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LET THE MUSIC PLAY: DIAMOND MULTIMEDIA WINS IN SUIT BROUGHT BY RECORDING INDUSTRY
by Heather D. Rafter, William Sloan Coats, Vickie Feeman and John Given
| Heather Rafter is a Director of Legal Affairs at Digidesign, a division of Avid Technology, Inc. Digidesign is a leading developer of hardware and software used to record, edit, mix and master sound for the professional music, film, video and multimedia industries. Bill Coats and Vickie Feeman are attorneys with Howrey & Simon in Menlo Park, California. John Given is a recent graduate of Hastings College of the Law in San Francisco, and is currently working for the legal department at Digidesign. The views expressed in this article do not necessarily reflect the opinions of their respective companies or firms. |  |
The Internet is beginning to transform the music industry in much the same way that the Internet's influence is being felt in other areas, such as the book and software markets. New audio compression technologies, such as MP3, are enabling the distribu-tion of high quality music files over the Internet by allowing users to download music more quickly and easily than ever before. These new technologies benefit not only consumers, but also independent artists who can inexpensively distribute their own music to a large audience. The end result is that artists now can bypass the "majors," which are the major record labels that have traditionally controlled much of the music market, and use the Internet as an alternative way to get their music heard. While many people view the growth of music online as a positive trend, it also is seen as problematic in light of the threat that music online poses to copyright protection.
From a legal perspective, the biggest news this year was the case brought by the Recording Industry Association of America ("RIAA") against Diamond Multimedia, the manufacturer of the RIO, a portable MP3 player. In many ways, this case epitomized the struggle underlying the rise of music online. On one side of the litigation was the RIAA, which represented the interests of the traditional recording industry. On the other side was Diamond Multimedia, a lesser known technology company that had built a device designed to popularize the MP3 format. By bringing the suit, the RIAA sought to stop the distribution of a portable device, which it contended, enabled illegal copying and violated one of the recent additions to the U.S. Copyright Act-the Audio Home Recording Act of 1992 ("AHRA").
The Audio Home Recording Act
Act In 1992, the AHRA was added as Chapter 10 to the Copyright
Act to govern special problems involving home audio recording technology.
Since the advent of the consumer grade tape recorder, music purchasers
could inexpensively make unauthorized copies of LPs and other musical
formats at home. Because the quality of copies made using analog technology
is necessarily inferior to that of the original and degrades further at
every copy generation, unauthorized home recordings were not seen as replacements
for factory recordings and caused only moderate concern to the recording
industry.
In 1987, the development of digital audio tape ("DAT") put the ability to create loss-free serial copies in the hands of many consumers. The recording industry feared that the pyramid effect created by purchasers of music making perfect digital copies for others, who could in turn create and distribute their own copies, would supplant record sales. Representatives of the recording industry worldwide spent several years negotiating, and eventually presented an agreement to Congress, which passed a revised version in 1992. In addition to DAT, the AHRA governs popular home digital recording formats that have surfaced since 1992, including Minidisc and standalone compact disk recorders.
The effect of the AHRA is to provide immunity from copyright infringement actions to consumers who use digital or analog devices to make home audio recordings. 17 U.S.C. Section 1008. Manufacturers of digital recording devices can sell the recorders to consumers, but must build safeguards into the devices to prevent serial copying. The safeguards take the form of the Serial Copy Management System ("SCMS") or its functional equivalent. Finally, home digital record-ing devices and media (such as blank music CD-Rs, DAT cassettes, and Minidiscs) carry an additional royalty to compensate artists, publishers, and record companies for lost revenues due to home recording. Professional grade digital recording devices for use outside the home feature an option to defeat SCMS.
The District Court Decision
On October 9, 1998, the RIAA filed suit against Diamond Multimedia
in the U.S. District Court for the Central District of California, alleging
that Diamond's manufacture and sale of its Rio player violated the AHRA.
The RIAA asserted that Diamond failed to comply with the requirements
of the AHRA because the Rio player enables serial copying of MP3 files.
In reply, Diamond argued that its Rio player was not covered by the AHRA for several reasons. First, Diamond contended that the Rio was not a "digital audio recording device," as defined in the Act because the source of the copy, the computer hard drive, is not a "digital musical recording." Section 1001(5)(B)(ii) of the AHRA excludes from the definition of "digital musical recordings" material objects "in which one or more computer programs are fixed." Diamond con-tended that the Rio gets the music it records from a computer hard drive, which also stores computer programs, and thus does not make a "digital audio copied recording" within the meaning of the statute. Accordingly, the Rio player fell outside of the scope of the AHRA and was exempt from the Act's provisions.
