You may have read in the news about a lawsuit against XM Radio regarding its “Inno� player. The issues in the lawsuit are of a pretty technical nature, but worth knowing about. Hopefully the case will settle, as XM is one of the few bright spots on the musical horizon these days, and it pains me to see them get on the wrong side of the creative community. (I’m one who would love to see Lee Abrams as chair of the FCC, so go figure.)

Sirius Satellite Radio (NasdaqGS: SIRI) and XM Satellite Radio (NasdaqGS: XMSR) (the satellite radio services) each recently released controversial new music players tied to their respective satellite radio services and manufactured by Pioneer. Each service was put on notice by the U.S. creative community that the players exceeded the scope of the statutory license for sound recordings available to satellite radio services under Section 114 of the Copyright Act (comparable to the webcasting license). Sirius settled with a number of record companies in a confidential agreement, and was not sued. (Section 114 royalties are largely administered by SoundExchange (http://www.soundexchange.com/) and if you’re an artist or record company you should sign up with SoundExchange if you haven’t.)Â

XM Radio failed to settle, and was sued for copyright infringement on May 16 by a group of record companies (“XM Satellite Shares Drop on Lawsuit�) seeking statutory damages of $150,000 per track. Note that the lawsuit does not attack the XM player, but merely the integration of the XM radio service in the player. This distinction will hopefully make sense further on in this writing.

XM enjoys a blanket statutory license to publicly perform sound recordings under Section 114 of the Copyright Act (subject to certain rules). The blanket statutory license does not cover downloads or other distributions. Downloads are set by contract between copyright holders and online services, not by statute.

The Inno has a variety of features, but the offending ones allow XM subscribers to use a software interface to search for tracks by a particular artist across all XM channels, and to download tracks that were broadcast onto the player, play MP3 files, and link out to the Napster music service to purchase permanent downloads. (This is a bit of a gloss on the functionality of these players and I suggest you review the player specifications if you want to know how they work in detail.)Â

That is—the copying function of the Inno is inextricably linked to the XM service. At the heart of the XM lawsuit, then, is the integration of the XM satellite radio service with the “Innoâ€? player and XM’s unauthorized extension of its public performance rights to aÂ
distribution by means of transmission to the Inno. XM’s advertising for the Inno clearly refers to the XM service as the “mother ship� from which all content flows to the Inno, so there seems little doubt that XM intended to sell players by making users think they had the ability to copy music onto the Inno from the XM service. Given the recent ruling by the U.S. Supreme Court in the Grokster case, XM’s marketing may well induce copyright infringement, which is a separate basis for a law suit.

The problem for XM is that the statutory license does not cover distribution to the Inno player, just performance on the radio service.

Rumor has it that XM took the position—aggressively–that somehow XM had all the rights it needed for the use of content downloaded to these players. This is, as I understand their arguments, because they already had the rights under the 1992 Audio Home Recording Act (“AHRAâ€?). Although XM is not required to reply to the recording community’s lawsuit as yet, they will shortly absent a settlement. I recently got an idea of what XM’s defense might be when I was a panelist at a Congressional seminar hosted by the Progress & Freedom Foundation at the U.S. House of Representatives in Washington, DC with fellow panelists from the RIAA and the Consumer Electronics Association. (XM was invited to speak, but declined due to the pending litigation a fair position.)

For some reason that eludes me, the CEA (and perhaps XM, although we don’t yet know what their arguments will be) seems to be under the impression that if XM’s device manufacturer Pioneer pays the AHRA levy on the Inno player that the AHRA provides some form of content license, all for a one-time payment of $8 or so to download content all day to the Inno.

Sorry guys, but that is an absurd position. No statutory content license in this country or any other country I know of caps the fees. And also realize that AHRA royalties are a pool of money administered by the Copyright Office and not tied to usage. This is the way one would construct a royalty if the intention was that it be in addition to a separately negotiated distribution license and payment. The AHRA royalty is paid to the industry as a whole to offset harm of DAT players, not to specifically compensate anyone.Â

Note that there is no license expressly granted anywhere in the AHRA. Unlike every other statutory license in the Copyright Act which are described as an express limitation on the exclusive rights of a copyright holder (such as XM’s satellite license under Section 114 and the statutory mechanical license under Section 115) yet it appears that XM thinks that the AHRA grants them what would be the most sweeping of all statutory licenses with a few words in a 14 year old statute that has never been revisited and has been barely litigated.

