Music Industry Sues XM Satellite Radio Over Recording Device

WASHINGTON – Natural allies in the music industry — record labels and a leading satellite-radio service — are on opposing sides in a federal lawsuit over how consumers may legally record songs using next-generation radio devices.

The recording industry accuses XM Satellite Radio (XMSR) of "massive wholesale infringement" because of a $400 iPod-like device that allows XM customers to record up to 50 hours of music and automatically parse recordings by song and artist.

The "Inno," which is manufactured by Japan's Pioneer corporation, is sold by XM under the slogan, "Hear it, click it, save it."

The lawsuit, filed Tuesday in New York by the Recording Industry Association of America, seeks $150,000 in damages for every song copied by XM Satellite customers using the device, which went on sale weeks ago. The company says it plays 160,000 different songs every month.

The lawsuit does not seek directly any payments from or sanctions against XM Satellite customers who record songs. But if the lawsuit were successful, it could raise the company's costs, which could be passed on to subscribers as higher monthly fees.

The RIAA is made up of the "Big Four" global music companies — Warner Music Group (WMG), Universal Music Group, which is owned by France's Vivendi Universal (V), Sony BMG Music Entertainment, a joint venture of Sony (SNE) and Germany's privately held Bertelsmann AG, and Britain's EMI Group — as well as their subsidiaries and affiliates.

XM Satellite promised to fight the lawsuit and accused the labels of using the courts as leverage during business negotiations.

"These are legal devices that allow consumers to listen to and record radio just as the law has allowed for decades," it said in a statement. "The music labels are trying to stifle innovation, limit consumer choice and roll back consumers' rights to record content for their personal use."

XM Satellite has balked at the recording industry's efforts to collect expensive distribution licenses similar to those required for Internet downloading services, such as Apple Inc.'s (AAPL) iTunes. XM's chief rival, Sirius Satellite Radio Inc. (SIRI), already has agreed to pay for such licenses to cover similar gadgets for its service.

XM's chairman, Gary Parsons, previously said requiring such licenses, in addition to broader performance licenses the company already pays, would represent "a new tax being imposed on our subscribers."

XM Satellite has compared its new device to a high-tech videocassette recorder, which consumers can legally use to record programs for their personal use. It also says songs stored on the device from its broadcasts can't be copied and can only be played for as long as a customer subscribes to its service.

The head of the music industry's trade group said the XM Satellite device is legally indistinguishable from iPods and other portable music players that work with downloading services.

"Yahoo! (YHOO), Rhapsody, iTunes and Napster (NAPS) all have licenses," said Mitch Bainwol, chief executive for the RIAA. "There's no reason XM shouldn't as well."

Rhapsody is owned and operated by Real Networks (RNWK).

XM subscribers pay $12.95 per month to listen to more than 170 channels of entertainment, sports and news programs, including 69 channels of different music genres without commercials.

A Washington-based consumers group, Public Knowledge, said the lawsuit threatens the rights of listeners to record music for their own use.

"The shame of the legal action, however, is that this is really a dispute between XM and the recording industry over licensing fees," the group's president, Gigi Sohn, said in a statement. "The companies should be left to figure out a solution without interference from the courts or from Congress."