In the alternative, Diamond argued that the Rio player complied with the SCMS requirements of the AHRA. The Rio player has no digital output and thus prevents loss-free serial copying of files stored in the Rio or on its flash memory. (Diamond has since altered its software that enables a PC to record compressed MP3 files onto a hard disc to include SCMS.) AHRA Unconstitutional, Diamond Says in Countersuing RIAA, Audio Week, December 7, 1998. The Rio player can record to other audio devices through its analog output (the headphone jack), but these copies would not be the pristine digital copies feared by the RIAA.
The District Court rejected both of Diamond Multimedia's contentions and granted the RIAA's application for a temporary restraining order. However, while the Court found that the Rio player did fall within the AHRA, it subsequently concluded that the RIAA failed to demonstrate that Diamond's sales of the Rio player would cause irreparable harm to the RIAA's members. (Recording Industry Assoc. of Am. v. Diamond Multimedia Sys. Inc., 29 F. Supp. 2d 624, 626, 633 (C.D. Calif. 1988).) The Court therefore refused to enter a preliminary injunction barring sale of the Rio player.
The District Court's decision in many ways was perceived as a victory for Diamond Multimedia despite the Court's technical finding that the Rio player was covered under the AHRA. As an example, the District Court concluded that the Rio enables serial copying within the meaning of the Act. However, the Court noted that adding SCMS to the Rio would be an "exercise in futility" because the copyright and generation status information is not contained in the MP3 files on the computer's hard drive. Moreover, Rio has no digital output capability and does not enable further high-quality copies of information stored in its memory. As a result, SCMS information cannot be sent or received between devices. The Court, therefore, concluded that a Rio player without SCMS is functionally equivalent to a Rio player with SCMS. The Court further concluded the Secretary of Commerce would likely determine that the Rio adequately inhibits unauthorized serial copying and that Diamond is at most violating Section 1002(a) only in a technical sense -- by failing to acquire a certificate from the Secretary of Commerce.
The Ninth Circuit Weighs In
On appeal, the Ninth Circuit affirmed the District Court's denial of a
preliminary injunction. However, contrary to the District Court, the Ninth
Circuit also accepted Diamond's argument that Rio is not a "digital audio
recording device" subject to the terms of the AHRA. The Ninth Circuit
found that there is no basis in the plain language or the legislative
history of the AHRA to interpret the term "digital musical recording"
to include songs fixed on computer hard drives. (Recording Indus. Assoc.
of Am. v. Diamond Multi-media Sys. Inc., 1999 U.S. App. LEXIS 13131,
14 (9th Cir. 1999).) Further, the Ninth Circuit found that Rio cannot
make copies from "transmissions" of digital musical recordings, rather
it can only make copies from computer hard drives. Thus, because the Rio
does not constitute a digital audio recording device, it was not subject
to the requirements of the AHRA.
On the surface, the Ninth Circuit's decision is favorable to the online music industry. Indeed, manufacturers and distributors of technology allowing the download of music through personal computers may avoid the royalty payments and serial copy protection requirements imposed by the AHRA. However, on the other hand, these manufacturers and distributors will not enjoy the immunity from copyright infringement actions that is also provided by the AHRA. The Ninth Circuit's decision may thus open the door to actions against technologies like Rio based on direct, contributory, or vicarious copyright infringement theories.
It is unlikely, however, that the decision repre-sents decisive approval of such actions. Rather, the Ninth Circuit indicated that devices like Rio merely "space-shift" files that already reside on the user's computer. This kind of copying, the Court concluded, "is paradigmatic noncommercial personal use entirely consistent with the purposes of the Act." Space-shifting, then, is likely a fair use analogous to "time-shifting" of television programming in the home video context. See Sony Corp. of America v. Universal City Studios, 464 U.S. 417, 455 (1984). The Ninth Circuit's suggestion of this fair use argument may indicate a ready defense to potential claims of direct, contributory, or vicarious infringement.
While the Ninth Circuit's "personal use" and "space-shifting" rationale resulted in a favorable finding for Diamond Multimedia and its Rio player, it is unclear how technological change will affect next generation MP3 players. Indeed, as new players offer flexible output functionality similar to other devices covered by the AHRA, it is likely that a "space-shifting" argument will lose some of its force, and the threat of various infringement claims will become more real. Also, the development of competing watermark-ing and encryption technologies to protect online content will further complicate the issues. These kinds of technological developments raise many of the same issues that the AHRA was intended to resolve. No doubt, parties on all sides of the debate will advance new legislative initiatives to clarify the open questions and provide some order in this rapidly changing environment.
One thing is certain. Future cases, not the Diamond Multimedia lawsuit, will be left to resolve outstanding issues under the AHRA. On August 4, 1999, just ten months after the suit was first brought, the RIAA settled its suit against Diamond Multimedia. It remains to be seen what other cases may yet be brought and how such cases may shape the future of music online.