Capitol Records, LLC v. Redigi Inc.

Filing 26

TRANSCRIPT of Proceedings re: Argument held on 2/6/2012 before Judge Richard J. Sullivan. Court Reporter/Transcriber: Michael McDaniel, (212) 805-0300. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 3/5/2012. Redacted Transcript Deadline set for 3/15/2012. Release of Transcript Restriction set for 5/14/2012.(McGuirk, Kelly)

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1 C26TCAPA 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 New York, N.Y. February 6, 2012 3:30 p.m. 9 10 Before: 11 HON. RICHARD J. SULLIVAN, 12 District Judge 13 APPEARANCES 14 15 16 17 18 COWAN, LIEBOWITZ & LATMAN Attorneys for Plaintiff BY: RICHARD MANDEL JONATHAN KING RAY BECKERMAN, PC Attorneys for Defendant BY: RAY BECKERMAN M. TY ROGERS 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 2 C26TCAPA 1 (In open court, case called, appearances noted) 2 THE COURT: All right. Mr. Rogers, good afternoon to 3 you, and I should note that the docket sheet has you at 4 Vandenberg & Feliu. 5 MR. ROGERS: That was my former firm. 6 everything in the Southern District system. 7 I changed will look into that. 8 9 10 11 THE COURT: Check into it. copy of it when they moved it over. I'm surprised. I Maybe you didn't make a That was a little copyright joke. Good afternoon. And I gather we have some others in 12 the gallery interested in the subject or more than just a 13 passing interest in the subject. 14 We're here on I guess two potential motions. I have 15 the motion of plaintiff's for a preliminary injunction. 16 got the opening brief that was dated January 6 as well as -- 17 I'm sorry, the complaint is January 6, the answer is 18 January 19, and I have the opening brief January 26, the 19 reply -- excuse me, the response January 27, it's date of 20 docketing, then the reply brief February 1st. 21 premotion letters related to defendant's contemplated motion 22 for a summary judgment, so I have a January 19 letter from 23 Mr. Rogers and a January 24 and letter in response by 24 Mr. Mandel. 25 So that's what I have got. So I I also have I have got something from SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 3 C26TCAPA 1 counsel from Google that I have already dealt with, but nothing 2 else from the parties. 3 MR. MANDEL: 4 THE COURT: Right? That's correct, your Honor. I find this to be a fascinating issue. We 5 raised a lot of technical and statutory issues that make this 6 kind of a niche case, as far as I'm concerned. 7 So I have read the papers, and I read them carefully, 8 but I'm happy to hear further argument, particularly since 9 defendants have not had a chance to respond to the reply 10 papers, which I guess fine tune some of the arguments that were 11 made in the opening brief. 12 argument now. 13 I'm curious to have a little oral So it's plaintiff's motion, so we'll start with 14 plaintiffs. And I think there's no dispute as to what the 15 standard is here. 16 harm, because it seems to me that this is the kind of thing 17 that money should take care of. I think we ought to start with irreparable 18 Mr. Mandel? 19 MR. MANDEL: Your Honor, we don't think that money 20 really will adequately address the injury here, and I think 21 there obviously was a long history for many years where 22 irreparable harm was presumed in copyright cases. 23 Now obviously in Salinger the Second Circuit said that 24 is no longer the case, reading the Supreme Court's opinion in 25 Ebay. But at the same time, they were careful to point out as SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 4 C26TCAPA 1 a empirical matter it still well may be that most copyright 2 plaintiffs will be able to establish irreparable harm. 3 Roberts' current opinion in Ebay where he talks about we're not 4 writing on a blank slate now, obviously years of history can be 5 worth a lot of logic. 6 here. 7 reasons. 8 9 Justice And I think that really is the case There is irreparable injury, and for a number of First of all, with respect to monetary damages, I think there's a real concern whether this defendant would be in 10 a position to provide the kind of judgment that Capitol is 11 entitled to. 12 THE COURT: 13 MR. MANDEL: Why? Because they're pretty new? Not just that, in response to the 14 preliminary injunction motion they essentially said that an 15 injunction would put them out of business. 16 me that they're really saying their business model, which they 17 decided to go forward on knowing -- they had to know that there 18 was significant risk when they went forward with that business 19 model, and they're saying if they're wrong, they're out of 20 business. 21 22 23 THE COURT: And so it seems to That's not the same as saying you're judgment proof, is it? MR. MANDEL: I think there's a question if there's 24 added business. The idea of a beta start up company that has 25 just been in testing mode that goes into it knowing there's a SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 5 C26TCAPA 1 serious legal question and saying that they'll be out of 2 business if they're not allowed to do this, I think there's 3 real question to whether we get a statutory damage award for 4 hundreds of recordings that could add up to million of dollars, 5 there is no way they would be able to compensate us for that. 6 THE COURT: But that sounds like speculation more than 7 anything. 8 because an injunction in their own mind would potentially 9 threaten the existence of a company whose entire reason for 10 existence is this technology that they're touting, that this 11 must mean they're judgment proof. 12 You just are surmising because they're a start up, MR. MANDEL: I don't think it must mean, but I think 13 it raises a serious question about it such that I think Capitol 14 shouldn't be in a position to be forced to take that risk. 15 Because when you really look at the respective hardships here, 16 the defendant went forward with a business plan where, we 17 submit -- and this obviously ties back to the likelihood of 18 success -- we submit there is really no colorable offense or 19 reason that they are able to do the things that they are doing 20 here. 21 And the reality of the situation is that they had to 22 know that, and they took the risk. And what Capitol is saying 23 is our most valuable asset is our copyrights. 24 have to put that at risk while they're in testing mode getting 25 an opinion as to whether what they do is valid? Why should we SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Wouldn't the 6 C26TCAPA 1 better thing to do here be to establish that you have some 2 possibility of actually having a real defense here? 3 THE COURT: That's sort of setting the standard for a 4 preliminary injunction on its head. 5 preliminary injunction until they can establish they have a 6 likelihood of success in defending. 7 MR. MANDEL: 8 THE COURT: 9 MR. MANDEL: It says we'll presume a I'm speaking to the balance of hardships. I'm asking about irreparable harm. So beyond just the money damage question, 10 I think there is also irreparable injury here in the sense that 11 this is being touted and promoted to the public as legal in 12 their Web site. 13 The whole idea of using a digit marketplace is something that 14 we submit is something that is not legally cognizable. 15 being out there and creating this confusion in the public mind 16 and opening up this Pandora's box inviting people to infringe 17 in a similar manner, saying well, if I take steps to delete my 18 copy after I do this, I can do this wonderful sale, there's a 19 real risk that essentially the infringement is going to be very 20 widespread and Capitol will lose control of its assets, its 21 copyrights, its most valuable assets. 22 They're saying this is a legal alternative. THE COURT: And Dangerous legal theory is a basis for 23 establishing irreparable harm? 24 MR. MANDEL: 25 support. Untenable legal theory that has no And that, we submit, ties back to whether we SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 7 C26TCAPA 1 established that we're right, but we think it's pretty clear 2 it's not legally supportable. 3 confusion in the public mind this is something that is legal, 4 that people have the right to duplicate their files, and as 5 long as after they submit it -- 6 THE COURT: And to be able to create But do you have authority for this 7 proposition? Public market confusion is people will think this 8 is Pepsi, for crying out loud, and it's not Pepsi. 9 think this is a legally defensible theory that they're People will 10 operating under, and I can't think that's a case of irreparable 11 harm. 12 MR. MANDEL: We haven't had a lot of case law since 13 Salinger. 14 presumed there was irreparable harm once likelihood of success 15 was established in a copyright case. 16 of fleshing out of the legal standard. 17 a copyright context, given the nature of the injury, the loss 18 of control of your property rights. 19 We have decades of experience where it was routinely There hasn't been a lot You have the history of The fact that essentially the statutory scheme is 20 being turned on its head, instead of having a right to exclude 21 people from making reproductions and from using your 22 copyrighted material, you are sort of turning it the other way 23 and setting up almost a compulsory licensing scheme or some 24 kind of statutory exception that's not there. 25 that that is unfair and not what is intended in the copyright So we do think SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 C26TCAPA 1 area, because this is intangible property that is very 2 difficult to control, and it has a tremendous value that is not 3 easy to quantify. 4 THE COURT: I'm sorry to interrupt you. That's one of 5 the benefits of having the robe is I'm able to do that. 6 since I'm the fact finder, or at least the decision maker here, 7 I apologize. 8 time, not maliciously, but because I have a short attention 9 span. 10 And So everybody, I will interrupt you from time to So my question is even outside of the copyright area, 11 irreparable harm has to be established for a preliminary 12 injunction. 13 dangerousness of a legal theory is advanced as a basis for 14 establishing irreparable harm? 15 MR. MANDEL: Are you aware of any other authority in which the I'm not, but I guess I wouldn't say it's 16 the dangerousness of the legal theory, what I will say it's the 17 unsupportable contention there's right to do something that 18 there is clearly not a right to do. 19 public about the applicable statutory scheme. 20 misinformation about the contributions that are supposedly made 21 to the record labels and to the music community and all of 22 those things that we think do fall into place in terms of 23 establishing irreparable harm combined with just the loss of 24 control and the difficulty of quantifying the damage when your 25 intangible property right that you have a right to generally It's misinformation to the There's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 9 C26TCAPA 1 exclude others from using is basically being cast aside and 2 you're told well, you will stand here and take it at face 3 value, that at the end of this, money will be enough. 4 THE COURT: But you're saying that lost sales would 5 not be the measure, there are certain people you would not sell 6 to under any circumstances. 7 MR. MANDEL: No, I'm saying the danger here goes 8 beyond the specific lost sales that may quantifiable. 9 may be other infringements that are being encouraged by the 10 activity. 11 There public. 