UNITED STATES DIS'!

'RICT COURT
SOUTHERN DISTRICT OF NEW YORK

ATLANTIC RECORDING CORPORATION; )

BMG MHSIC;CA..ITOL RECORDS, INC.; )
ELEKTRA ENTERTAINMENT GROUP INC.; )
INTERSCOPERECORDS; MOTOWN ) 06 CV 3733 (DAB)
RECORD COMPAJ\"Y,L.P.; SONY BMG )
MDSICENTERTALNMENT; )
HMG RECORDINGS,JNC.; )
VIRGIN RECORDS A.MERICA, INC.; and )
W ARi'JER BROS. RECORDS INC., )
)
Plaintiffs, )
v. )
Xi\1 SATELLITE RADIO,. INC. )
)

)
Defendant. )

MEMORANDUM OF LA \V
IN SUPPORT OF nEFENDANT'S MOTION TO DIS¡VUSS

KRONISH. UES, WEINER & HELLMAN LLP

ATTORNEYS AT LAV'¡
¡ ¡: 14 _AveNUE OF THE AMER¡Cr~S, NEVI YOHK" N.Y. r0036-l7SH3
 TABLE OF CONTl:NTS

Page

TABLE OF .AlJTHOR.ITIES ........ .............................. ..... ....... ................... ...... ............................... ii

PREUMINARY STATEMENT.... ........................................... ............................................ ......... 1

STATEMENT OF FACTS... ..................... ..... ........... .................................. ......... ...... ......... ........... 2

i\. XM Satellite Radio Inc. ..................................................................................................2

B. The Inno ................................... ............................... ........................................ ................ 5

1. Th.c' Radio .FUTlctioli........... .....A.............. ....................... ,.. .... ...... ......... ...... ..................... 5

2. The Recording Function.............. ........ ................. ....................................... .... .......... 6

3. The Storage Function..................................... .......................... ....... ......... ...... ........... 8

C. The inno Does Not Create an "Interactive Service" ................................................. 8

D. The inno Does Not Download Songs............................................................................ 10

AR.GUMENT ,...... ............................. ................... ................................................. ........................ 11

1. THE AHRA BARS PLAINTIFFS' INFRINGEMENT CLAIMS (COUNTS I-VII) ......... 13

A. The Plain Language of the AHRA Prohibits Plaintiffs From Filing this
Complaint and Immunizes XM From Suit................................................................... 13

B. The Legislative History of the AHRA Confirms XM's Entitlement to

Section 1008 Inl111unity... .............................................. ........................... ....... ....... ....... 17

U. STATE LA Vi CLAiMS SHOULD BE DISMISSED ................................................ 21

CONCLUS ION.......... ...................... .......... .......................... ................................. .......... .............. 22

 TABLE OF AUTHORITiES

:FEDERA.L CASES
Page

Adams Fruit Co. v. Barrett, 494 US. 638 (1990)..............................................................17

Agee v. Paramount Conillunications, Inc., 59 F.3d 317 (2d Cir. 1995)..............................9

Cortec Industrial, Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir. 1991) .........................12

Crystal Semiconductor Corp. v. Tritech lvlicroelectronics International, Inc., 246

'F.3d 1336 (Fed. Cir. 200 i)................................... ............................. ....................... ......4

Curto v. Ednnmdson, 392F.3d 502 (2d Cir. 2(04)............................................................1 i

Friedlanderv. Rhoades, 962 F. Supp. 428 (S.D.N.Y. 1997).............................................21

Germano v. Cornell Universi(v, 2005 U.S. Dist. LEXIS 17759

(S.D.N. Y. ,Aug. 17, 2005) .. ................................. ............ ....................... .............. ........12

Hernandez v. Coughlin, 18 F.3d 133 (2d Cir. 1994) .........................................................11

1. Me.rer Pincus & Associate, Pc. v. Oppenheimer & Co., Inc., 936 F.2d 759
(2d Cir. 1991)............................ .......................... ................ ......................... .............. ..12

International Audiotext Network, inc. v. America Telegraph and Telegraph Co.,

62 F .3d 69 (2d Cir. 1995)................. .................................................... ....................... .12

Lee v. Bankers Trust Co., 166 F.3d 540 (2d Cir. 1999).....................................................17

i'vlarvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) .......................................17

