A U.S. federal judge has dealt digital firm ReDigi a significant blow, ruling that its model of reselling iTunes tracks amounts to copyright infringement.

In a Saturday ruling released on Monday, New York District Court Judge Richard Sullivan sided with Capitol Records, which filed the lawsuit against ReDigi in January 2012.

ReDigi, which launched in 2011, bills itself "the world's first and only online marketplace for digital used music." Prospective music sellers download the firm's software, which verifies their iTunes music files. The software then moves the selected tracks to ReDigi's servers and deletes the same files from the sellers' computers. Interested buyers purchase the "second-hand" music files from ReDigi for a lower price than the original purchase on iTunes.

Sullivan ruled that ReDigi's software makes unauthorized copies of music files and infringes on the copyright of Capitol Records, the plaintiff.

First sale doctrine

ReDigi had argued that its business was based on the "first sale" doctrine, a principle dating from the early 20th century and incorporated into U.S. law in the 1970s. It states that an original publisher or issuer can dictate the first retail sale of a good, but cannot control all future retail sales of the item. Hence, it allows for the reselling of a purchased item — for instance a book, DVD or CD — to a new owner.

Sullivan noted in his ruling that the doctrine does not apply to digital media because a digital music file is not the same as a material object, which can literally be handed over. Transferring digital media equates to making a digital copy (regardless if the "original" file is deleted), the judge said.

"The first sale doctrine does not protect ReDigi's distribution of Capitol's copyrighted works. This is because, as an unlawful reproduction, a digital music file sold on ReDigi is not lawfully made under this title," he wrote.

"The court cannot of its own accord condone the wholesale application of the first sale defence to the digital sphere, particularly when Congress itself has declined to take that step," Sullivan concluded.

ReDigi said in a statement that it was "disappointed" in Monday's ruling. The company also noted it has moved onto a more updated version of its software, which was not included in the lawsuit.

Though Sullivan did not specify an amount for damages, he did invite both sides to submit letters concerning "the next contemplated steps in this case" by April 12.

Online retailing giants Apple and Amazon have in recent months applied for filed patents regarding digital rights management technology that allows for "loans" of digital media.

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According to Judge Richard Sullivan, ReDigi's model does not fall under the 'first sale' doctrine, which allows for resale of goods such as books, DVDs or CDs. (Nick Ut/Associated Press)