Court Upholds Right to Digital Music

By Robin D. Gross
June 1999

In an early battle for control of music on the Internet, a court delivered the Recording Industry Association of America (RIAA) a crushing defeat in its bid to maintain dominance and limit consumer freedoms with music on computers and the Internet. The RIAA was relying on a court to misinterpret the 1992 Audio Home Recording Act (AHRA), the legislation it personally shepherded through Congress, to force the fledgling Internet music industry and consumers to pay a "royalty tax" to the major recording labels. The RIAA, a trade organization that collectively controls ninety percent of the distribution of recorded music in the United States, also received a fatal blow in its insistence upon imposing copy restrictions onto the public that would impinge upon consumer freedoms far in excess of what copyright law allows.

Recognizing a "revolutionary new method of music distribution made possible by digital recording and the Internet," the U.S. Court of Appeals unanimously threw out a law suit filed by the recording industry to prevent the sale and use of Diamond Multimedia's Rio portable MP3 music player that enables, what the court describes as, "a brave new world of Internet music distribution." The court realized, "These technological advances have occurred, at least in part, to the traditional music industry's disadvantage."

Claiming that Rio music players are only used for illegal purposes that violate its catalogue of copyrights, the RIAA filed a suit to force players to comply with the AHRA's copy restrictions and guaranteed royalty provisions. In its effort to forestall its inevitable disintermediation, the industry's strategy was to feign helpless in the "face of unchecked piracy" and hide behind the rights of music's true creators. From an offensive front, it's tactic has been to file or threaten expensive litigation.

The RIAA argued for a misconstruction of the AHRA that would have required consumers to be burdened by the same mandated royalty payment and copy restrictions when they use computers that they currently face with DAT. According to the RIAA, the fact that the statute did not contain such a provision was merely "a loophole" in the law that the court could easily fix. The court disagreed however, pointing out that the Act was specifically designed to exclude computers from the industry's restrictions. The exemption on computers was the concession that the RIAA had to make to the computer industry in order to get the RIAA's legislation passed in 1992.

Digital audio gear covered by the AHRA (such as DAT) require the use of a copy-control mechanism, called SCMS that prevents the public from making digital copies of copies of all recordings. The Act, whose Constitutionality is itself in doubt and has never been tested, also mandates a consumer financed royalty-tax paid to the recording industry on the sale of all digital audio equipment. The royalty, which usually amounts to about $2 per blank DAT tape and $8 for other DAT equipment, was designed to finance the established recording industry's anticipated lost profits due to technological advancement.

Paving the way for a true digital music revolution, the court soundly rejected all of the RIAA's attempts to increase the curtailment of consumer freedoms by extending the Act's coverage to include MP3 music players. The court took great care in explaining that the clear language of the AHRA as well as the legislative intent behind the statute made plain that Diamond's Rio MP3 player, computers, and peripherals do not subject consumers to the industry's restrictions. Stating that the RIAA's arguments lack common sense, the 3-0 decision held, "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."

The RIAA contends the public should not have the freedom to make digital copies of recordings, except with digital audio equipment that is covered by and complies with the consumer restrictions of the AHRA. The court recognized, however, this argument's logic cannot withstand scrutiny. The AHRA provides an automatic statutory immunity for noncommercial copying of digital recordings using a narrow class of digital audio equipment. This does not mean, however, that any other kind of digital recording is illegal and that the fair use privilege is unavailable to individuals who copy such recordings. The court was clear in stating, "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."

The court's ruling makes plain that the RIAA has no legal justification for imposing a mandated copy-protection scheme such as SCMS or SDMI on Internet music distribution. The record companies' new strategy to "work around" existing copyright law is to hold their breath until they turn blue, refusing to release music unless manufacturers and consumers "voluntarily" give up their legal rights. The industry hopes by this business strategy to achieve the restrictions on consumer freedoms that the law will not allow it to impose on the public. Consequently, the RIAA's insistence on SDMI will force the public to relinquish important consumer rights such as fair use and free expression without any legal justification for doing so.

Feigning the victim of rampant piracy, the established recording industry claims it must impose a tightly secured licensing scheme onto Internet music distribution in order to "legitimize" the industry. The RIAA continues to operate under the self-important assumption that only it is capable of providing a "legitimate" marketplace for music on the Internet. While the ruling acknowledged the existence of copyright infringement on the Internet, it also described the birth of an entirely new industry: "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."

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 and computers as they do with DAT equipment. In stark 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. Once a music file passes through a computer, it is not legally required to impose restrictions on consumer freedoms such as SCMS (or SDMI). "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."

Copyright law's fair use privilege grants consumers the personal freedom to use and enjoy music in ways enhanced by technological advancement. 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 ruling, consumers have a fair use right to make portable digital copies of their music recordings for their personal use.

The landmark ruling upheld the public's right to "space-shift" copyrighted music under the fair use privilege for non-commercial 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. 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 this type of format conversion falls within the personal use right of consumers to make analog or digital recordings of copyrighted music for private, noncommercial use. According to the ruling, "Such copying is paradigmatic noncommercial personal use entirely consistent with the purposes of the Act."

Because the Rio is specifically exempted from the Act's restrictions and additionally because the Rio music player has no recording function of its own, the court ruled that AHRA is inapplicable to the case. Therefore the court could not address Diamond's claim that the AHRA is itself an unconstitutional restraint on freedom of expression guaranteed under the First Amendment of the U.S. Constitution.

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. The court's ruling makes clear that Diamond's Rio cannot be stopped by the music industry, so Diamond may have little incentive to bear the expense of pursuing its countercharges against the defeated industry.

Since the court eviscerated the RIAA's attempt to regulate music on the Internet through legal means, the industry may be forced to use technology, such as SDMI to achieve its objectives. History has shown such a strategy to fail in an open and competitive market, as demonstrative DIVX and DAT. Therefore, the RIAA's most effective strategy will likely be to lobby congress for an amendment to copyright law, something that has unfortunately worked with great success in the past.

© 1999 Robin D. Gross