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Recording Industry Association of America, Inc. and Alliance of Artists and Recording Companies v. Diamond Multimedia Systems, Inc.

Defendant manufactures the Rio PMP 300 (the "Rio"), a portable handheld device capable of receiving, storing and re-playing digital audio files. Digital audio files are downloaded from personal computers and stored on the Rio's hard drive. The files can then be played back and heard through headphones connected to the Rio. Utilizing MP3 sound compression technology, the Rio can store approximately 60 minutes of music in its hard drive at one time. The hard drive's memory card can be removed and reinstalled into other Rios, permitting downloaded audio files to be exchanged among Rio owners. The Rio does not posses any digital audio output capability, however, and therefore cannot be used to create additional copies of downloaded files.

Plaintiffs, various trade organizations representing creators, manufacturers and distributors of sound recordings, claimed that defendant's marketing of the Rio violated the Audio Home Recording Act of 1992, 17 U.S.C. §§ 1001 et seq. ("AHRA") and sought a preliminary injunction preventing defendant from selling its product. The court determined that such relief was unwarranted, and denied plaintiffs' motion. Any harm caused by defendant's conduct could be redressed by the statute's royalty payment scheme.

The AHRA regulates the sale of "digital audio recording devices" as defined in section 1001 of the Act. Under the statute, such devices must be equipped with the Serial Copy Management System ("SCMS") or its equivalent to control second generation copying. In addition, a royalty payment must be made to the Copyright Office for every U.S. sale or importation of such devices.

The court determined that the Rio was in fact a digital audio recording device subject to the strictures of the AHRA. Under section 1001(3), any machine "which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use" is a digital audio recording device. A "digital audio copied recording" is "a reproduction in a digital recording format of a digital musical recording." Section 1001(1). Lastly, a "digital musical recording" is "a material object ... (ii) from which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." Section 1001(5)(A). Because the Rio is capable of storing a digital audio file on its hard drive, it can create a digital musical recording and hence is a digital audio recording device within the meaning of the AHRA.

Defendant argued that because a digital musical recording does not include a material object "in which one or more computer programs are fixed" under section 1001(5)(B)(ii) of the Act, the Rio does not qualify as a digital audio recording device. The court rejected this argument, holding instead that section 1001(5)(B)(ii) was intended to address the copying of computer programs, rather than music.

Notwithstanding the court's conclusion that the Rio was subject to the AHRA, the court refused to enjoin defendant from marketing this product. It is true, concluded the court, that by permitting a digital audio file to be downloaded onto its hard drive, the Rio engaged in "serial copying" within the meaning of the Act. "The AHRA does not directly prohibit serial copying" however. Instead, it prohibits importation of digital audio recording devices unless they incorporate SCMS or its equivalent to prevent the use of the device to make second generation copies. The Rio did not contain SCMS or its equivalent. However, because the Rio copies computer files from computers which themselves are not required to incorporate SCMS, "incorporating SCMS into the Rio ... accomplishes nothing" and would be "an exercise in futility." It would not, concluded the court, prevent the creation of second generation copies.

As such, injunctive relief was not warranted because of the absence of irreparable injury. Any harm that might be caused by the sale of the device could more then adequately be compensated by use of the statutes' royalty payment scheme (which requires designated royalty payments upon the sale or importation of digital audio recording devices). Said the court:

Although the Rio will inevitably be used to record both legitimate music (e.g. commercially available CDs) and illegitimate music (e.g. copyrighted music illegally posted on the Internet), the absence of the SCMS information does not cause the illegitimate uses. Even if the Rio did incorporate SCMS, a Rio user could still use the device to record unauthorized MP# files posted to the Internet. Moreover, to the extent Plaintiffs are injured through an illicit use of the Rio, this is precisely the type of injury for which the royalty provisions were adopted.