The realities of the MP3 madness: Are record companies simply crying wolf?

• Author: Lee, Karen M.

"The music industry is crashing into the Interact ... [t]hey don't want to go into the Digital Age, and MP3 is dragging them there."(1)

INTRODUCTION

The Internet is a seemingly infinite network of hundreds of millions of individual host computers linked into an unending resource of information, products and services known as "cyberspace."(2) Because of this vast arena of potential consumers, businesses are scrambling to offer their wares online. An entirely new way of conducting business is taking shape and some old business giants are feeling the pressure. What was once an industry commanded by a powerful few is now being ripped open by a consumer hunger driven by innovations in technology. Technology and the music industry are clashing and the question that has arisen is which industry will have to admit defeat. With the explosion in popularity of digital music on the Internet, the music industry is finding itself in a quandary: the tight reign it once held over artists and their music is giving way under the pressure of the public's demand for more control over the content it can choose. With the advent of new standards for downloading digital sound files, Internet-based companies are plastering the Web with downloadable music files. These files are easy to access, relatively inexpensive and, in many instances, they are even free.(3) All that is needed is a computer, a modem, speakers and a soundcard or CD-ROM.(4) The popularity of Internet music has brought to life the recording industry's worst fears: the advent of music piracy on an epic scale. Because of the ease with which users can generate copies of digital audio files with high quality sound and the ability to distribute them just as easily over the Internet, record labels' property (i.e., the copyrights to the downloaded music) is vulnerable to piracy. The Recording Industry Association of America ("RIAA")(5) has pinned MP3 technology as a threat to the [traditional] recording industry.(6)

So what is all of the noise about? This note will attempt to explain the complicated controversy over this not-so-new format. Part I will discuss the spark that ignited it all -- RIAA's lawsuit against Diamond Multimedia Systems, Inc. Part II will discuss the outcome of that litigation. Part III will outline the recording industry's proffered solution, its related problems and reasons this solution will neither quiet nor slow down demand for the MP3. Part IV will discuss what this author believes to be a better, but very unlikely to occur, solution to this problem -- amending the Audio Home Recording Act of 1992 to bring it up to speed with the digital era, as well as concentrating on the development of better policing techniques for the Internet. Finally, Part V will discuss an alternative -- a more realistic, viable solution.

PART I: THE SUIT

In the Fall of 1998, the RIAA filed suit against Diamond Multimedia Systems, Inc. ("Diamond"), claiming that its portable MP3 player, the Rio,(7) violated the Audio Home Recording Act of 1992 ("AHRA").(8) More specifically, the RIAA sought to prevent the manufacture and distribution of Diamond's MP3 player, claiming that it failed to comply with the requirements of the AHRA because the Rio enables serial copying(9) of MP3 files. RIAA alleged that since the Rio was a digital audio recording device,(10) it was required to comply with the AHRA by incorporating a serial copy management system(11) into each player.(12) Diamond claimed that its MP3 player was "not a digital audio recording (`DAR') device" within the meaning of the AHRA and therefore, was not under any obligation to meet the AHRA's requirements.(13) First, Diamond contended that the Rio is not a digital audio recording device because the source of the copy, the computer's hard drive, is not a "digital musical recording."(14) Diamond cited section (5)(B)(ii) in support of its argument that the Rio does not make a "digital audio copied recording"(15) within the meaning of the statute because the music content is downloaded from a computer hard drive, which also stores other computer programs.(16) Therefore, Diamond claimed that its Rio player was outside the scope of the AHRA and was thus exempt from the Act's requirements.