Meadowlands Investments, LLC v. ClBC World j\¡farkets Corp., 2005 U.S. Dist.
LEXIS 21102 (S.D.N.Y. Sept. 22,20(5).....................................................................11

Natural Resources Defense Council, Inc. v. Muszynski, 268 F.3d 91

(2d Cir. 2001) ........................ ...................................................... ........................... .... ..17

Rapoport v. Asia Electronics Holding Co., Inc., 88 Supp. 2d 179

(S.D .N. Y. 2(00)............ .............................................................................. ............. ....12

Recording Indiisiry Association o/America v. Diamond i\;ultmec/ia S.vstems, Inc.,

180 F.3d 1072 (9th Cir 1999) ...............................................................................14, 19

Salichs v. Tortorell, 2004 US.Dist. LEXIS 4942 (S.D.N.Y.March 29, 2004)................13

Sazerac Co., ¡¡¡Co v. Falk, 861 F. Supp. 253 (S.D.N.Y. 1994) ...........................................12
11
Smith v. Local 819 J.B.T Pension Plan, 291 F.3d 236 (2d Cir. 2002) ............................11

Stuto v. Fleishman, 164 F.3d 820 (2d Cir. 1999)..............................................................13

UMG Recordings, Inc. v. A1P3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2001).................8

l.Jnited Mine Workers a/America v. Gibbs, 383 U.S. 715 (1966).....................................21

United States v. Molirbacher, 182 F.3d 1041 (9th Cir. 1999) ...........................................16

FEDERAL STATUTES

17 U.S. C. § 106........ .......... ........... ................................. ............................................. ..... ....9

17 U.S.C. § 114(d) .......................................................................................................3-4, 7

1 7 lJ. S. C. § 114(j)................................................................................................................ 9

17 lJ. S. (~. § 1001....................... ............................................................,...................... 14-16

17 lJ .S.C. § 1002......................... ......... ................................. ....................................... 19-20

17U. S.C. § § 1003-1004 ............ ............................................................................. ......... ..18

17 U .sC. §§ 1003-1007 ......... .................................................................................... .18, 21

17 U. S. C. § 1008..... ......................................................................................... 13-14, 18, 21

17U. S.C. § 1009................. ........ ................................... .................................................. ..21

28 lJ .S.C. § 1331...... ............................. ....... ................ ................... .............. ................ .....21

28 U. S.C. § 1338......... ...................................................................................................... .21

MISCELLANEOUS

Fed. R. Civ. P. 12(b) ......................................................................................................2,11

H.R. Rep. No. 102-780 (1992)................................................................................. ........ ..18

H.R. Rep. No.1 02-873 (1992)...........................................................................................17

H.R. Rep. No. 105-796 (1998).. ............................................................................... ......... ...3

S. Rep. No. 102-294 (1992)..............................................................................13-17,19-21

11
Hearing BejÒre the Subcomm. on Patents, Copyrights, and 7ì.ademarks of the S.
Comm. On ¡he JudicÍcu)Y 1 02d Congo ILL, Serial No. J-I02-42 (October 29,
1991) ........................................................................................................................... .20

Melville B. Nimmer & David Nimmer, Nimmer on Copyriglit..........."............................3

iv
 PRELIMINARV STA TEiViENT

This case must be disniissed because of a statute plaintiJJs do not even inention in the

complaint the Audio Home Recording Aet of 1992 (the "AIIRA"), 17lJ.S.C. §§ 1001 1010.

'fhe AHRA was enacted to encourage the development of "digital audio recording devices" by

prohibiting the tiling of copyiight infbngement suits, such as this one, based on the manufacture,

importation. distribution and use of such devices, Thc inno an AI--RA compliant radio/recorder

distributed by defendant XM Satellite Radio Inc. ("XlYf') is a "digital audio recording device"

within the meaning of the Aim.A. Accordingly, the AI IRA mandates dismissal of this action.

'fhe ABRA strikes a legislative balance among three sets of interests: (l) the interest of

consumers in using statc of the art digital devices to record songs (()r their personal use; (2) the

interest of the recording industry in preventing "serial" copying (making copies Jì-om copies)

using digital recording devices; and (3) the interest of the consumer electronics industry in

devcJoping and marketing innovative personal recording devices without risk of ínfringemcnt

actions. The AHRA rcquircs that every "digital audio recording device" prevent the making of

serial digital copies and that royalty paYTnents be made to the music industry for each such

device; in retunl, the AI-IRA bars infringement claims based on the manuÜl.cture, importation,

distribution or use of sueh a device.