12 There is misinformation being communicated to the THE COURT: But the encouragement of other 13 infringement, is that anywhere cited as a basis for 14 establishing irreparable harm? 15 MR. MANDEL: I haven't seen it. I haven't seen it either, but as I said, 16 copyright plaintiffs have not had a long period of time where 17 they have actually been required to prove much. 18 presumed for decades in this circuit and elsewhere that 19 irreparable harm is almost assumed. 20 Supreme Court said is OK, fine, that has changed, and you can 21 no longer rely on that presumption, but we're also not writing 22 on a clean slate here. 23 existed for 30 years, and it is because of recognizing the 24 nature of the kind of injury that's at play when you deal with 25 copyrighted intellectual property. It's been And I think what the There's a reason why that presumption SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10 C26TCAPA 1 THE COURT: But here we're talking about lost sales 2 for which they're getting 39 cents a song and you or your 3 licensees would be getting a buck and a quarter. 4 me pretty easy to quantify and pretty easy to establish damages 5 on, and a money judgment should take care of the whole thing. 6 MR. MANDEL: That seems to Potentially, assuming there is money to 7 withstand a judgment, notwithstanding that they're a data 8 company that would be out of business by virtue of a decision 9 that their business model doesn't work. 10 THE COURT: But then it's your burden to establish 11 that they don't have the wherewithal to withstand the judgment, 12 not their obligation to prove they can, right? 13 MR. MANDEL: We think there's significant risk there, 14 that you have to look at it in context. 15 also a risk that the marketplace in general -- that there will 16 be harm beyond that not just from their service but from other 17 people who will infringe. 18 I have said what I have to say. And I think there is I don't know that I 19 can add anything to it. 20 tradition in copyright cases of granting and presuming 21 irreparable harm flows from a natural recognition of the nature 22 of that right, and we think that continues to be at play even 23 more when you're dealing with a defendant that has no real 24 basis to do what it's doing under the law. 25 THE COURT: But we do believe that the strong All right. Let's take these one element SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 11 C26TCAPA 1 at a time. So I'm happy to hear -- who is going to carry the 2 ball for the defense, Mr. Rogers or Mr. Beckerman? 3 MR. BECKERMAN: 4 THE COURT: I will. Let's talk about irreparable harm. If 5 they win, as they seem confident they're going to, are you 6 going to be -- is there any prospect of your client having any 7 assets from which to pay a money judgment? 8 MR. BECKERMAN: 9 THE COURT: 10 I haven't asked them that. All right. Why not? You don't want to know the answer or you don't think it's relevant? 11 MR. BECKERMAN: The question is whether the plaintiff 12 will be made whole of an award by money judgment. 13 asked them -- we put in our papers that they keep very careful 14 records of every single transaction, so there won't be any 15 problem in computing the amount of damages. 16 THE COURT: But that's not my question. And I have My question 17 is, assuming you're right about quantifying the damages, if 18 there's going to be any prospect of them recovering on the 19 damages. 20 me that might be pretty significant for establishing 21 irreparable harm. 22 Because if the answer is "not a chance," it seems to Don't you think? MR. BECKERMAN: I have no idea. The plaintiff has the 23 burden of proving that and hasn't shown that. If that were to 24 be a basis for preliminary injunction, then why even come to 25 court when you're a small company that doesn't have the kind of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 12 C26TCAPA 1 money the plaintiff does? 2 THE COURT: It's not -- 3 MR. BECKERMAN: What is interesting is everything that 4 Mr. Mandel is saying is based on his statements that we 5 obviously don't have a defensible legal model. 6 were so clear we didn't have a defensible legal model, it's 7 unclear to me why he hasn't been able to make out a case of 8 copyright infringement. 9 THE COURT: But yet, if it I'm not sure that I follow you. 10 moving from the element I want to focus on. 11 We keep talking about that he hasn't made out a case? 12 MR. BECKERMAN: But what are you He brings up in the discussion of 13 irreparable harm that we have an indefensible legal model, but 14 he hasn't been able to show any instance of copyright 15 infringement. 16 infringes anyone's copyrights. 17 There isn't any part of our process that And his papers are a moving target. They say -- they 18 keep attacking uploads without their permission and downloads 19 without their permission, then saying they're not attacking the 20 uploads and downloads, they're attacking the sale. 21 THE COURT: I don't think that's a fair 22 characterization of his papers. I think he's saying the 23 uploading and downloading that you seem to concede in your 24 papers require the kind of copying that the Copyright Act 25 prohibits. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 13 C26TCAPA 1 That's your point, right, Mr. Mandel? 2 MR. MANDEL: 3 THE COURT: 4 5 Yes, your Honor. So that's what he's saying. Whether he is right is another story, but that's what he's saying. MR. BECKERMAN: The uploading and downloading are -- 6 if they did not have all the verification technology, it will 7 still be protected as a fair use. 8 downloading is a quintessential fair use. 9 after Google raised that concern, they claim they're not Uploading to a cloud and And they claimed -- 10 raising that issue, even though they repeatedly state in their 11 motion papers that they repeatedly attacked the uploads and 12 downloads. 13 Now then on the site itself they falsely claim that 14 there's a copy made, but there is no copy made. 15 transaction which take place is done without copying, it's done 16 with the exact file that's uploaded. 17 simply pointed one, the sale transaction takes place, and the 18 concomitant transaction, the actual file stays exactly where it 19 is, it is not changed, and it is not copied, it's simply owned 20 by someone else. 21 THE COURT: The sale The record locator is Well, what you said, page 9 of your 22 opposition brief, the only copying which takes place in the 23 ReDigi service occurs when a user uploads user files to the 24 ReDigi cloud, thereby storing copies thereof in the user's 25 personal Cloud locker, thereby placing copies of files on his SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 14 C26TCAPA 1 or her computer. 2 MR. BECKERMAN: It's a single file, unique file. It's 3 the same unique file, cannot be uploaded twice. 4 not even permitted to be maintained on the user's computer on 5 attached devices. 6 single instance of a file, and after that single instance is in 7 their cloud locker and has passed all the verification tests, 8 at the client level and then at the sever level, then it's 9 something which is accepted into the cloud locker. 10 11 The software requires it. THE COURT: All right. Plus, it is So there's a Again, I want to stay focused for now on the irreparable harm. 12 So you're not sure whether your client has the ability 13 to pay a money judgment because you haven't asked. 14 suggesting it's plaintiff's burden, and they haven't proven 15 that your client can't. 16 irreparable harm. 17 MR. BECKERMAN: Right? But you're That's your basic argument for I have not asked any client whether, 18 if the plaintiffs were to get a large money judgment, whether 19 they will be able to pay it or not. 20 in many cases where the defendant did not have money to pay a 21 judgment, but nevertheless assets or income or other items were 22 found. I have collected judgments 23 THE COURT: But you don't know one way or the other. 24 With respect to the argument that there are other 25 harms that result that can't be compensated for by a money SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 15 C26TCAPA 1 judgment, your response to that? 2 MR. BECKERMAN: What are they? 3 nothing. 4 to suppress competition. 5 papers about anything but money. 6 Records are going to go to bed crying at night? 7 Capitol Records will go out of business? 8 9 This is just about money. There's absolutely THE COURT: It's just about the desire It's got -- there's nothing in their The shareholders of Capitol It's absurd. It's ridiculous. I don't think that's the suggestion. I don't think anybody suggested Capitol Records is going to go 10 out of business. I think the concern is whether or not they 11 will be able to collect on a money judgment or whether there is 12 a violation of the Copyright Act that can't be otherwise 13 compensated for. 14 MR. BECKERMAN: 15 violation of the Copyright Act. 16 if they were true, would be copyright violations, but they're 17 non-existent facts they made up. 18 themselves could easily verify but they chose not to and put in 19 no evidence by an investigator or anyone like that who would 20 claim to have witnessed the contract infringement. 21 they have two declarations of attorneys based on peeking at the 22 Web site. 23 THE COURT: Which they have shown none, no All right. They have made up facts which, Many of them were facts they Instead, You indicate and you have an 24 affidavit to that effect, that your client keeps track of every 25 sale they make, and so it's very easy to ascertain the number SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 16 C26TCAPA 1 of sales. 2 MR. BECKERMAN: 3 THE COURT: 4 That's correct, your Honor. No question about that in your mind, right? 5 MR. BECKERMAN: 6 THE COURT: 7 MR. BECKERMAN: 8 too. 9 There is no question about that. OK. And they keep records of other things, through. 10 11 12 They keep records of every single unique file that passes THE COURT: Every unique file that passes through, what does that mean? MR. BECKERMAN: Every file that passes through the 13 marketplace. 14 and selling count, there's also a record of the exact file, 15 because their software is designed to ensure that that file 16 never gets sold there again except by the authorized -- the 17 true owner. 18 19 20 21 So not only is there a record of the buying count THE COURT: Well, all right. into a different element. With respect to irreparable harm, I think you said what you plan to say, right? 22 MR. BECKERMAN: 23 THE COURT: 24 25 I think we're drifting Yes, your Honor. Is there anything that you want to say in response? MR. MANDEL: Very quickly, your Honor. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 17 C26TCAPA 1 First of all, with respect to precedent, Salinger 2 itself talks about marketplace confusion, so there is some 3 precedent. 4 is a copyright case. 5 That language actually appears in Salinger, which THE COURT: But that's the confusion that somebody 6 will think JD Salinger wrote the darn thing when it is Norah 7 Jones that recorded the album. 8 MR. MANDEL: 9 There's a recognition there can be other types of confusion that take place in a copyright context that 10 could bear on whether it's irreparable harm or not. 11 traditionally a copyright interest, the idea of who wrote the 12 work is really more in the nature of a trademark kind of 13 injury, but yet in the copyright context they find that's 14 potentially irreparable harm, irreparable injury. 15 somewhat new, because there frankly isn't a lot of law that 16 employs Salinger and looked at what a copyright owner has to 17 show, but it's not as if there is no idea for the support that 18 that type of injury, that could be irreparable harm. 19 THE COURT: That's not It may be But the injury that you are talking about 20 is the same injury that flows from them defending this suit, 21 right? 