In the alternative, Diamond argued that the Rio is not a DAR device since it does not have a digital "recording function."(17) Diamond claimed that the Rio has no "recording function" because it cannot independently record -- "unless software on [the] personal computer is used to manage the transfer of files, the Rio will not record anything."(18)

The district court rejected both of Diamond's contentions and determined that the Rio was a "digital audio recording device" within the scope of the statute.(19) The court felt that Diamond's interpretation of the Act's exemption of computer hard drives(20) "would effectively eviscerate the AHRA [... in that a]ny recording device could evade AHRA regulation simply by passing the music through a computer and ensuring that the MP3 file resided momentarily on the hard drive."(21) After extensive review of the legislative history,(22) the court concluded that there was a "legislative intent to avoid immunizing the illegitimate copying of computer programs from liability for copyright infringement."(23) It further found that there was insufficient evidence to support Diamond's contention that DAR devices must be able to record independently from a computer.(24) The court held that section 1001(3) only requires that the devices be "capable of making ... a recording."(25)

Although the district court went on to agree with RIAA's contention that the process in which the Rio downloads music(26) technically satisfies the definition of "serial copying,"(27) it found that the AHRA does not directly prohibit serial copying.(28) Moreover, it determined that incorporating SCMS into the Rio would be an "exercise in futility" because, even if the Rio had SCMS technology, MP3 files on a computer's hard drive do not contain the requisite copyright and generation status information necessary to activate such technology.(29) The court concluded that "[b]ecause a Rio with SCMS would not violate Section 1002, and because a Rio without SCMS is functionally equivalent to a Rio with SCMS," the Rio adequately "prohibit[s] unauthorized serial copying" for the purposes of the statute.(30)

Since the court found that the Rio came within the scope of the AHRA, it granted RIAA's application for a temporary restraining order.(31) However, it refused to enter a preliminary injunction barring its sale because RIAA failed to show that sales of the Rio would cause irreparable harm to RIAA's members.(32)

PART II: THE NINTH CIRCUIT DISAGREES

On appeal, the Ninth Circuit affirmed the district court's denial of a preliminary injunction. However, contrary to the district court's determination, the Ninth Circuit accepted Diamond's argument that its Rio MP3 player was not a DAR device and held that it was not subject to the terms of the AHRA.(33) After an extensive review of the plain meaning and the legislative history of the AHRA, the court found that the Rio did not reproduce, either "directly" or "from a transmission," a "digital musical recording" as required under the statute.(34) Conversely, the Ninth Circuit determined that "[t]he Rio merely makes copies in order to render them portable, or `space-shift[s],'(35) those files that already reside on a user's hard drive."(36)

1. The Debate Over MP3 Technology

   Although it was first developed in 1992,(37) MP3 is considered a relatively new technology.(38) The MP3 format compresses digital audio files to one-tenth of their original size, with no audible sacrifice in sound quality.(39) For instance, a typical five-minute song usually occupying fifty megabytes of memory on a compact disc is compressed in MP3 format to only five megabytes.(40) Furthermore, this reduction in file size allows digital music to be downloaded in a fraction of the time required for an uncompressed file.(41)

   Consequently, an industry debate has arisen as to how and to what extent MP3 will shape the music business. Some believe that the industry will remain unchanged, while others feel that this format will render traditional record labels obsolete by eliminating the need for conventional methods of manufacting and distributing the "physical product."(42) One industry insider believes that this "digital download revolution" will be the "demise of the manufacturing and distributing infrastructure that currently supports traditional music retail stores."(43) Although eighty percent of the resources of the "Big Five" record distributors(44) are devoted to the manufacture and distribution of compact discs to retail stores, the remaining twenty percent of the business, which is devoted to the critical functions of developing and promoting the careers of recording artists through radio and television promotion and tour support, will become more important as this revolution evolves.(45) This insider also believes that the music retailers, distributors, and commercial counterfeiters of unauthorized compact discs will be affected most.(46)

   PART III: THE OUTCOME -- RIAA's SOLUTION AND ITS ATTENDANT PROBLEMS

   The RIAA claims that it filed its lawsuit against Diamond because "unchecked piracy on the Internet threatens the development of a legitimate marketplace for online music."(47) It asserts that distribution of serial digital copies of pirated copyrighted material will discourage the purchase of legitimate recordings.(48) Further, it predicts that the losses stemming from these pirated copies will surpass the alleged $300 million lost to more traditional forms of piracy.(49) Presently, the RIAA fights Internet piracy by "monitoring the Internet daily, and routinely shutting down pirate websites by sending cease-and-desist letters and bringing lawsuits,"(50) or requesting royalties.(51) For instance, the RIAA filed...