The Recording Industry Association of America CRIAA") counsel to plaintiffs in this

case and the trade group that represents the recording industry actively participated in the

hearings concerning the AHRA and urged its enactment. Indced, the RIAA touted the AI.IRA as

a generic solution that by design would apply both to existing recording devices and recording

devices of the future.

 Although the inno fits squarely within this statutory scheme, the complaint ignores the

AURA and defies Congress' effÖrts to insure that the powerliil recording industry would not be

able to restrict the right of consumers to record songs that are broadcast over the radio or sti f1e

innovation by chiUing the development and use of the latest recording technologies.

Under the AHRA, XM and its subscribers have an absolute immunity from being sued

feil' copyright infringernent based on the use of the irmo or other similar devices. Thus, even if

plaintiffs' claims of copyright intì'ingemcnt had any merit an assertion XM vigorously disputes

plaintiffs' infhngement claÎlns cannot stand.

In short, ít is the plaintiffs who have violated the Copyright Aet by bringing an

infhngement action in the Úice of a clear statutory bar. Accordingly, Xl'r asks this Comi to

dismiss the complaint in its entirety.

STATEIVIENT OF FACTS

Despite the innuendo, rhetoric and misrepresentations, the complaint aUeges Üicts and

relics on documents that demonstrate that plaintiffs arc prohibited under the AlTRA from

bringing this lawsuit. i-\ccordingly, for purposes of this motion as required by Fed. R. Civ.

P. 12(b)(6), XM does not take issue with plaintitts' factual enol's. Rather, treating the Üiets

aUeged in the complaint as if they were true, XM moves to dismiss the complaint.

A. XL\L Satellte R.adio Inc.

XM is the leading satellite radio broadcaster in the United States. Com. '121.1

As used in this memorandum, "Com. ~i ., refers to paragraphs of the complaint; "TJser

(ìuide" refers to the Inno l)ser Guide: and "Product Guide" retèrs to the XM Consumer
Electronics Show 2006 Product Guide. ('opies of the complaint, User Guide and Product Guide
are annexed to the Declaration of Celia Goldwag Barenholtz, dated July 17,2006 ("Barenholtz
Dec.") as Exs. 1-3, respectívely.

Î
 Unlike a traditional i\M/FM radio, which receives programming broadcast fì'om a

number of different radio stations, an Xi''Í radio receives only XM programming. Thus, \vhile

each channel on an XM radio provides a particular format of rnusic, talk or sports content, all the

channels received on an XM radio emanate from a single service the XM satellite radio

service. Com.'1 22; Product Guidc at 10-12.2

XM broadcasts nearly 70 channels of24 hour a day commercial-free music as wen as

channcls dedicated to news and public affairs, talk, and spoiis. For example, XM broadcasts 7

channels dedicated to various types of "Country," i 3 channels that play "Rock," 5 channels that

play "Jazz & Blues," 7 channels of"Hip Hop & Urban," 3 channels of "Classìcal, and 9 "Pop

and Hits" channels. Com. '122. A fuil list of the channels available on XM radio can be tÖund

in the Product Guide at 10-1 ! .

XM pays royalties to the plaintiffs tè)r the right to broadcast their sound recordings to XM

subscribers. S"ee, e.g.. Com. 5,23 (citing 17 U.S.c. § i 14(d)(2)).This payment is made

under a license granted by statute in the Copyright Lnv. 17 U .S.C. § ! ¡ 4( d)(2).-'

