XM thinks of its Inno device as a high-end VCR that customers can use to make personal copies of their favorite satellite-radio programs. The recording industry sees it as a form of "massive wholesale infringement" and it took action with a federal lawsuit filed Tuesday in New York to cut the power.

According to The Associated Press, the battle between the record labels and the leading satellite service is over the question of how consumers can legally record songs on the next-generation devices. The recording industry says the $400 iPod-like device that allows XM users to record up to 50 hours of music and automatically organize recordings by song and artist is a form of copyright infringement. The Inno's slogan is "Hear it, click it, save it."

The suit seeks $150,000 in damages for every song copied by XM customers using the devices, which went on sale several weeks ago. The company says it plays 160,000 different songs every month. While the suit doesn't seek to punish XM customers or have them pay for the alleged infringement, if it were successful, it could raise the company's costs — which could result in higher monthly fees than the $12.95 consumers currently pay, according to the AP.

XM vowed to fight the suit and accused the labels of using the action as a form of leverage during negotiations over licensing fees. "These are legal devices that allow consumers to listen to and record radio just as the law has allowed for decades," XM 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 has argued that the device is more like a VCR than an iPod, because it allows consumers to store songs that can't be copied and can only be played as long as they retain their subscription to XM. While XM rival Sirius has agreed to pay the kind of expensive distribution licenses as those paid by download services like iTunes for its portable devices, XM has so far refused. XM chairman Gary Parsons has said those licenses — on top of the performance licenses the company already pays the music industry — would amount to a "new tax being imposed on our subscribers."

The head of the Recording Industry Association of America said XM's device is legally indistinguishable from iPods and other portable music players that work with downloading services, according to the AP

"Yahoo!, Rhapsody, iTunes and Napster all have licenses," said RIAA chief Mitch Bainwol. "There's no reason XM shouldn't as well."

For complete digital music coverage, check out the Digital Music Reports.