22 this is legal. 23 in their answer, that is going to perhaps embolden or mislead 24 someone to violate copyright law. 25 for irreparable harm, for defending the suit or bringing -- You're saying that's a dangerous thing to be saying Whether they say it on their Web site or say it That strikes me as nutty, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 18 C26TCAPA 1 MR. MANDEL: Obviously if your Honor didn't find it 2 likely to establish success on the merits, that wouldn't be the 3 case, but I think that we'll obviously talk about that. 4 think once you look at it and make a determination it is likely 5 that we're going to succeed on the merits, I don't think it's 6 crazy at all that somebody should be able to encourage people 7 to infringe by engaging in a model that finds no statutory 8 support and that is unlikely to ever be successful in a 9 courtroom. 10 THE COURT: But I It seems to me this is really an argument 11 that likelihood of success on the merits equals irreparable 12 harm, when has already been rejected. 13 MR. MANDEL: But the other point on irreparable harm 14 in terms of monetary -- whether they could satisfy a judgment, 15 obviously it's difficult for us to satisfy that burden going in 16 without any discovery, without an opportunity to know how the 17 copy is capitalized. 18 didn't ask," so he's not in a position to make any 19 representations to the Court. 20 And now Mr. Beckerman is saying today "I We would suggest that if that really needs to be 21 shown, that maybe we be given an opportunity for some expedited 22 discovery to find out exactly what the level of capitalization 23 here is and what the likelihood is that they really are going 24 to be able to satisfy a potential substantial judgment. 25 that is something -- that's something we couldn't obviously in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 If 19 C26TCAPA 1 our moving papers at this juncture possibly have met the burden 2 on, but there's enough suggestion just in the response 3 saying -- and I think their quote in The New York Times, "If we 4 can't do this, we're out of business," the idea that they will 5 leave money around to satisfy a big judgment I think is a lot 6 for us to take at face value. 7 maybe to have some expedited discovery on that point. 8 9 THE COURT: So we would like an opportunity But it seems to me that since this is the service they provide, to be enjoined from providing this 10 service would almost by definition put them out of business, 11 wouldn't it? 12 and airplane engines as well so that business continues. 13 It's not like they make colas and record players MR. MANDEL: They have told us they do storage. They 14 tried to make the whole defense be about storage. So 15 presumably they could still do that. 16 motion only deals with Capitol's recordings, it's not going to 17 enjoin them from selling the other labels' recordings. 18 what the other labels decide to do or what deals they may or 19 may not be able to strike with the other labels is entirely 20 open. 21 distribute Capitol's recordings they're out of business. 22 They're out of the business of during the pendency of this 23 trial, until trial, of distributing Capitol's recordings. 24 it is more limited. 25 THE COURT: But beyond that, this And But it's certainly not the case by not being able to OK. So So irreparable harm, I think I have SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 20 C26TCAPA 1 heard what I'm going to hear. 2 Let's now talk about likelihood of success on the 3 merits, which is what I think everybody really wants to talk 4 about. 5 MR. MANDEL: In terms of likelihood of success, first 6 of all, as your Honor pointed to, we think the admission at 7 page 9 of their brief that basically copying take place to 8 upload to the cloud and download to the locker is really almost 9 dispositive here. It's an admission there is an act of 10 reproduction. 11 facie right of the copyright owner under 106 to have exclusive 12 rights and not to have others reproduce it. 13 becomes: 14 reproduction to take place? 15 THE COURT: 16 That is in violation certainly of the prima And the question Is there some defense that would allow that They have offered two, fair use of essential step doctrine. 17 MR. MANDEL: But when you actually look at the 18 argument on them, they're arguing defending a case that we 19 never brought. 20 supposed resale market for digital music, and that's what 21 sparked the complaint, and that's what we thought we made clear 22 in our papers. 23 in our reply papers we certainly made it clear beyond question 24 as to what the nature of the injury that we're talking about 25 here is. This case was brought because there's an online To the extent there was any confusion, I think So the question is: Is there a defense? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 And when 21 C26TCAPA 1 you look at fair use, their whole defense on fair use basically 2 presupposes that we're challenging just the mere act of 3 storage. 4 THE COURT: That's my question to you. So if someone 5 just decided to store digital recordings that they purchased 6 through iTunes, they wanted to store it in a cloud, that 7 requires copying, according to your papers. 8 9 MR. MANDEL: Yes. Right? And that's not what we're challenging here. 10 THE COURT: But why not? So what is the difference 11 between what is going on here that you are challenging and the 12 hypothetical I just supposed? 13 MR. MANDEL: Because what is really going on, what 14 their entire Web site talks about, their Facebook page, 15 everything, is a resale market, the ability not to store it, 16 but to sell it. 17 resale. 18 It's stored in the cloud for the purpose of THE COURT: But well, it's stored in the cloud, and 19 the process of storage requires a copying. 20 you're saying -- I think you're conceding is not a violation of 21 the Copyright Act. 22 MR. MANDEL: And that process For purposes of this case, we're not 23 making that claim. We're not challenging that. 24 saying is that you can't subdivide what they're doing. 25 they're really saying essentially user A starts out, and he can SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 What we're And 22 C26TCAPA 1 start the copy. 2 file, they can download it because they're taking it from the 3 cloud to their computer. 4 really happened is that file has been distributed, has been 5 transmitted from the first user to the second. 6 So his is fair use. THE COURT: User B, who bought the But at the end of the day, what has No question. So I have my little iPod 7 player right here and I have all the great Bee Gees hits, and I 8 decided I'm moving out of the '70s and want to get progressive, 9 so I sell to my law clerk my iPod with all my favorite Bee Gees 10 songs. 11 MR. MANDEL: That's fine, because you transferred the 12 material object in which the copies are affixed, and that would 13 be a first sale. 14 giving them -- your iPod happens to be preloaded with sound 15 recordings, and that's fine. 16 THE COURT: And you're not making another copy, you're But now I'm more technically advanced, so 17 I have it actually stored in a cloud that allows me to listen 18 to the same great numbers through just through different 19 technology, but you're saying I can't transfer any of those 20 wonderful songs to her. 21 MR. MANDEL: That's correct, and that's the statutory 22 scheme. 23 based on the notion of the actual copy, you can't make a 24 reproduction. 25 And it's really because the first sale doctrine is THE COURT: And that's a statutory language question, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 23 C26TCAPA 1 2 or is it a licensing contractual question? MR. MANDEL: It's interpretation. We cite to the 3 Copyright Office Report of 2001, which we think has some very 4 interesting discussion of this whole issue. 5 the origins, it set out a very clear distinction between 6 reproduction and distribution, and the idea was there's a 7 recognition that physical property, that you have a right 8 generally to dispose of that, but not to reproduce it and 9 dispose of a copy. 10 And if you look at And so it's not just a technical distinction, it is a 11 distinction on which the entire doctrine turns. 12 what we're saying about the reproduction is you can't stand 13 there and pretend that the reproduction is just about space 14 shifting if the whole purpose that you're encouraging and the 15 whole business model that you developed is focused on idea of 16 selling that recording. 17 THE COURT: And basically, But what if I stored it in the cloud when 18 I still liked Bee Gee's and decided to sell it later when I 19 decided I don't and I want to recoup some of the investment, 20 you're saying that's violation? 21 MR. MANDEL: And their technology talks about actually 22 checking something that makes it available for resale, so I 23 think users have the opportunity to actually use their 24 technology, decide when they're offering it for resale. 25 we're saying certainly the point that you do that, you can't SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 And 24 C26TCAPA 1 really say anymore it's just about storage because what you're 2 doing is you're distributing it. 3 4 5 6 7 THE COURT: But it was about storage at the time I copied it into the cloud, right? MR. MANDEL: It is a hypothetical. Hypothetically it could have been about that, but if you look at the business model -THE COURT: This is -- indulge me on my hypothetical. 8 Are you saying the outcome is different in if I chose to store 9 these things, in fact did store them for my own use for a year, 10 and after a year I decided to move to a new decade and sell my 11 collection? 12 MR. MANDEL: I think it is different, and the reason 13 it's different is maybe it will be the case that Congress will 14 decide that there's enough reliability in the technology that 15 they have developed and that others may develop that they're 16 willing to extend the first sale doctrine in a way that it can 17 apply in this digital environment and someone can have a 18 broader right to distribute it, but it's not there now. 19 THE COURT: So that's my point. My point is you're 20 saying the statutory language is where I ought to go and where 21 I ought to stop, because the statutory language would prohibit 22 what going is on here, even though if I had the CDs or the 23 iPod, I could go to the flea market and sell the darn thing. 24 25 MR. MANDEL: That's right. We say the statutory language, but also the history of the first sale, it's the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 25 C26TCAPA 1 clear interpretation of first sale that says that you can't 2 make a copy in the context of first sale. 3 together, which the copyright office was looking when they 4 opined on the question, all together saying to us maybe someday 5 maybe there should be a new digital right. 6 that now, and under existing law there is certainly not that 7 right. 8 THE COURT: All those things They haven't done What about your response to the opposition 9 brief which talks about pointers, sometimes like in some ways 10 the language being utilized in the technology being described 11 to differ between the parties so they're almost talking past 12 each other, so talking about a pointer, we're not copying, 13 we're allowing somebody else to, in essence, have the click 14 rights to something that is in the cloud? 15 MR. MANDEL: I think once again what they try do is 16 break this process down and then OK, pointer, so there's no 17 copying made, so it's just space shifting here, just space 18 shifting here. 19 from one user to another. 