:2
In addition to channels which broadcast XM~generated audio content, XM also offers channels
which rebroadcast content fÌom other sources, such as CNN and Fox NeViS. See Product Guide
at 11~ 12. The Court may consider thc Product Guide because it is integral to and incorporated by
reference by the plaintiffs in the complaint. See general~v. pp. 12-13, Ùtfì'a.
.ì Congress created this statutory liccnsc at the same time that it granted an exclusive right with
respect to the perfonnancc of sound recordings by means of a digital audio transmission because
it wanted to ensure that digital broadcasters would be able to perfoID1 sound recordings in
exchange f()I' paying a royalty. See geiieral~v 2 MelviJe B. Nimmer & David Nimmer, Nirnmer
on Copyright §§ 8.21, 8.22 (2006).
It should be noted that there are two kinds of § i 14( d)(2) licenses. XM has a § i 14(d)(2)(B)
license because it is a "prcexisting satellite digital audio radio service." See Com. 4123. 1'he
dispensation tÖr preexisting satellite radio services reflects the enormous investment that they
had to make to build their operations. See II.R. Rep. No. j 05-796, at 80-81 (1998). For
example, XM (under its ièmncr name) purchased a "spectrum" of the public ainvays at a Federal
Communications Commission auction in 1997 tbr approximately $90 Tnilion. Public Notice,

3
 As the cOl1iplaint alleges, Xivl "providc¡sllistcncrs with what traditional broadcast radio

provides, albeit \vith digital sound quality." Com. '124.-1 XM transmits its signal in an

"encrypted" form so that it can be received and listened to only on an activated XM radio.

Com. '1 26. Thus, to uSe XM's radio service, a consumer must own a special XM radio,

subscribe to and pay f()r the XNI radio service, and contact XIv! to activate the radio. Com.

11112 l, 26. XM sells a wide anay of radios including units feil' the car, units f()r the home and

hand-heJd devices. See Product Guidc at 2. 6-9.

When a subscriber is tuned to a particular channel, the XM radio displays inT()rmation

relating to the broadcast, such as a song title and the name of the artist. See. e.g., Product Guide

at 2, 4, 7 (pictures of vaiious XM radios displaying name of song and artist).

Product Guide at 7. 'rhis screen display is encouraged under the Copyright Act indeed it is

required for other digital transmission services - but is undertaken voluntarily by XM. (~ompare

17 U.S.c. § 1 14(cl)(2)(C)(ix) (statutory license provision applicable to new digital transmission

scrvices requiring transmission of idcnti(ying information to enable display of title of sound

recording and name of artist) lj'ith i 7 U .S.c. § i 14( d)(2)(A)(iii) (statutory license provision that

FCC Announces Auction Winners fÒr Digital Audio Radio Service (April 2, 1997), available at
http://wireless.fce.gov/auctions/ i 5/rclcases!da970656.pd f.
4 "Sound may be recorded using either analog or digital signals. In an analog recording, sound is
converted into an electrical signal. , .. A digital recording converts the same sound source into
a series of binary numbers, Is and Os. This digital signal represents the sound source." Crystal
Semiconductor ('orp. v.1ìitech i\dicroe!ectronics Int 'I, inc', 246 F.3d 1336, 1343 (Fed. Cir.
20(1),

4
digital satellite transmission, should, iffeasihle, transmit titÍc and name infÖnmuion encoded in a

sound recording, although such inlÜrmation is not required to be displayed).

XM has gn)\vn significantly since its launch. According to the complaint, XM currently

has weIl over 5 million subsciibers. Com. ~¡ 25.

.B The huw
In April 2006, XM introduced the "inno." Com. 28-29. The inno is a hand~held

radio/recordcr about the size of a cell phone. Com.'¡ 29. '1'l1e device has three essential

functions.

L Radio Function

The inno is an XLV radio. It is a one-way radio rcceiver like any AM/FM radio receiver.

The inno enables an XM subscriber to receive and listcn to the same XM broadcasts that are

accessible by any XI'v1 subscribcr \vith any of the various XM radios. Com. 'I~¡ 29,32; tJser

Guide at 26-32 (describing features of--Livc XlvJ'')5

Like all other XM radios, the inno contains a screcn that displays infonnation regarding

what is playing on the channel to which the receiver is tuncd. If the inno is tuned to a music

channel, it displays the name of the song and artist being played. Product Guide at 2 (picture of

inno displaying name of artist C'Colclplay") and song title ("Speed of Sound")):

:' The Court may consider the User Guide because it is integral to and incorporated by reference
by the plaintiffs in the complaint. See general!.v. pp. 12-13, Ùili-a,

"
.J
As noted above, this screen display is encouraged under the Copyright Act. See pp. 4-5, supra.

