MP3 Counter-Suit Alleges RIAA Conspired Against Rio Maker

Digital music device manufacturer says trade group used judicial process to harass it.

A counter-suit filed against the Recording Industry Association of America Monday by the makers of a new portable digital-music player claims the RIAA conspired to restrain trade and competition and that the original suit by the music trade group has no foundation.

The counter-suit, which alleges anti-trust, unfair business practices and challenges the constitutionality of the act the RIAA based its original suit on, was filed by Diamond Multimedia. The company manufactures the Rio, a Walkman-like device that allows users to download songs on their computers and listen to them on the portable machine in the controversial MP3 digital format.

"They're using the judicial process to harass Diamond when they know that their lawsuit is baseless," Ken Wirt, vice-president of corporate marketing for Diamond, said in a conference call Wednesday. "It's baseless because Diamond has the Serial Copy Management System and because other devices, such as the mini-disc, do what the RIAA claims the Rio does and they have not pursued the mini-disc."

The Serial Copyright Management System, which prevents unauthorized production of second-generation copies, is required by the 1992 Audio Home Recording Act, which specifies that manufacturers and distributors of digital-recording devices pay a royalty to a general industry-fund that offsets lost revenues from the illegal copying of music.

The mini-disc format is similar to the CD but is smaller and allows CD-quality digital recording.

In addition, the suit claims libel, defamation and slander by the RIAA, citing a quote from Hilary Rosen, president of the RIAA, that ran in the Wall Street Journal.

"The only reason for the action against Diamond is they are jumping the gun to exploit the pirate market instead of waiting and working toward the legitimate market," Rosen was quoted as saying.

Wirt classified this statement as slander and said it was part of a smear campaign being conducted by the RIAA against Diamond.

Tim Sites, senior vice president of the RIAA, in turn termed the Diamond lawsuit baseless after reading a press release issued by the company and participating in the conference call.

"This is clearly a legal maneuver that has no foundation in fact or law," Sites said. "It's a pretty transparent ploy to gain publicity for Rio in time to spur holiday sales. I'm confident the court will accordingly respond to each of their rather frivolous allegations."

In one of the more ambitious aspects of Diamond's lawsuit, the company alleges that the AHRA is in violation of the First and Fifth Amendments to the U.S. Constitution.

"The First Amendment is dedicated to free speech. It not only provides for a right to expression but the right to dissemination of that expression," Wirt said. "For instance, as a journalist, writing wouldn't be much good if printing presses were outlawed. In this case, the AHRA applies the same kind of situation but for the free expression that comes through music."

Wirt also said that the AHRA violates due process because it says companies must follow a certification procedure that's determined by the secretary of commerce, but that there is no certification procedure.

Michael Robertson, president and CEO of MP3.com, a website dedicated to downloadable song files, weighed in with his belief that the dispute between the RIAA and Diamond goes much deeper than the two organizations squabbling over piracy.

"Although this story has been condensed down to be a debate over the piracy issue, it's really much, much bigger than that," Robertson said. "It's two giant industries, the music industry and the computer industry clashing into each other. And there are a lot of powerful forces on both sides of that battle.

"Several people like us have been saying ... this is about the future of the music business," he continued. "And whether it's going to be centralized like it is now or decentralized through the Internet."

The formal disagreement between the two began with a lawsuit filed by the RIAA in the Federal District Court for the Central District of California on Oct. 9, seeking an injunction on grounds that the Rio violates the AHRA.

Judge Audrey Collins granted the RIAA a 10-day restraining order that prevented the sale or distribution of Diamond Multimedia's Rio. The judge later declined to issue a temporary injunction that would have prohibited the sale or distribution of the Rio, which Diamond began shipping to stores Nov. 23.

The RIAA currently is appealing Collins' decision.

The MP3 format allows songs to be transferred across the Internet in near-CD-quality. During the past year, MP3s have become increasingly popular with mainstream computer users. While the format itself is not illegal, critics, such as the RIAA, say MP3s invite users to distribute copyright-protected music free of charge without authorization.

The Rio player, which is about the size of a deck of cards, has no moving parts. Users transfer MP3s to the device's memory by plugging it into a computer.

Last summer, punk-rappers the Beastie Boys gave the format a high-profile boost by posting their single "Intergalactic" (RealAudio excerpt) in the MP3 format on their official website. They later posted MP3s of live performances by the group as well.