Court Gives "Go-Ahead" to Digital Music Revolution
By Robin D. Gross

Unanimously ruling that MP3 is a “revolutionary new method of music distribution made possible by digital recording and the Internet,” the U.S. Court of Appeals threw out a law suit filed by the Recording Industry Association of America (RIAA) against the makers of the portable RIO MP3 music player and held that the digital music player is a legal device enabling “a brave new world of Internet music distribution.'

The landmark ruling upheld the public’s right to “space-shift” copyrighted music under the fair use privilege for non-commercial personal use.  The decision, written by Ninth Circuit Appellate Judge Diarmuid F. O'Scannlain, stated that Diamond’s RIO MP3 player, computer hard drives, and other computer peripherals are not subject to the consumer restrictions under the 1992 Audio Home Recording Act (AHRA).  The Court also found that the RIO player is not a recording device as defined by the statute, but rather acts as a storage medium for playing personal copies of MP3 files.

Last Fall, the RIAA, a trade organization that control ninety percent of the distribution of recorded music in the United States, sued the manufacturers of RIO MP3 music players, Diamond Multimedia Systems, a San Jose, California based company for failing to subject the Rio player to the consumer restrictions of the AHRA.  After the District Court denied the RIAA’s application for a temporary restraining order and preliminary injunction against Diamond’s Rio, the RIAA appealed the ruling.  Diamond filed counter-charges against the lobbyist group for antitrust violations and unfair business practices and for defamation stemming from the RIAA’s labeling of the Rio as an illegal device.

The appellate court threw out the RIAA’s claims against the RIO device for failing to comply with the restrictions of the AHRA.  The AHRA requires the manufacturers of a certain type of digital audio equipment (such as DAT) to implement a copy-control mechanism, called the Serial Copyright Management System (SCMS) that prevents users from making digital copies of copies of recordings.  The Act also requires a consumer financed tax or “royalty” on the sale of such equipment that is paid to the recording industry.  The royalty, which usually amounts to about $2 per blank DAT tape and $8 for other DAT equipment, was designed to finance the recording industry’s anticipated lost royalties due to copyright infringement stemming from the equipment’s use.

The court clearly stated, “the Act does not broadly prohibit digital serial copying of copyright protected audio recordings.  Instead, the Act places restrictions only upon a specific type of recording device.”  In its 3-0 decision, the appellate court stated that the RIAA’s arguments lacked common sense because computers and computer peripherals such as the Rio MP3 player are specifically exempted under the statute from complying with the AHRA’s restrictions.  “There are simply no grounds in either the plain language of the [statute’s] definition or in the legislative history for interpreting the term "digital musical recording" to include songs fixed on computer hard drives.”  According to the ruling, “computers are not digital audio recording devices, they are not required to comply with the SCMS requirement and thus need not send, receive, or act upon information regarding copyright and generation status.”

The RIAA claimed that the Rio devices are only used for illegal purposes that violate its catalogue of copyrights and should therefore be forced to comply with the AHRA’s copy restrictions and guaranteed royalty provisions.  The court disagreed with the RIAA’s contentions:

“In contrast to piracy, the Internet also supports a burgeoning traffic in legitimate audio computer files.  Independent and wholly Internet record labels routinely sell and provide free samples of their artists' work online, while many unsigned artists distribute their own material from their own websites.  Some free samples are provided for marketing purposes or for simple exposure, while others are teasers intended to entice listeners to purchase either mail order recordings or recordings available for direct download (along with album cover art, lyrics, and artist biographies).”
While the ruling acknowledged the existence of copyright infringement on the Internet, it also described the birth of an entirely new industry.  The court recognized, “These technological advances have occurred, at least in part, to the traditional music industry's disadvantage.”

The Court also pointed out the Rio device itself is incapable of “copying” digital audio recordings as defined under the statute.  The court agreed with Diamond’s argument that the Rio music player is a personal storage device for audio files with no independent recording function of its own. “The Rio cannot make duplicates of any digital audio file it stores, nor can it transfer or upload such a file to a computer, to another device, or to the Internet,” stated the ruling.

Finding that because devices such as the Rio are specifically exempted from the Act’s restrictions and because the Rio itself does not record, the court ruled that AHRA is inapplicable to the case at hand.  Since the Act was deemed not an issue, the court did not rule on Diamond’s claim that the AHRA is an unconstitutional restraint on freedom of expression guaranteed under the First Amendment of the U.S. Constitution.

The court rejected the RIAA’s argument that Rio players can only be used for illegal purposes like music piracy and therefore consumers should face the same restrictions on the Rio device as they do with DAT and MiniDisc equipment, which must comply with the Act.  In contrast, the court held that the Rio is entirely consistent with copyright law’s fair use privilege that gives consumers the right to make copies of works for their personal use.  “Prior to the invention of devices like the Rio, MP3 users had little option other than to listen to their downloaded digital audio files through headphones or speakers at their computers, playing them from their hard drives. The Rio renders these files portable.”   Digital music players allow consumers to exercise fair use with their recordings.

Fair use grants citizens the personal freedom to use and enjoy music in ways enhanced by new technology.  The court held that the purpose of the fair use privilege is to protect noncommercial copying by consumers of digital and analog musical recordings.  Under the court’s ruling, consumers have a fair use right under copyright law to make portable digital copies of their music recordings for their personal use.  The Rio empowers consumers with the freedom to move music recordings from one “space” to another such that the music is not forcibly tied to any particular medium.  According to the ruling, “Such copying is paradigmatic noncommercial personal use entirely consistent with the purposes of the Act.”

The court explained that the consumer’s right to “space-shift” their music, thus making it portable, is similar to their right to “time-shift” recordings under the case Sony v. Universal City Studios 464 U.S. 417 (1984).  “The Rio merely makes copies in order to render portable, or ‘space-shift,’ those files that already reside on a user's hard drive.”  In its reasoning, the court stated that such format shifting falls within the personal use right of consumers to make analog or digital audio recordings of copyrighted music for their private, noncommercial use.

In footnote 1 of the court’s opinion, O'Scannlain disputed whether or not the RIAA’s claims that piracy causes financial harm to the industry are accurate, stating:

“Critics of the industry's piracy loss figures have noted that a willingness to download illicit files for free does not necessarily correlate to lost sales, for the simple reason that persons willing to accept an item for free often will not purchase the same item, even if no longer freely available.  See Lewis Kurlantzick & Jacqueline E. Pennino, The Audio Home Recording Act of 1992 and the Formation of Copyright Policy, 45 J. Copyright Soc'y U.S.A. 497, 506 (1998).  Critics further note that the price of commercially available recordings already reflects the existence of copying and the benefits and harms such copying causes; thus, they contend, the current price of recordings offsets, at least in part, the losses incurred by the industry from home taping and piracy. See id. at 509-10.”
Although the court threw out the lawsuit filed by the recording industry against Diamond Multimedia under the AHRA, Diamond’s counterclaims against the RIAA for antitrust violations and defamation are still pending.
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