XM’s reliance on the AHRA is highly questionable in my view, as AHRA was originally crafted as a settlement of a dispute between the creative community and consumer electronics companies over the digital audio tape player. It essentially established serial copy protection for creators, a “levyâ€? for certain kinds of players and certain blank media, and not much else. The leading copyright scholar David Nimmer notes in Nimmer on Copyright that the AHRA grew out of the consumer electronics market of the 1980s, and focused on DAT recorders. That technology failed to ever make much penetration into the consumer marketplace. The Internet is now the primary battleground for copyright issues, but the AHRA’s structure, which expressly excludes computers, places the Internet, and I would argue activities primarily utilizing the Internet or digital transmissions, outside the scope of AHRA.Â

One can almost get nostalgic about the days when our biggest problems were DAT players and serial copying in DAT recorders. One could argue that if the serial copy management protections of the AHRA had been extended to computers, that one move might have stopped a lot of damage. Perhaps we should thank XM for the reminder.

It appears that XM believes that they had found a loophole in Section 1008 of the AHRA that XM appears to believe would permit XM subscribers to download copies of tracks from the satellite broadcast with no payment other than the nominal AHRA royalty which is a flat fee based on the transfer price of the player concerned, capped at $8 in 1992. Section 1008 actually says:

  “No action may be brought under [the Copyright Act] alleging infringement of copyright [1] based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or [2] based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.�

Diamond Multimedia is the principal AHRA case (filed in 1998 and settled in 1999), which involved the Rio MP3 player, the original off-desktop MP3 player. If XM intends to try to squeeze itself into a position to get some benefit from the Diamond Multimedia case, a couple of points are worth noting. First, Section 1008 was not at issue in Diamond Multimedia, and nowhere does the case hold that Section 1008 provides the kind of omnibus immunity for digital copying that XM will likely invoke. Second, if XM is otherwise liable for copyright infringement, Section 1008 does not provide it with protection.Â

There is an inherent logic in this view of Section 1008. An infringer who happens to fit within the somewhat ill-defined parameters of the AHRA and who also commits an act of infringement outside of the AHRA (such as exceeding the scope of the statutory satellite radio license) cannot turn to Section 1008 for absolution of liability or culpability.Â

However much the forces of “innovation� wish to carve out a hallowed place for themselves in the law, XM’s view (like Napster and others those who asserted the position before and were rejected) would swallow the entire Copyright Act in Section 1008. (This postulate is well argued in the “friend of the court� brief written by David O. Carson, General Counsel of the Copyright Office, filed on behalf of the United States in the Napster case.)

The record company plaintiffs in the XM case have not alleged any claims against the Inno player itself, and all their claims are against the XM service. Therefore the first thing to consider is whether use of the XM service in connection with the player is infringing, and not whether the player itself is unlawful. The player is probably protected under Sony Betamax in any event as there are apparently some non-infringing uses that are substantial, or it’s not worth fighting about—which is probably why the record company case is solely directed at the XM service, not the player.

Publishers and songwriters have not joined the suit as yet, but clearly could do so if they chose (there is a three-year statute of limitations on copyright infringement claims, so the publishers and songwriters have the better part of three years left to file their action at a moment of their choosing). Realize that if there is an infringement of a sound recording there is almost always a separately actionable infringement of a song as well. Whatever the damages award ultimately is for record companies (on the sound recordings), the publishers would likely have the right to a nearly equal amount. The fact that a publisher may be owned by a record company’s parent corporation (e.g., Warner/Chappell is owned by Warner Music, Inc., which also owns Warner Bros. Records) is of no consequence as the copyrights at issue are distinct and separate.

There are those who argue that there’s no difference between the Inno’s functionality and taping off of terrestrial radio. When I was a teenager I used to tape off of broadcast radio, and I distinctly remember staying up until 3 a.m. to tape “Three O’Clock Blues� by B.B. King off of KYOK’s air in Houston, Texas. Of course then, as now, there was no public performance right for sound recordings on terrestrial radio (a topic for another column) and the tape recorder I used was not locked into KYOK’s signal, which was a good thing for me when I wanted to tape “Brown Eyed Girl� by Van Morrison off of KILT’s broadcast. Neither KYOK nor KILT delivered the track for me to my tape machine. Times were hard. If we’d had snow, I would have walked to school in it.

So, if XM intends to litigate this case, they may well be betting the company. I look forward to reading their answer to the record company complaint as it seems highly unlikely to me that they will have the better argument, but then I’m just a country lawyer and not as smart as these city fellers.

For more information:

XM Radio:Â http://www.xmradio.com/
Sirius Satellite Radio:Â http://www.sirius.com/
Consumer Electronics Association: http://www.ce.org/
Recording Industry Association of America: http://www.riaa.org/
Progress & Freedom Foundation:Â http://www.pff.org/