20 But as we said in our reply papers, it shifted THE COURT: But that happens in flea markets all the 21 time, and that's a time honored right. But if we're 22 interpreting a statute that predates the technology, why would 23 we interpret it in such a way as to prevent the first purchaser 24 from ever being able to have rights in that or the ability to 25 resell it? Why would we take that away if we have two choices, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 26 C26TCAPA 1 you get to make a sale like a flea market owner or -- 2 MR. MANDEL: I think in the first instance we would 3 say that decision would be for Congress to make. 4 Copyright Office went on after, it said there is no digital 5 first sale, it then analyzed should the Copyright Act be 6 amended to provide. 7 no, it shouldn't be. 8 shouldn't be is a congressional question. 9 satisfy it right now, and right now I think that's a function 10 THE COURT: me. But ultimately whether it should or We say it doesn't I have the statute right here in front of What provision are you referring to? 13 MR. MANDEL: 14 THE COURT: 15 MR. MANDEL: 16 They decided -- their determination was of the statutory language and history. 11 12 I think the Section 109. What part of it? 109(a), I believe it is, talks about the right to -- let me take the statute. 17 Notwithstanding the provisions of 106(3), the owner of 18 a particular copy or phonorecord lawfully made under this title 19 is entitled, without the authority of the copyright owner, to 20 sell or otherwise dispose of the possession of that copy or 21 phonorecord. 22 So the whole idea of first sale I think is borne out 23 in all the cases that interpreted it, as well as that it's the 24 particular material object, and the example that your Honor 25 gave is really a good example that illustrated that. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 If you 27 C26TCAPA 1 have the iPod and you distribute the iPod the recordings are 2 on, then you have distributed that particular copy. 3 If you make a copy and then put it up somewhere else 4 in order to distribute it, it isn't that particular copy 5 anymore that you're distributing. 6 whole essence of the first sale doctrine is that it didn't 7 include the right to reproduction any more than if I had a book 8 or CD that I could photocopy, give the copy to my friend, and 9 then decide I don't want this book anymore, I'm going to throw And that is basically the 10 the book in the garbage. That wouldn't be covered by the first 11 sale doctrine, and neither is this. 12 different. 13 THE COURT: 14 copies are material objects. 15 MR. MANDEL: It's logically no But in terms on definition of copies, 101, It turns on the definition of copies and 16 the notion of that particular copy, because what 109 is really 17 saying is that you have a right to dispose of the particular 18 copy if lawfully made. 19 And that's another issue. We don't think it's 20 lawfully made because if the copy was made for the purpose of 21 distributing it, it's not lawfully made. 22 right to make a copy and distribute it to somebody else. 23 that's another problem under 109, and I think they try to 24 confuse this. 25 interesting in terms of if I store it today and a year from now You don't have a So And I understand the hypotheticals are SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 28 C26TCAPA 1 I sell it, but the real marketplace model as presented and 2 promoted as going to make them money is not by a kind of 3 differentiation, it's about: 4 It's happening essentially together. 5 some people that decide to store it there and not sell, that's 6 not what the business model is about. 7 distinguishes them from any other places where they could store 8 them. 9 should sell it because you could put it up there, you earn 10 credits to distribute it, you can sell it to somebody else. 11 And that's their business model, and it turns on reproduction, 12 which is not allowed under the cases and statute. 13 Hey, sell your digital music. And that there may be That's what What distinguishes them is they're telling people you And also it's not a lawfully made copy because it's 14 not lawfully made. If it's for purposes of distribution, you 15 don't have a right to copy a copyrighted work to distribute it 16 to somebody else, even if you decided to throw away your work. 17 That's my example with the book. 18 can't give the photocopy to my friend even if I throw my book 19 in the garbage. 20 able to do that. I could photocopy my book. I And functionally, it may seem like I should be 21 THE COURT: 22 MR. MANDEL: 23 THE COURT: 24 MR. MANDEL: 25 THE COURT: You can give the book. I could give the book. And you could sell the book. I could sell the book. Basically you're saying the technology SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 29 C26TCAPA 1 created a real great windfall to publishers because they get to 2 shut down secondary markets that previously existed before 3 technology, right? 4 MR. MANDEL: I don't think so, because I think if 5 you're going to get into the policy question, which I'm kind of 6 avoiding because what I'm saying is the statute speaks to this, 7 it's Congress's province to make those judgments. 8 want to look at the policy point of view, there is enormous 9 risk that the copyright owner is being subjected to here. But if you The 10 fact that it's the lead-in for my computer, what assurance do I 11 have that before I have done that I haven't downloaded it onto 12 some other device, that I don't reconnect that computer and I 13 listen to -- continue to listen to the music? 14 THE COURT: But that aside, there's always been a 15 desire, frankly, to shoot down the swap meets and shut down the 16 secondary markets for CDs and records. 17 MR. MANDEL: Because oftentimes that marketplace is 18 selling infringing copies and there's illegal bootleg copies. 19 Nobody is saying we want to shut down the right to an album, 20 legitimate CD that I purchased to resell, but not to make 21 copies and distribute en masse copies it. 22 that is a concern to the record company. 23 24 25 THE COURT: That is something So you're OK with people selling their old records and selling their old CDs? MR. MANDEL: Absolutely. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 30 C26TCAPA 1 THE COURT: So if somebody like defendants come up 2 with a way to really verify that the copy has been deleted, you 3 would be OK with telling Congress, sure, we think that 4 previously owned, preowned digital audio files should be able 5 to be sold? 6 7 MR. MANDEL: I can't speak to what my client would say in that legislative discussion. 8 THE COURT: 9 MR. MANDEL: I would be willing to take a hunch. But my point is they shouldn't have to 10 take that gamble because, first of all, if the technology is 11 proven to that extent, then Congress can enact that protection. 12 We have a real question, because even Mr. Ossenmacher agrees in 13 The Times article if people want to get around it, they will 14 get around it. 15 download it to a different device not synced to the computer, 16 and bingo, you have got around it. That's obvious you can do that, you just 17 So it's cold comfort to say to my client, don't worry, 18 this is all going to work great and nothing is going to happen, 19 because we know that there's a long history here where people 20 want to infringe. 21 all these cases that have come up going to Supreme Court. 22 There's a lot of effort to sell infringing copies, and asking 23 my client against that backdrop and decades of litigation and 24 experience to take it at face value that people are going to do 25 the right thing, I don't think that's something that they have We have seen a lot of case law, Napster and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 31 C26TCAPA 1 to do, and certainly not something Congress said they have to 2 do. 3 made that judgment yet. If Congress makes that judgment, fine, but they haven't 4 THE COURT: But yours is a legal argument, and it's 5 not a licensing of contract argument, it's a statutory 6 interpretation argument. 7 MR. MANDEL: 8 THE COURT: 9 10 So it doesn't turn on whether or not the conditions of buying the audio file were such that the seller made the buyer promise they won't resell. 11 12 I believe that's correct. MR. MANDEL: I don't think that's really critical to it, no. 13 And should I move on to the essential step doctrine? 14 THE COURT: 15 MR. MANDEL: Yeah, let's do that, too. So in terms of fair use, I want to say -- 16 I won't go through it, but if you look at the four factors, 17 which they haven't briefed, all they cited is a case under the 18 digital recording act, not even a fair use case involving the 19 MP3 case, and they haven't gone through the four factors. 20 We think the cases that looked, like the and 21 Napster decision, when they analyzed fair use in the context of 22 what is really going on is basically copying to be able to 23 distribute digital files, they have really given this defense 24 short thrift, and we don't think it works here by pretending 25 the service is something other than what it is and redefining SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 32 C26TCAPA 1 it into component parts. 2 doctrine, it's a rule of reason. 3 approach for the Court to close its eyes to the reality of what 4 is taking place and do this kind of formalistic dissection 5 without really looking at the end result, so we think fair use 6 is not even colorable here. 7 And fair use is an equitable It would be the wrong In terms of the essential step, which is really the 8 other step that they assert in terms of reproduction, basically 9 in the first instance we don't even think this is a computer 10 program under the statutory definition, a set of instructions 11 to carry out a result. 12 cited is very clear that 117 of the Copyright Act is all about 13 internal use, and the statutory language there says for no 14 other purpose, it has to be essential to the use and for no 15 other purpose. 16 But even if it is, the case law that we And the purpose here again is to make a distribution, 17 to be able to transmit to to somebody else. 18 quintessential example of what you can't do under 117. 19 117 is a limited exception that recognizes when you buy a piece 20 of software, in order to use it, you have to technically make a 21 copy. 22 made into my hard drive, if it didn't do that, I couldn't use 23 the program. 24 25 That's the Because When I put it in my computer, by definition a copy is That really has no bearing on what is going on here, where it's not essential to make the copy to use it, it's only SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 33 C26TCAPA 1 essential if you want to distribute it to somebody else, which 2 you have no legal right to do. 3 the cases that we cited clearly doesn't fall into protecting 4 this kind of use, and I don't believe they even cited a case to 5 the contrary. 6 So the essential step under all So really the defenses I think are really weak on the 7 law. When you really look at the case law, they have basically 8 nothing. 9 or essential step work here, and in the end, what we're left 10 with is that they are wishing that there were a right to do 11 something that they don't have a right to do under the law. 12 They're arguing a lot of policy but neither fair use THE COURT: All right. But for essential step, I mean 13 you just conceded, I think, that making a copy is necessary to 14 be able to access and listen to the audio file you purchased, 15 right? 