Reselling MP3s: The music industry's new battleground?

A new digital music service is getting lots of attention for proposing to help consumers sell their used MP3s in much the same way people once unloaded second-hand albums.

Bopaboo has generated splashy headlines recently for coming up with what on the surface seems like a good idea. Music fans have always exercised their first-sale rights, which under copyright law, allows them to sell their unwanted CDs, tapes, and albums without permission from the copyright owner. Why can't they do the same with digital music?

But there are dramatic differences between physical and digital music. For this reason, Washington, D.C.-based Bopaboo appears to be careening toward a head-on collision with the recording industry. According to Bopaboo CEO Alex Meshkin, he will soon meet with executives from the major labels and execs there will no doubt ask why they shouldn't set their attorneys loose on the service. They may also inquire about the controversy that dogged a then 23-year-old Meshkin when he was owner of Toyota's NASCAR team.

As for the legal questions involved with MP3 resales, Meshkin, 28, argues that the law allows consumers to sell digital media files in the same way they do physical media. That's not all together accurate. Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation, an advocacy group that supports Internet-user rights, says to the best of his knowledge, the issue has never been addressed in court.

Even von Lohmann, a well-known champion of the technology sector, sees potential problems with Bopaboo's legal argument. He says while its true that under the first-sale law people are allowed to sell CDs and other physical goods, it hasn't been established whether the law covers digital media. The good news says von Lohmann is that Bopaboo could raise the public's awareness about what may one day be an important issue for digital music.

"We shouldn't lose our first-sale rights just because the second-hand stores involved are online," von Lohmann said. "Up to now, there hasn't been a huge opportunity for people to spend large amounts of money on digital music, but as time goes on some music fans will have thousands of dollars invested in their digital libraries or audio-book collections. It would be a big change if you weren't allowed to sell them."

For Bopaboo to survive, the company will likely have to avoid a legal fight with the top four recording companies. For other digital-music services that have devised new ways to exploit music, the choices have always come down to partnering with the labels or getting sued. Meshkin said he will soon meet with music-industry representatives in New York and has already met with other important players in the sector. "The talks so far have been positive," Meshkin told CNET News on Wednesday.

One label executive I spoke with disputed Meshkin's version of the negotiations. "There haven't been any talks," said the executive. "They have asked to meet and we responded. That's it." A spokesman for the Recording Industry Association of America (RIAA) declined to comment.

To say that Meshkin has a tough job selling his idea to label honchos is an understatement. Bopaboo's service works this way: sellers register and are given an MP3 store where they upload the music they wish to sell. Music protected by digital rights management software isn't allowed. Bopaboo makes money by taking a percentage of sales.

The main difference between selling physical goods, such as a CD and selling a download is that a seller of physical goods loses possession of the merchandise after it's sold. That is not the case with digital files.

A person could transfer numerous copies of the same song file as long as it was free of DRM. But Meshkin says his company can prevent repeat sales of the same song. Bopaboo has developed song-identification technology that prevents individuals from uploading more than one copy of the same song to the site regardless of how the file might be altered, Meshkin said. A copy is always produced when MP3s are transferred and that is retained on a computer's hard drive.

Meshkin didn't have any technological solution for that. He said that in such harsh economic times the music industry must accept a few risks. After all it was they who allowed their music to be sold without DRM in the first place.

"Obviously, MP3s are very easy to duplicate," Meshkin said. "It's very difficult to tell the difference between a so-called new copy and a so-called old copy."

The label guys are unlikely to just shrug their shoulders at this kind of set up, said von Lohmann.

"If you buy a song from iTunes' (DRM-free) store you can immediately go and sell a copy of the song on Bopaboo," von Lohmann points out. "You would be assured of getting a discount on your iTunes purchase. There is no doubt that the first-sale law was drafted with physical objects in mind. There's no question that you are allowed to sell books or CDs. But when it comes to selling MP3s, it's an untested legal question."

Another problem for Bopaboo, says von Lohmann is that some digital music stores specifically forbid the resale of songs. At Amazon.com for example, the terms of use agreement says customers must agree to "copy, store, transfer and burn" digital music for personal-use only. Customers also agree that they won't "redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer" the music.

I spoke with two label representatives who declined to comment for the record but told me they thought the resale of DRM-free songs could be the music industry's next big legal battleground.

Patrick Ross, executive director of the Copyright Alliance, a watchdog group made up of artists, producers and other content creators, chuckled when I explained Bopaboo's business model.

"Clearly a first-sale defense won't apply here," Ross said. "In the case of a book or any other creative work, you no longer possess the work once you sell it...It's also hard for me to imagine the model succeeding because if somebody wants to pay for works they will pay for it at a legal site and see that creators are compensated. If they are willing to break the rules, they would just go on (P2P service) Lime Wire and get it for free. I hope (Bopaboo) crashes and burns before it gets sued. It seems like a flawed business model as well as an illegal business model."

If the business model isn't a hard enough pitch to make to the music industry, Meshkin has the added burden of trying to explain his past.

In a February 2005 story, BusinessWeek questioned some of the claims Meshkin has made about his background and highlighted the controversy surrounding his oversight of a NASCAR racing team for Toyota at the age of 23.

According to the story, Meshkin was sued by one former executive with Bang Racing, his NASCAR team, and accused by some investors of misleading them about his personal wealth and ability to operate a racing team. Meshkin is quoted in the magazine denying the accusations. Toyota eventually pulled its support.