A lawsuit in which record companies allege XM Satellite Radio Holdings Inc. is cheating them by letting consumers store songs can proceed toward trial, a judge ruled Friday after finding merit to the companies' claims.
U.S. District Judge Deborah A. Batts made the finding in a case brought by Atlantic Recording Corp., BMG Music, Capitol Records Inc. and other music distribution companies against the licensed satellite radio broadcaster.
In a lawsuit last year, the companies said XM directly infringes on their exclusive distribution rights by letting consumers record songs onto special receivers marketed as "XM + MP3" players.
XM has argued it is protected from infringement lawsuits by the Audio Home Recording Act of 1992, which permits individuals to record music off the radio for private use. The judge said she did not believe the company was protected in this instance by the act.
In a statement, XM said it remains confident that the lawsuit is without merit and it will prevail.
"At this stage of the proceeding, the court's ruling is required to be based on the false characterizations set forth in the plaintiffs' complaint. The real facts strongly support our view that the lawsuit is barred by the Audio Home Recording Act. We look forward to making our case in court," the company said.
Messages for comment left with lawyers on both sides were not immediately returned.
In refusing to toss out the lawsuit, the judge noted that the record companies consent to XM's use of their copyrighted material solely for the purposes of providing a digital satellite broadcasting service.
She said XM operates like traditional radio broadcast providers who cannot offer an interactive service, publish programming schedules prior to broadcast and play songs from an artist more often than specified within a three-hour period. But by broadcasting and storing copyrighted music for later recording by the consumer, the judge said XM is both a broadcaster and a distributor, but only paying to be a broadcaster.
"The record companies sufficiently allege that serving as a music distributor to XM + MP3 users gives XM added commercial benefit as a satellite radio broadcaster," Batts said.
Although XM argued in court papers that an XM + MP3 player is much like a traditional radio-cassette player, the judge said "it is not."
"It is manifestly apparent that the use of a radio-cassette player to record songs played over free radio does not threaten the market for copyrighted works as does the use of a recorder which stores songs from private radio broadcasts on a subscription fee basis," she said.
XM shares fell 70 cents, or 4.3 percent, to $15.75 in midday trading on the Nasdaq Stock Market.