16 MR. MANDEL: 17 THE COURT: Yes. So if you have -- I have twins girls, if 18 one of them buys the Bee Gees and the other buys the Beatles 19 and says great, we'll share, we have got one computer, we'll 20 just share and each listen to the other's purchased files, is 21 that a violation then of the copyright law? 22 MR. MANDEL: No, because it's the same computer and 23 they have each downloaded a particular file that they're 24 listening to. 25 computer. You can play anything that you want on your The language of 117 says it's essential to the use SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 34 C26TCAPA 1 and for no other purpose, and the case law is very clear when 2 it talks about "for no other purpose" is for internal use, not 3 for an ability to make distributions. 4 THE COURT: But if the enterprising one to says the 5 lazy one, "I will charge you five bucks and you can listen to 6 the Bee Gees," is she all the sudden going to show up in a 7 copyright case? 8 9 MR. MANDEL: I think there's a lot of hypothetical examples, but what is going on, the marketplace reality is 10 about setting up a mechanism by which people can sell to anyone 11 out there in the world. 12 about your sister or anything like that. 13 don't think that anybody is transmitting it to another computer 14 anyway, if they're using the same computer. 15 And I don't think we're concerned And in that case, I So the real question is when you set up a business 16 model that is based on distribution and reproduction, how does 17 that fall within 117? 18 think it's a computer program, but if it is under the case law, 19 it is clear under the statutory language that it is not 20 protected by the essential step doctrine. 21 22 And we don't I don't know if you want me to move on to other than reproduction. We have kind of talked about distribution. 23 THE COURT: 24 MR. MANDEL: 25 And it clearly doesn't. Covers the arts, that sort of thing? I meant distribution I think we have already touched upon, so we have talked about reproduction and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 35 C26TCAPA 1 2 distribution. The only point I want to make on distribution that we 3 didn't cover, we talked about the defense of first sale, but 4 didn't talk about the question of whether it's actually a 5 distribution. 6 because you're not distributing copies. 7 look at the precedents, basically they made clear courts have 8 not hesitated to say when you transmit electronic files that is 9 a distribution. They seem to say well, it's not a distribution And we think if you In fact, the Supreme Court in Tasini said the 10 sale of copyrighted articles through LexisNexis is a 11 distribution. 12 And as practical matter, if you look at the 13 consequences of that, it would be devastating, it would be open 14 season on copyrighted works if you essentially were saying put 15 it up on the internet, transmit to anyone you want, you're not 16 distributing. 17 saying that's not right, there is a violation of distribution 18 right under the precedents. 19 That can't be right, and courts had no trouble What they try and say is well, if there's a violation 20 of distribution rights, there must be a first sale defense. 21 But that's not the case, because the point is the first sale 22 talks about that particular copy, and that material object is 23 not what is being sold, there's a reproduction there. 24 25 THE COURT: That's your point about material versus a non-material copy. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 36 C26TCAPA 1 2 MR. MANDEL: Correct. And I don't know if you want me to briefly address performance and display as well. 3 THE COURT: 4 MR. MANDEL: I think I get it from the papers. I don't think that I need to say much 5 more. I think I said in my reply papers, again, the cases talk 6 very clearly about streaming clips to people who are interested 7 purchasers. 8 they do. 9 stream. That's what their tutorial says on the Web site That is not the same as going to my locker and That would not be a public performance, and we didn't 10 challenge that. So again, we're talking at cross purposes. 11 We're not addressing the same thing. 12 THE COURT: 13 MR. MANDEL: So a link you have no trouble with. I think what I'm saying is that the 14 individual person in their locker who may own a file we are not 15 challenging their right to play it, but what we're saying is 16 when you stream to interested purchasers anything in these 17 clips for the purpose of enticing them to make a purchase 18 that's not legally authorized in the first place, that is a 19 violation. 20 That is a public performance. THE COURT: All right. But again, let's get back to 21 my analogue world of my Bee Gees recordings CD. 22 flea market and allowed people to listen to my recording, CD, 23 before purchasing, is that a violation? 24 25 MR. MANDEL: If I went a Is that a performance? Is that a public performance? be if you're playing it in a public setting. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 That might 37 C26TCAPA 1 THE COURT: I have a CD player right there with a set 2 of headphones to listen to see if it's damaged or not damaged 3 or see if the -- 4 MR. MANDEL: 5 this case, I think. 6 THE COURT: It's certainly not what is going on in But why not? It seems to me that to 7 perform a work means to recite, render, play, dance or act it, 8 directly or by means of any device or process. 9 MR. MANDEL: It may be that that's a public 10 performance, and maybe we could get into an argument whether 11 that's a fair use purpose of legitimate sale. 12 here it's not. 13 THE COURT: 14 MR. MANDEL: 15 reasons we already discussed. 16 THE COURT: The truth is, 17 18 Here it would be furtherance of a sale. Not an authorized sale for all the So it comes back to, I think, your interpretation of the Copyright Act and -MR. MANDEL: It's connected to that. And I think they 19 rely on a license that says that you can't use their clips for 20 purposes of encouraging infringement, which is exactly what we 21 say is going on here because they're doing it to interest 22 people and make purchases that are not legally permitted. 23 The last point to round out liability, just to briefly 24 mention the DMCA, I think they make a half-hearted defense 25 here, but they don't even really say that they fall under the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 38 C26TCAPA 1 requirements of the statute, they just say our notice was 2 defective. 3 give a notice, so it's kind of -- I don't understand their 4 argument. Of course, there's no requirement that you even 5 There are three things they're required to show that. 6 They haven't attempted to show that they can satisfy all three 7 of those things to claim a DMCA immunity. 8 directly, they can't establish that they don't have a right and 9 ability to control, and that they don't profit from the And clearly and most 10 infringing activity because they take a piece of every sale. 11 That's a direct financial benefit. 12 right and ability to control, because that's the whole purpose 13 of their verification engine is to decide prescreen whether it 14 will be offered or not. 15 And they said they have a The problem with their verification is it's based on 16 an erroneous legal principal that seems to assume they're 17 entitled to make a distribution they're not entitled to make, 18 but they clearly have the ability to control it, by their own 19 admission, and clearly financially benefit. 20 that reason they haven't even argued that they fall within the 21 DMCA immunity in their papers, and they don't under the clear 22 language of the statute. 23 24 25 And perhaps for So that's all I have to say on likelihood of success on merits. THE COURT: OK. Mr. Beckerman. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 39 C26TCAPA 1 MR. BECKERMAN: Your Honor, could I start off by 2 addressing a hypothetical? 3 the hypothetical that you asked Mr. Mandel -- 4 5 THE COURT: she just likes them. 6 Because I want to make sure that I don't know why she likes the Bee Gees, Why do you like them so much? MR. BECKERMAN: The hypothetical that your Honor 7 addressed to Mr. Mandel about in the flea market letting people 8 listen to it. 9 in the cloud locker except the user, and it would have to -- 10 11 That can't go on. THE COURT: No one can listen to what's But you indicated it's a link to some other authorized site. 12 MR. BECKERMAN: There are links to the download site 13 with the 30 second clips like they have on iTunes where you 14 sample it. 15 THE COURT: 16 MR. BECKERMAN: 17 Ridio is a licensee of plaintiff. 18 there, we just have the links to audio under our license with 19 Ridio. 20 by Ridio pursuant to the license agreement pursuant to their 21 agreement with plaintiff. 22 But who authorized it? Well, this is licensed by Ridio, and And we don't stream anything Similarly, the artwork is just links that are provided So I just want to make that clear that that's the only 23 public streaming that goes on, and it's pursuant to license. 24 And it's not on the site at all. 25 THE COURT: It's not on the site. It's not in the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 40 C26TCAPA 1 cloud, you mean? 2 3 MR. BECKERMAN: It's not on the ReDigi cloud at all, it's just linked. 4 THE COURT: I understand that from the papers, which 5 is why I think that's kind of beside the point. 6 understand that, Mr. Mandel, or was that your understanding as 7 well? 8 9 MR. MANDEL: Did you not That's my understanding of what they have said. 10 THE COURT: You're not sure it's true. 11 MR. BECKERMAN: It wasn't clear to me why Mr. Mandel 12 keeps talking about fair use and essential step, because we 13 only recognized those in connection with the upload and 14 downloading of the storage locker, which he doesn't challenge. 15 He's only challenging the -- we never said the fair use 16 doctrine or the essential step defense has any bearing on the 17 used digital marketplace. 18 completely lawful for completely other reasons. 19 involve any kind of copying. 20 THE COURT: The used digital marketplace is It doesn't Well, let me stop you there. What you're 21 saying is there's copying done to get the audio file in the 22 cloud, but there's no copying after that. 23 24 25 MR. BECKERMAN: No copying on the site at all. The upload and the download -THE COURT: I'm not sure that's a distinction that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 41 C26TCAPA 1 necessarily matters, no copying on the site, but if you're 2 enabling or assisting someone else in copying someplace else, 3 then you could be held liable for the infringement, right? 4 least conceivably. 5 MR. BECKERMAN: At I will just concede the uploading and 6 downloading is copying, but arguably it's not even a copy under 7 Cartoon Network, but I won't -- I'm not making that point. 8 9 THE COURT: But just so I'm clear, because in using Bee Gee's analogies, my technology may be as dated as my 10 musical tastes, but you're conceding copying is necessary to 11 upload into the cloud and copying is also necessary for the 12 purchaser to listen, right? 13 14 MR. BECKERMAN: For the purchaser, the purchaser after he purchased it? 15 THE COURT: Yeah. 16 necessary after that or not? 17 MR. BECKERMAN: 18 THE COURT: 19 MR. BECKERMAN: Is there a copying that is There will be a copy in RAM, no doubt. OK. But the actual sale transaction 20 involves no copying. And Mr. Mandel has falsely stated -- 21 well, the papers falsely allege in a number of places that 22 there are copies floating around on the site, which is 23 completely false. 24 copying whatsoever, it's just a change in the record locator. 25 And there are various grounds, neither of which is fair use or And the sale is effective without any SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 42 C26TCAPA 1 essential step, for a finding that to be lawful. 