving a salary). The contrast between the above cases and the facts here is stark.
Unlike these cases, neither Mr. Ossenmacher nor Mr. Rudolph have received financial benefit, are
not the only persons in control of the company, and do not own a controlling interest of ReDigi.
Additionally, unlike the file sharing cases cited to by Capitol, here ReDigi’s entire purpose was to
provide a lawful service. Although the Court has found that parts of the original ReDigi 1.0
technology were infringing, this was a case of first impression and cannot, under any stretch of the
imagination be compared to situations where the individuals in the cases cited by Capitol
intentionally provided a known infringing service for their own personal financial gain. As such
there is no reason to implead Mr. Ossenmacher and Mr. Rudolph.
Second, and also contrary to Capitol’s representations, ReDigi could satisfy a modest
damage award in this matter. Although Capitol would like to pretend there are “many hundreds” of
tracks at issue—there are not.3 In reality the number of tracks at issue in this litigation is very
3

Capitol’s statement that there are “many hundreds” of works at issue is an exaggeration based upon Capitol’s attempt
to include the 134 tracks downloaded by their own investigator and the tracks that were offered for sale through the

August 7, 2013
Page 3 of 3

limited--well under one hundred. In light of the limited number of works at issue, ReDigi could
absolutely satisfy a modest4 damage award. Capitol is not in a position of not being able to obtain
meaningful financial redress. Capitol’s request to add Mr. Ossenmacher and Mr. Rudolph as
defendants in this action is legally without merit and seems motivated by an intention to harass and
exert pressure and stress on ReDigi’s officers. As such Capitol’s request should be denied.
We appreciate the Court’s time and consideration in this matter, and should the Court need
any further information, we are available at the Court’s convenience.
Respectfully submitted,
DAVIS SHAPIRO & LEWIT LLP

Gary Adelman, Esq.
Cc:

Jonathan Z. King, Esq.
Richard Mandel, Esq.

ReDigi marketplace but never sold. As set forth above, the Court has already declined to find that the latter of the two
constitutes infringement. As to the tracks downloaded by Capitol itself, for the reasons set forth in ReDigi’s August 2,
2013 letter to the Court, Capitol should not be allowed to include these tracks in any calculation of statutory damages.
To do so would reward Capitol for downloading over a hundred tracks, which was far more than was even arguably
necessary for investigation purposes. Given the high number of tracks, it appears as if Capitol intentionally downloaded
an extremely high number of tracks for the purpose of driving up a damage award and allowing Capitol to include these
tracks would only encourage copyright plaintiffs to attempt to artificially inflate potential statutory damages to the point
where they become punitive. Such a ruling would serve no legitimate purpose.
4

“In awarding statutory damages, the courts may consider, among other factors, the expenses saved and the profits
earned by the defendant, the revenues lost by the plaintiff, the deterrent effect on the defendant and third parties, the
defendant's cooperation in providing evidence concerning the value of the infringing material, and the conduct and
attitude of the parties.” See Smith v. NBC Universal, 06 CIV. 5350, 2008 WL 483604 (S.D.N.Y. Feb. 22, 2008). Here
all of these factors point in favor of a minimal statutory damage award. ReDigi has not “profited” from the
infringement or saved expenses, it designed a system that it believed to comply with the law and any monies earned
from actual customers are so limited at this point it has not been able to recoup any expenses. Plaintiffs have not “lost
revenues” either. Immediately after receiving the Court’s 3/30/13 Order, ReDigi disabled its 1.0 migration technology,
cancelled any offers for sale for any tracks that were uploaded using the 1.0 technology, and replaced all tracks that
users had purchased using the 1.0 migration technology, by purchasing those tracks from iTunes and having the
replacement tracks delivered directly from iTunes to the ReDigi cloud locker. ReDigi did all of this at its own cost, and
as ReDigi purchased these replacement tracks from iTunes, Capitol has already recovered any revenues it could claim to
have “lost”. There is no lack of evidence concerning the value of tracks sold through ReDigi, and Capitol surely could
have pursued actual damages. The conduct of ReDigi and the need for a deterrent, similarly point to a minimal damage
award. ReDigi has at all times tried to comply with copyright law in designing its system, has promptly complied with
all Court Orders and a large award here would have a chilling effect on the development of new technologies, like
ReDigi that are trying to develop lawful services where the law is at best uncertain. Given the facts here, ReDigi
believes that the bare minimum of statutory damages would be appropriate and it could certainly satisfy such an award.

Exhibit 2

Case 1:12-cv-00095-RJS Document 116 Filed 08/30/13 Page 1 of 11
D89ECAPC

1
2

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x

3

CAPITOL RECORDS, LLC,

4

Plaintiff,

5
6

v.
REDIGI INC.,

7
8

12 CV 95(RJS)

Defendant.
------------------------------x

9

August 9, 2013

10

10:11 a.m.

