In a previous blog I wrote about the major labels’ lawsuit against XM Satellite Radio filed on May 16th in the Federal district court in New York. Last Saturday I interviewed Fred Von Lohman, Senior Intellectual Property Attorney at the Electronic Frontier Foundation, about the case and the related proposed federal legislation known as the Perform Act. Fred had a variety of interesting and informative comments. I discuss several of them in this blog, and you can listen to the entire interview at myrealbroadcast.com. Click on the “Future of the Music Business.”

The lawsuit against XM has brought to a boil the long simmering debate over portable satellite radio devices that blur the line between listening to a song and owning it. At the heart of the present controversy is a new XM device called the Inno, a portable radio made by Pioneer that allows purchasers to store individual songs that they hear on XM and make then into playlists, much like an iPod. Using the Inno, an XM subscriber who listens to a song he wants to keep can punch a button and record it, and the track will be captured from the beginning of the song. Subscribers can then arrange the songs on the Inno any way they like.

THE COMPLAINT

Von Lohman thinks the case is flawed for two major reasons outlined below.

Inno is protected by AHRA:

The Audio Home Recording Act (“AHRA”) immunizes the Inno from a claim of copyright infringement Van Lohman argues. Under AHRA, enacted in 1992, Congress created the legal framework for companies to manufacture and distribute devices that can record digital music. The legislation allows consumers to digitally record music from CDs and broadcast transmissions for personal use, but prevents making digital copies from copies. In addition, under the AHRA manufacturers pay royalties on the sale of devices. The revenues paid by manufacturers are shared with everyone in the music industry, under a formula enacted by Congress with the support of all music industry stakeholders. In return, manufacturers, distributors, retailers, and consumers are immune from lawsuits based on copyright infringement. This represented a compromise that was supported by the recording industry and the consumer electronics industry.

According to Von Lohman, the Inno qualifies for protection under the AHRA because it complies with the definition "digital audio recording device." The definition “is any machine or device of a type commonly distributed to individuals for use by individuals…, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use.”

Further you cannot make digital copies of the music stored in Inno thus complying with the “Serial Copy Management System” required by the Act. In fact, XM CEO Gary Parsons recently testified in Congressional hearings "[c]ontent saved to the device from XM stays on the device and cannot be copied or removed.” "The only output on these devices," Parsons said, “goes to your headphones in analog form. The new products ... promote personal listening enjoyment, not Internet piracy."

The record companies may not with to concede that AHRA applies, Von Lohman pointed out, because the royalty is only 2% and they have to share that with the artists and music publishers.

Restrictions in Compulsory License do not apply to XM:

Although XM operates under the compulsory license provided by the Digital Millennium Copyright Act, the Act, Von Lohman argues, specifically exempts satellite services operating prior to 1998, including XM and Sirius, from some of the limitation imposed on webcasters including the prohibition to “induce” downloading. That criterion requires that “the transmitting entity takes no affirmative steps to cause or induce the making of a phonorecord by the transmission recipient…”

The record companies may argue, however, that whether this provision applies or not, that the compulsory license nevertheless prohibits the licensee from operating an “interactive” service and that the Inno is a device that allows the listener to segregate individual songs and play them on demand therefore violating the terms of the compulsory license.

PERFORM ACT

Recent federal legislation sponsored in the Senate by the cross-party team of Dianne Feinstein (D-CA), Lindsey Graham (R-SC), and majority leader Bill Frist (R-TN) titled the "Platform Equality and Remedies for Rights Holders in Music Act of 2006" or “Perform Act” proposes changes to the Copyright Act that would force the use of protected formats for all streaming media services, whether online, on cable, or through satellite radio and TV. The Perform Act would among other things prevent consumers choose the specific tracks they want from a satellite broadcast, record them and library them for future use. This would have the effect of shutting down the Inno service without the specific permission of the record companies.

Van Lohman commented that one of the reasons the RIAA decided to sue XM is that there is not much chance of this legislation being passed soon, and that the lawsuit may be the recording industry’s way of expediting the eradication of the Inno or at least increasing the pressure on XM to agree pay additional royalties.