2 could find it on alternative grounds, either that under the 3 distribution section, 106, the MP3 files are not material 4 objects, as plaintiffs themselves concede in their papers, or 5 your Honor could say well, even if they were material objects, 6 well, the definition is exactly the same for the first sale 7 exception. 8 9 The Court So in this particular case I don't even need to decide the material objects in question, because in this particular 10 case I have a very clear application of the first sale 11 doctrine, because this particular copy has changed ownership 12 without any reproductions being made. 13 within the first sale doctrine. 14 THE COURT: So it clearly fits Well, I mean I think what you're arguing 15 is it's sort of a tandem application of essential step and fair 16 use, right? 17 18 MR. BECKERMAN: No, they have nothing to do with the sale. 19 THE COURT: Well, the copying is necessary to get into 20 the cloud all together, right, and so what Mr. Mandel is saying 21 as long as it's for one's own personal use, that's OK, but if 22 it's going really for the purpose of a distribution, that's not 23 OK. 24 25 MR. BECKERMAN: Well, purposes are going to be individual to every person. Like with the Bee Gees, you decide SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 43 C26TCAPA 1 you wanted to move into the modern age, you put them there, you 2 were thinking you don't want these cluttering up your computer 3 any more, you played a few just for the heck of it to see if it 4 works and say, you know, you maybe I acted too hasty, and you 5 store them there for a year and then you decided to take them 6 back. 7 actually happens. 8 he's asking you to avoid -- to pay no attention to that 9 technology, disregard that. 10 THE COURT: Mr. Mandel is trying to ask you to disregard what The actual physical event that is occurring, I think there may be a dispute to what the 11 technology is, which I think is foreshadowing what we're going 12 to be talking about with your contemplated motion for summary 13 judgment, because maybe there's some factual disputes that have 14 to be resolved first. 15 MR. BECKERMAN: There has to be some evidence on this 16 side and some evidence on that side. 17 evidence on this side and some lawyer speculating as to what he 18 thinks may be going on. 19 20 21 THE COURT: There can't be some We haven't had any discovery, so there's no evidence on any side at this point. MR. BECKERMAN: He should not have brought a lawsuit 22 without evidence of a copyright infringement. If there were a 23 copyright infringement, it would have been a small matter for 24 an investigator to open up an account -- and this is what they 25 do all the time, in fact they probably did. I think it is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 44 C26TCAPA 1 interesting they made a preliminary injunction motion and there 2 was no investigation. 3 they didn't like the information he brought back to them. 4 could you bring a lawsuit without an investigator? But maybe there was a investigator and How 5 If the investigator could show that some law was being 6 violated, that a copy was being made, contrary to what we said, 7 if he could show there is public performance or if he could 8 show there was unlawful copies littering the place -- the 9 likely claim is it is completely fabricated by the attorneys -- 10 where is that evidence? 11 bringing a lawsuit instead of terrorizing people in the first 12 place. 13 THE COURT: There has to be some threshold for I think we're getting ahead of ourselves 14 here. 15 to be premature because we have had no discovery at all, and at 16 this stage of a case, nobody is expected to be basically 17 attaching affidavits and asking the Court to resolve disputed 18 issues of fact. 19 20 21 I was suggesting that the summary judgment motion seems MR. BECKERMAN: I have a very strict policy, if Court tells me a motion is premature, I don't make it. THE COURT: But right now we're talking about the 22 preliminary injunction motion, and it seems to me what 23 Mr. Mandel is saying is that there is a copying, and it's 24 copying for the purpose of a sale. 25 is a copying, but it's a necessary first step for the purchaser And you're suggesting there SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 45 C26TCAPA 1 to listen, but the sale itself doesn't involve any copying. 2 That's really what -- I think each of is characterizing what 3 goes on here slightly differently. 4 with legal theories, not surprisingly, perhaps. 5 It also happens to coincide But what Mr. Mandel said a moment ago is if you had a 6 book and you made copies in the book for your own use, that 7 would be one thing, but if you sold the photocopies of the book 8 to somebody else, that would be an infringement. 9 with that? 10 11 MR. BECKERMAN: THE COURT: 13 MR. BECKERMAN: 14 THE COURT: Right. So I think it's -- I wasn't sure if it's OK to make -- I said it's a matter of which analogy one chooses for this different and unique technology. 16 17 If you sold copies of the book, that would be an infringement. 12 15 Do you agree MR. BECKERMAN: We're not selling a copy of the file, we're selling the actual file. 18 THE COURT: I think what you're suggesting is you're 19 selling access to a file, right, that's in a cloud, and the 20 process of putting it in the cloud is an essential step for the 21 user. 22 cloud, which might entail a copy, is a necessary step for the 23 purchaser to listen, but they're essential. 24 what you're arguing? 25 The first user and the process of accessing it in the MR. BECKERMAN: Is that really We don't access a separate thing, we SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 46 C26TCAPA 1 sell title. 2 business model with iTunes is because iTunes sells the title to 3 the MP3. 4 One of the reasons that we started out this THE COURT: But if I had a whole bunch of books in my 5 library and I decided who needs this, I could hang stuff on my 6 walls if I didn't have these book cases, so I'm going digitize 7 every book in my library and I could put it in the cloud, are 8 you suggesting that I could never sell those books, the digital 9 versions of those books to someone else? 10 MR. BECKERMAN: 11 THE COURT: 12 MR. BECKERMAN: No? No. Why not? What's the difference? Well, in this case, we have gone -- 13 we're doing something which is lawful and which they don't 14 challenge, which is enable people to store it. 15 Secondly, we have -- 16 THE COURT: But can I interrupt you? Are you 17 suggesting that the first step of digitizing my books and 18 storing in a cloud would in of itself be a violation of 19 Copyright Act, for my own use? 20 MR. BECKERMAN: I'm not aware of a precedent for it, 21 but I would imagine it would probably be a fair use just like 22 the fair use of an MP3 file. 23 THE COURT: 24 25 But you're suggesting selling it from the cloud would be an infringement, right? MR. BECKERMAN: Well, you still have the book in your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 47 C26TCAPA 1 book case. 2 THE COURT: I have got rid of all the books. 3 MR. BECKERMAN: 4 THE COURT: 5 MR. BECKERMAN: 6 THE COURT: Well, a ReDigi user -- I had a bonfire. Well, you had it. I had digitized all my books, put them in 7 my cloud, and then burned all my books and put up paneling so I 8 didn't need the book cases. 9 disputing that I could go look at my digital books without Are you saying -- you're not 10 violating the Copyright Act, right? 11 that? You're saying I can do You think about that. 12 Mr. Mandel, can I do that? 13 MR. MANDEL: 14 THE COURT: No. You're saying I can't do that. But I 15 could make photocopies and leave them -- I could make a copy of 16 the chapters or things that I want to use for my term paper. 17 MR. MANDEL: I don't think there's a case that 18 actually addressed it. I think you would have to look 19 factually at each situation. 20 if you were making the copies for your own personal use. Arguably it would be a fair use 21 THE COURT: 22 Do you know what real estate costs in Manhattan? 23 24 25 Yeah, my own personal use. I don't want books all over the place. MR. MANDEL: I think the problem here -- I don't think we actually do have a factual dispute. Their papers SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 48 C26TCAPA 1 acknowledge that a copy is made. 2 understand is there is no copying in the resale, but you 3 couldn't have a resale without the copy. 4 There would be no marketplace. 5 resale but for the copy, because you wouldn't be able to take 6 the pointer and point it from A to B. 7 a very formalistic and not appropriate way to look at it, 8 particularly where you've gone out and marketed your whole 9 service as being based on a marketplace, that's how you make 10 11 What I really don't That's the point. There would be no possible So it seems to me to be your money, you take a cut of sales. Now for legal purposes, we're saying it's just 12 storage, I'm just storing it, and there's no copying. 13 there's no copying, you wouldn't be able to have a marketplace. 14 Of course there's copying. 15 these defenses you can look at in that kind of isolated way 16 where you don't actually look at what is happening. 17 Well, if We don't think fair use or any of On these facts before the Court, based on what 18 defendant has done and how the marketplace is set up, how it's 19 trying to make money, clearly the copying is being done for an 20 improper purpose. 21 in some other clothing because maybe that would be a fair use, 22 but that's not what we have here. 23 And they're trying to kind of put themselves THE COURT: I'm curious about the consistent 24 application of law in different hypotheticals. 25 instructive for me. It's certainly So I know you don't want to indulge me in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 49 C26TCAPA 1 these, but it seems to me if a pure storage cloud marketed 2 itself for that purpose to a user who has got scads of digital 3 recordings, then that user were to try and they bequeath their 4 access to their files to somebody else, could they do that? 5 6 7 MR. MANDEL: I don't know. I would have to think about that. THE COURT: Well, we're on Mr. Beckerman's time now 8 anyway, so I wanted to give him a chance to think about my 9 hypothetical. 10 MR. BECKERMAN: I'm not a hundred percent sure that 11 digitization of a book is -- I don't know that it's not a 12 violation of reproduction right. 13 speed on that issue. 14 THE COURT: 15 MR. BECKERMAN: I really am just not up to OK. I don't know. The difference between 16 a book and these iTunes files is that each iTunes file has very 17 specific unique identifier. 18 copies are bought of the same song, every single unique file 19 has an a different identifier; it has a different purchase 20 date, it has a different purchaser, and it has the UITS, in the 21 later versions of it, which is a unique encrypted code, which 22 is going to be different for every single one. 23 only -- there can only be one of that unique file. 24 25 So even if a million different So there is There can be multiple instances of it with unlawful copying or even with lawful copying, but we have gone the extra SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 50 C26TCAPA 1 mile by having software which searches your computer and any 2 attached devices and any devices which come later at any future 3 time, all which have are designed to prevent you from having 4 any additional copies of that file. 5 tremendous service to the recording industry because it's 6 telling people that have related copies that's not the same. 7 They might think it's the same, but it's not the same because 8 they can't resell it. 9 market value. I think it's doing a Whereas, this can be resold, it has a 10 THE COURT: 11 Did you want to respond to any other points of 12 I think I understand that point. Mr. Mandel? 