11
Before:
12
HON. RICHARD J. SULLIVAN,
13
District Judge
14
APPEARANCES
15
16
17
18
19

COWAN LIEBOWITZ & LATMAN
Attorneys for Plaintiff
BY: RICHARD MANDEL
JONATHAN KING
DAVIS SHAPIRO & LEWIT LLP
Attorneys for Defendant
BY: GARY ADELMAN
SARAH MATZ

20
21
22
23
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25
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

1

3

Case 1:12-cv-00095-RJS Document 116 Filed 08/30/13 Page 3 of 11
D89ECAPC

1
2

offered for sale, according to defendant.
THE COURT:

So I think that's fair game here.

If it

3

was the other, I think there's a fair use.

4

fair use defense.

5

will be if we just store it, I don't think that -- reproduction

6

is probably not appropriate in this case.

7

just said, then I think then I'm inclined to allow it.

8

that is fair game, in light of my opinion.

9

There would be a

I don't have a rule on that, but I think it

But for what you
I think

And then the last bit is with respect to amending to

10

name two new defendants, individual defendants.

And so let's

11

think about this.

12

individuals in some cases explicitly.

13

reason to believe that these guys could be added, and there

14

could be liability against them.

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to be additional facts developed, though.

16

to add them is not going to require any additional discovery,

17

then I think I probably will allow it.

18

require additional discovery, then I'm not so sure.

I do think that my opinion referenced these

19

MR. MANDEL:

20

THE COURT:

21

MR. MANDEL:

So I think that there's

I don't know if there needs
I mean, if amending

But if it's going to

We don't -You don't think it will?
We don't think so.

We think that the

22

evidence we've gotten from the depositions as to their

23

participation, some of which is even referenced in your Honor's

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summary judgment opinion, is sufficient to establish

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individual.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

Case 1:12-cv-00095-RJS Document 116 Filed 08/30/13 Page 4 of 11
D89ECAPC

1
2

THE COURT:

Yes, no question about that.

4

Do you think

it's going to need more discovery?

3

MR. ADELMAN:

4

THE COURT:

5

appreciate your candor, then.

6

it.

7

second summary judgment motion with respect to the individuals,

8

right?

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10
11
12

No, I do not.

Okay.

Well, that's -- I mean, I
Then I think I am going to allow

This will, of course, lead to, I'm assuming, an inevitable

MR. MANDEL:

We could talk about that.

I mean, I

guess that entitles him to sort of where we'd go from here.
THE COURT:

Where are we going from here?

Let's put

on our practical shoes.

13

MR. MANDEL:

14

THE COURT:

15

MR. MANDEL:

You know, we'd like to get to trial.
Trial on damages?
On damages.

So, I mean, we'd be prepared

16

to try the issue of their individual liability without doing a

17

separate summary judgment motion because, I mean, I think

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legally, in terms of the infringement being established, I

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don't think there's going to be any question under the opinion.

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So the only issue is going to be --

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22
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THE COURT:

You'd be moving basically for a directed

verdict after you closed.
MR. MANDEL:

I think the only defense that could

24

potentially be available is that somehow they don't have enough

25

personal involvement to be individually liable.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

And, frankly,

Exhibit 3

Exhibit 4

(Page Intentionally Left Blank)

Case 1:12-cv-00095-RJS Document 157 Filed 10/24/14 Page 1 of 3

Capitol Records, LLC v. ReDigi Inc., et al

Dluhos v. Floating & Abandoned Vessel,
Known as New York
Velez v. Burge

Azkour v. Haouzi
Monahan v. New York City Dep’t of Corrections,

See
See

See

Case 1:12-cv-00095-RJS Document 157 Filed 10/24/14 Page 2 of 3
October 24, 2014
Page 2 of 3

See

See

owned by Plaintiff

See
See id.
did seek discovery regarding Capitol’s ownership

inter alia

Case 1:12-cv-00095-RJS Document 157 Filed 10/24/14 Page 3 of 3
October 24, 2014
Page 3 of 3

Exhibit 5

From:
To:
Cc:
Subject:
Date:
Attachments:

Mandel, Richard
"[e-mail]"
James J. Pizzirusso; Nathaniel C. Giddings; Gary Adelman ([e-mail]); "Sarah Matz"; King,
Jonathan
Capitol Records, LLC v. ReDigi Inc.
Tuesday, October 28, 2014 4:19:20 PM
Amended Complaint_ReDigi - Second Amended Complaint_ReDigi.pdf

Dear Judge Sullivan,

            As requested today by chambers, attached is a redline showing changes from the
Amended Complaint to Capitol’s Proposed Second Amended Complaint.

Respectfully,

Richard S. Mandel, Esq.
Cowan, Liebowitz & Latman, P.C. 
1133 Avenue of the Americas 
New York, New York 10036-6799 
t: [phone] | f: [phone]
www.cll.com | [e-mail] | My Profile

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