13 MR. MANDEL: 14 THE COURT: 15 respond to points you made. 16 If I could briefly. I'm asking Mr. Beckerman if he wants to MR. BECKERMAN: He's talking about us making 17 half-hearted defenses. The thing is, we had 20 pages and we 18 had about six and a half days to put it all together. 19 write a brief on this. 20 sophisticated lawyers, that this was an obvious DMCA case. But 21 we chose to emphasize the things that say this isn't legal. If 22 they had given a proper DMCA notice -- I could It seems to me, to all us of us, 23 So Mr. Mandel, shoot me, I'm sorry, but -- 24 THE COURT: 25 could tell you. Don't do that, that would be illegal, I As a former criminal lawyer, I know. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 51 C26TCAPA 1 MR. BECKERMAN: As far as essential step and fair use, 2 Mr. Mandel says we are using fair use as a defense on 3 distribution, which we didn't, as opposed to spending more time 4 in our brief on these subjects. 5 lawyer stood up before the United States Supreme Court and says 6 space shifting is OK. 7 should I analyze all the factors? 8 9 THE COURT: Why should we? Their own Why should I make a big deal? Why Because I think the issue -- well, Mr. Mandel can respond to his own -- 10 MR. BECKERMAN: I am speaking to an incredibly hot 11 bench, so I don't feel I need to go repeat everything in my 12 papers. 13 THE COURT: 14 inviting, like a nice bath. 15 16 17 18 Hot I think is sort of -- warm, warm and MR. BECKERMAN: If your Honor has any questions, I have nothing further. THE COURT: I may have some other questions after hearing from Mr. Mandel. 19 Did you want to respond? 20 MR. MANDEL: Briefly. First of all, I want to clarify 21 in terms of there being a violation, we did put in evidence in 22 the declaration. 23 we found on the ReDigi site offered for sale. We did ourselves 24 download and verify they were our recordings. I didn't think 25 what was what the dispute was about. We attached an exhibit of the recordings that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 52 C26TCAPA 1 They set up their marketplace to be able to sell 2 lawfully purchased copies. I don't understand them to be 3 disputing that Capitol's recordings have been made available 4 and have been offered for sale. 5 As we said in our papers, we gave a hundred -- more than a 6 hundred examples of our recording that we own copyrights for 7 that were up there in the cloud that are available for sale. 8 And in fact our people -- Capitol downloaded them and verified 9 they were the song. And in fact they have been. They didn't come back -- and they say they 10 have all these recordings, they didn't say that wasn't Capitol 11 recordings, we never had Capitol's recordings up there. 12 don't think there's a serious -- they say there's no proof of a 13 violation, but that's a very clear. 14 issue. I The issue is a legal 15 And I understand the hypotheticals are very 16 interesting, and we have been doing it ourselves all week, and 17 they're hard, and they're informative, and I do appreciate why 18 the Court is doing it and pushing us. 19 day, I do want to return to what really is at issue here, 20 because that's ultimately what we're deciding. 21 return to the same thing, you can't set up a business model 22 that is effectively going to make money from distribution of 23 digital files which could not take place without a 24 reproduction -- by their own admission, there's a necessary 25 step in order to do that -- and then turn around and defend it But at the end of the And I just SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 53 C26TCAPA 1 by some well, you know that's just space shifting, even though 2 we assume that most of what takes place on the site is sales. 3 That's what they're in business to do, that's what they're 4 doing to make money. 5 may be an isolated case of someone who decides to store up 6 there and doesn't do anything, but that's not what they're in 7 business for. 8 9 That's what they advertised. Yes, there That's not what most people are going to do. In fact, what should be enjoined is the sale, and it seems like they have the mechanism because their own system 10 says you have to click a button to offer it for sale. 11 far as Capitol is concerned, with respect to its recordings, 12 that button should not be available. 13 to go up in the cloud and click a button and say I'm selling 14 stuff that they don't have a right to sell that they reproduce. 15 Well, as People should not be able So from our perspective, while the hypotheticals are 16 interesting, while the technology may be new, the principles 17 are pretty clear, and we think it's a pretty clear violation in 18 terms of summary judgment. 19 many factually disputed issues. 20 likelihood of success on the merits. 21 judgment is going to be inappropriate for the defendant. 22 THE COURT: I don't think there's going to be Obviously, we think there's a By definition, summary I guess the other factors which I think 23 you touched on, Mr. Mandel, with respect to a preliminary 24 injunction or balancing of the equities and public interest, so 25 I think you've hit each of those. If you wanted to elaborate SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 54 C26TCAPA 1 2 in any way, I will give you a minute. MR. MANDEL: I will say briefly I think with balance 3 of hardships we cited a couple of cases, particularly in our 4 reply brief, that I think are worth taking a look at. 5 them quotes a Southern District case where they're talking 6 about balance of hardships. 7 hardship when you're engaging in an activity that you shouldn't 8 have been doing in the first place and roll out in testing mode 9 a service that basically is based on something that cannot be One of We're not going to worry about the 10 justified under existing law. 11 that is something that you should have to bear the risk on. 12 You can't turn around and say it can be a real hardship. 13 You have taken your risk and In terms of public interest, we say the public 14 interest in upholding the statutory scheme that has clearly 15 defined principles for what is and isn't appropriate is 16 obviously served by an injunction. 17 THE COURT: 18 MR. BECKERMAN: 19 THE COURT: 20 21 Mr. Beckerman, do you want to respond? Well -- Those two, the balance of equities and the public interest. MR. BECKERMAN: It's obvious that this is not about 22 public interest on Mr. Mandel's part, it's about the private 23 interest of the corporation. 24 public is better off with competition, with new companies 25 developing, new technologies, and relying on old principals of And it's very obvious that the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 55 C26TCAPA 1 law and working hard to avoid copyright infringement and to 2 prevent copyright infringement to make sure their site can't be 3 used for infringement. 4 THE COURT: Or that whose site can't be? 5 MR. BECKERMAN: 6 copyright infringement. 7 application. 8 are meant to create a one-to-one relationship of the unique 9 file, so that it makes copyright infringement impossible. ReDigi's site cannot be used for Their software on the client There is software on the server. All of these If 10 you are using the ReDigi system, there's no way it can be used 11 to infringe copyright. 12 THE COURT: If you copied a file onto some other 13 device, you're saying that ReDigi's software, its server is 14 able to determine that so that the seller can't have saved the 15 original someplace else? 16 MR. BECKERMAN: ReDigi does not have super powers to 17 monitor the entire universe, it has the power to make sure that 18 its software and its site cannot possibly be used for copyright 19 infringement. 20 infringement not using the ReDigi system, ReDigi can't stop 21 them. 22 on it, the ReDigi system will find it -- not that song, that 23 unique file, if there's a copy of that unique file on there. If someone wants to commit a copyright But if they ever plug in the device that has that song 24 THE COURT: In the cloud. 25 MR. BECKERMAN: No, on the client's application, too. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 56 C26TCAPA 1 THE COURT: Well, if I have two computers and I have 2 downloaded a bunch of audio files from iTunes on the computer, 3 then I burn copies to a CD or to another computer, and then I 4 try sell -- upload into the cloud and then sell what was on the 5 computer A, are you telling me that your software is going to 6 be able to tell you that hey, wait a minute, that guy burned a 7 copy? 8 MR. BECKERMAN: 9 THE COURT: 10 Absolutely. Absolutely on the sever level? MR. BECKERMAN: The software searches the entire 11 sever, and if there's any unique file that has ever gone 12 through their marketplace and is in the hands of someone who is 13 not the actual purchaser, they will pick it up and they will 14 force that account to cancel. 15 THE COURT: 16 MR. MANDEL: Is that your understanding, Mr. Mandel? No. Because I think in the hypothetical 17 we're assuming you don't load to a device -- that you never 18 connect back to the computer. 19 it may seem all perfectly fine because it's not showing up that 20 you have made a copy and it's been deleted from the computer 21 that you reconnected to ReDigi, but it's sitting on another 22 computer has never been connected to ReDigi. 23 THE COURT: 24 MR. MANDEL: 25 MR. BECKERMAN: As far as ReDigi is concerned, That's what I don't know. I don't know how it could. I said we cannot police everything, we SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 57 C26TCAPA 1 can only police the ReDigi system. 2 that file could ever be sold on the ReDigi marketplace because 3 they have a record of every single unique file that went 4 through that sale process. 5 THE COURT: And there's no way that But I don't -- maybe the principal concern 6 is not somebody selling multiple times the same audio file, the 7 concern is somebody selling all their audio files but keeping 8 the same audio files so they have retained and sold at the same 9 time. 10 MR. BECKERMAN: If they never plugged in the other 11 computer, and if they did it with software that wasn't ReDigi 12 software and never plugged into the ReDigi software, then yes, 13 how would they ever know about it? 14 15 THE COURT: But that's their principal concern, it will be Napster with an in-between step, right? 16 MR. MANDEL: Yes. 17 MR. BECKERMAN: It's the same with CDs, it's the same 18 with audio cassettes, people can infringe copyright, but ReDigi 19 has nothing to do with it. 20 ReDigi software and plug in a storage device that has the song 21 that's gone through -- a file that's gone through there before, 22 it will pick that up on the client level, and then there's a 23 server-wide search and rejects it. 24 and it will not accept it into the cloud. 25 THE COURT: ReDigi prevents it. If you use It calls it a violation, Along those lines then, Mr. Mandel, if you SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 58 C26TCAPA 1 own any CDs and I download them, I copy them all, in turn 2 convert them to digital files that I put in a cloud or don't 3 put in a cloud, I put them somewhere else and sell my CDs, is 4 that a copyright infringement? 5 MR. MANDEL: No, technically you could do that. You 6 may be committing an infringement by making the copy possibly 7 because -- 8 THE COURT: 9 MR. MANDEL: 10 THE COURT: 11 MR. MANDEL: That's what I'm asking. You're asking if a copy is -Is making the copy an infringement? I think if you're making it for purposes 12 of being able to keep something that you are actually trying to 13 sell but keeping, I think it will be a violation. 14 that the problem in the digital area is particular because of 15 the ease with which these files can be reproduced because the 16 whole history of that. 17 that in this area the problem is particularly acute, and I 18 think that the risk we're taking in the kind of hypotheticals 19 is too great to bear that risk, and certainly where the law has 20 not at this point set up any defense that allows it. 21 Congress is comfortable that the technology is so good or the 22 right to do this is so important, it can recognize it, but it's 23 not there at this point, and we think there are real questions 24 about the technology, because there are ways around it so 25 easily. But I think We're dealing with the decades of cases SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 If 59 C26TCAPA 1 THE COURT: OK. 2 MR. BECKERMAN: You wanted to say something? Just what he says is absolutely 3 correct, which why they should be embracing the defendant 4 instead of suing them. 5 of the action. 6 that says well, ReDigi software, they say they do this and they 7 say they do that, but that can't be possible because we have 8 been trying for ten years to do that, so it's a ludicrous 9 statement on their part. They want to make sure they get a piece There's a moving declaration for Mr. McMullan But the thing is ReDigi is doing 10 something that they should have been doing and actually helps 11 their industry. 12 harm is just that. 13 So all this nonsense about the irreparable THE COURT: I'm not sure I have to get into whether or 14 not something helps the industry or not, but it is interesting. 15 I'm going to -- why don't we take a break for a minute 16 five minutes or so. I'm going to think about what you said and 17 decide whether I want to rule now or whether I want to reserve. 18 So let's take five, you can use the restroom, get a drink of 19 water, and the court reporter may take a drink of water because 20 the poor man has been working every minute. 21 (Recess taken) 22 THE COURT: So thanks. 23 24 25 I think I'm prepared to rule. We have had almost a couple of hours of argument. I want to thank the parties for their papers and also for the argument. It was very helpful. Obviously a lot of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 60 C26TCAPA 1 time and preparation went into it, and it's always appreciated 2 by me. 3 focused on the issues, so I thank those who spoke and those who 4 were involved in the preparation, and that might be more than 5 the lawyers at the tables. I rely on lawyers who educate me and help me get 6 I think there's no doubt what the standard is here. 7 The standard, which I think each of you has quoted to me, is 8 the eBay v. MercExchange case from the Supreme Court. 9 that case the Second Circuit sort of revised its own standard After 10 but said there's really no difference between that standard and 11 the Supreme Court standard, and I think that's true. 12 The key issues really are irreparable harm and 13 likelihood of success on the merits, or short of that, 14 whether -- this was the point made in plaintiff's papers -- 15 even if there's not likelihood of success on the merits, that 16 there is a close or a serious question on a balance of 17 hardships that tips in favor of the moving party. 18 other issues that we talked about include the balance of 19 equities and the public interest. 20 And then the In this case, I think the lack of irreparable harm is 21 one that really is the issue that causes me to deny the motion. 22 It seems to me that money damages should be able to take care 23 of all of this. 24 what the standard is, and the fact is that this is an 25 extraordinary remedy, and so a Court will have to consider The Second Circuit in Salinger made very clear SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 61 C26TCAPA 1 whether or not monetary damages are inadequate to compensate 2 for the injury alleged. 3 In assessing that, the Court has to look to whether 4 market confusion exists or whether there's a prospect of 5 difficulty in proving the loss of sales due to infringement. 6 think with respect to market confusion, I really don't think 7 that the market confusion being argued by plaintiffs here is 8 what is at the heart of demonstrating irreparable harm. 9 fact that defendants have espoused a legal theory or defense I The 10 both in their papers to the Court and on their Web site and in 11 public pronouncements doesn't really equate to the kind of 12 market confusion that the Second Circuit was talking about in 13 Salinger. 14 With respect to the difficult prospect of plaintiff 15 proving loss of sales due to infringement, I think the 16 defendant clearly argues that it keeps careful records, and 17 that if it were found to be infringing on plaintiff's 18 copyrights, there would be a record from which to calculate 19 damages. 20 that's the case. 21 irreparable harm that would merit the extraordinary relief 22 sought here. 23 I have seen nothing to refute that, and I'm persuaded So I think there has not been a showing of I think likelihood of success on the merits is 24 something that plaintiffs have demonstrated. I should bear in 25 mind or at least repeat what the lawyers already know, which is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 62 C26TCAPA 1 that that doesn't mean that I'm finding that the plaintiffs 2 would win in this case, it's just that they have demonstrated 3 that there are arguments that on their face look to be 4 compelling or potentially persuasive arguments. 5 certainly done a good job of articulating those based on the 6 statute, which I think covers that element. They have 7 The balance of equities I think is kind of a push. 8 think each side has interests that would be affected by the 9 ruling on a preliminary injunction, and each interest is a 10 significant one. 11 the Court were to begin a preliminary injunction, that would 12 have a devastating impact on the company. 13 the plaintiffs have an interest that its copyrights are 14 protected and enforced. 15 I in the preliminary injunction that's being sought. 16 By virtue of the size of the defendant, if By the same token, So I think each has a strong interest And as to the public interest, I think obviously the 17 public has an interest in seeing copyright law enforced. On 18 the other hand, that copyright law includes recognitions of 19 things like legitimate secondary markets and the ability of 20 owners to resell their items. 21 So I think we've had a preview of what the arguments 22 are on those fronts, and I think ultimately that's where this 23 case will be resolved. 24 going to grant the preliminary injunction. 25 hasn't been irreparable harm established. I'm not resolving it today. I'm not As I said, there SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 63 C26TCAPA 1 But I do think with limited discovery we should be 2 able to get this teed up for summary judgment or a trial 3 perhaps even on stipulated facts if the parties can get there, 4 then we should try to resolve this as quickly as possible. 5 There's no reason why the courts have to be slow and have to be 6 cumbersome or costly, for that matter. 7 parties really are in agreement about most of the facts that 8 are pertinent to this case, I think stipulating to those facts, 9 identifying where there may be some disputes factually, that If it is the case that 10 should then be the focus of discovery and will be an efficient 11 use of time. 12 So what I will do -- well, let me move to the second 13 contemplated motion, the motion for summary judgment. 14 that's premature at this point because it's not clear to me 15 that there are wholly undisputed facts. 16 I think Now the parties seem to push back on me a little for 17 that one to suggest there are maybe fewer disputed facts than I 18 imagine. 19 for now, I think it would be premature to make that motion. 20 But I say that without prejudice to either side coming back to 21 me soon with premotion letters saying now we're ready to go, 22 and explaining what the disputes left are. If that's the case, let's get it teed up quickly, but 23 MR. BECKERMAN: 24 THE COURT: 25 For the record, we withdraw. The letter? There's no offense taken. You don't have to do that. I don't mean to suggest that. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 64 C26TCAPA 1 That's just the way I see it. 2 So what I was going to propose is that I give the 3 parties maybe a week or ten days to confer and get back to me 4 with a discovery schedule that should track in general terms my 5 contemplated case management plan. 6 a look. 7 one-size-fits-all approach, it's the generally accepted version 8 that I use. 9 unique and that should require a tailoring of the case It's on the Web site, take And that's not designed to be set in stone, it's not a If there are things about this case that are 10 management plan, I'm open to that. 11 to be practical and responsive and ultimately concerned about 12 the efficient resolution of disputes. 13 I mean I think courts have So take a look at it, and then if there are things 14 that you agree should be tweaked, let me know that, and if you 15 think there are things about which you disagree, where one of 16 you thinks that a tweaking will be in order and another thinks 17 that tweaking would be counter productive, set that out in a 18 letter that explains your positions. 19 But do you think ten days is enough time? 20 MR. MANDEL: 21 MR. BECKERMAN: Yes. Your Honor, Ty and I have three days 22 of arbitration during the next five or six days, so I would 23 appreciate if we could possibly have a little longer time in 24 which to do that. 25 THE COURT: I don't think it will take too long. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Do 65 C26TCAPA 1 take a look at my template. It's basically saying when you're 2 going to do interrogatories and document requests, when you're 3 going to do depositions, when you're going to wrap up fact 4 discovery, and whether you'll have experts and when you'll 5 finish that up. 6 onerous. 7 the parties. 8 completely engaged in something else that might make it hard 9 for you, does two weeks make a difference? So take a look at it. I don't think it's too It will require a little bit of communication between By design it requires that. 10 MR. MANDEL: 11 THE COURT: So if you're That's fine, your Honor. Two weeks from today is the 20th, that's a 12 Court holiday. But what I'm asking you to do is send me, via 13 email to my chamber's email address, the case management plan, 14 proposed case management plan, and any correspondence that 15 requires me to resolve any disputes. 16 you send me through email I will get in real-time. 17 fine, so we don't need to worry about the Court holiday. So I'll be here, and what So that's 18 Is there anything else we should cover today? 19 MR. MANDEL: 20 THE COURT: 21 MR. BECKERMAN: 22 THE COURT: I don't think so, your Honor. Mr. Beckerman? No, thank you, your Honor. Let me again thank you. I found it very 23 interesting and very well argued, so maybe that's why I kept 24 you all as long as I did. 25 their trade. I like to see good lawyers plying I will issue a very short order that just SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 66 C26TCAPA 1 memorializes the result here, but mostly just rely on what I 2 said on the record. 3 4 If you need a copy of the transcript, you can take that up with the court reporter now or later through Web site. 5 MR. MANDEL: 6 MR. BECKERMAN: 7 THE COURT: 8 Thank you, your Honor. Thank you, your Honor. Thanks very much, have a good day. o0o 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

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