2. The Recording Function

The inno has a recording feature that allows the subscriber to record audio content (such

as music, talk shows and sporting events) hom an XM broadcast for Iater playback. Com. '1'12,

29-30; User Guide at 33-36 (describing features of"Recording XM"). As alleged in the

eomplaint, the copies that a subscriber makes whcn she "presses the record button" are stored on

the device. Com. ""I 37. This recorded content is then available on the inno "for personaL, non-

commercial" replay as long as the subscriber continues to subsciibe to XM. Com. '139; User

Guide at 33.

The digital music recorded on an inno cannot be transferred in digital fonnat to any other

device. Thus, a song cannot be recorded on an inno and then digitaily moved to a compact disc

("CD") or transferred to a computcr. What is recorded on the inno sta.'rs on the inno and can be

replayed only on thcinno. Uscr Guide at 33 ("XM content cannot bc exported from the inno")

6
and 63 ('the content recorded tÌom XM cannot be bUl1ed onto a CD or DVD or otherwise

transferred off your inno").

To Üicilitate recording, the inno rnakes a short-terni "buffer" copy of what is being played

on the channel to which the listener is currently tuned. Com. '135; User Guide at 33. The buffer

copy can hold approximately 10 minutes of music. User Guide at 33. As a result of this feature,

if a subscriber presses the record button durIng the tìrst 10 mInutes of a musical work she has

been listening to on an XM channel, the inno \-vill be able to record from the beginning of that

song. Com.'! 37.

A subscriber can program the inno to record a particular channel at a particular time.

Com. '136; User (iuide at 35. In this regard, the inno operates much like a TiVo or other

television recording device. However, unlike recording a previously-scheduled television

program, XM subscribers do not know in advance the particular songs XM \vìl play \V.hen the

inno is recording. Indced, as a condition of its statutory license, XM is fèirbidden to publish a list

of songs iii advance of its broadcast. See 17 use. § 114(d)(2)(B)(ii) (transmitting entity may

not publish "an advance program schedule" or makc a "prior announcement" of the "specific

sound recordings" to be transmitted).

Once a programmed recording session is completed, the inno user has the option of

seeing a "playlisf' of the songs and artists that were recorded from the XM broadcasts. Com.

'1 36. 'This ph'll ist is nothing more than a simultaneous listing of the song titles and artist names

of XM' s programming, infÒrmation that the Copyright A.et encourages broadcasters to transmit.

By scrolling through this list of song titles and artist names, an inno user can select which songs

to replay, rctain or discard. She can also organize the recorded songs to create playlists (i.e.. an

7
"index of songs that play in a certain order") in accordance with her personal preferences. Com.

'i 36; User (ìuide at 4 I; see genera/~v User Guide at 38-47 ("Organizing Your Music'").6

3. The Storage Function

Finally, the ¡nno allows an XM subscriber (if she chooses to do so) to store and play

digital audio fies she purchases from Napster an online music store "operated under the

authority of Plaintiffs" (Com. '17) - or digital audio ilks she otherwise o\l/ns, such as songs on a

CD she previously transferred to her personal computer. ï Com.'¡ 38; User Guide at 54-55, 62-

63. 'To take advantage ofthis function, the inno must be connected to a computer. Otherwise,

there is never any need to access a computer to operate an inno. User Guide at 20-49 ("Using

Your Iimo Alone"),

C. The hmo Does Not Create an "Interactive Service"

'The complaint alleges that XlvI's statutory license is limited to perfonning plaintiffs'

works in a "non-interactive radio-like service." Corn. 'i 1. This allegation creates the tàlse

impression that by introducing the inno, XM has sonieho\v breached its statutory license to

() 'I'he inno has another feature, called "TuneSelcct." Com.'¡ 37; User Guide at 29-30. Using
TuneSelect a suhscriber tuned to one XM channel can program the inno so that an alert will
sound when an artist or song she previously specified is playing on another channeL. Com. 'i 37;
User Guide at 29. When the aleii sounds, the subscriber (if she hears the alert and dccides to
respond) must physically switch to that channel to hear the song. User Guide at 29. Once she
switches to that channel, she can press the buttons on the device and rccord the song. Howcver,
the portion of the song that was played prior to the time she switched channels wil not be
captured by the recording, given that the buffer only recorded the channel to which the inno had
been tuned. User Guide at 29 and 33 (TuncSelect alerts user when a song is "currently playing
on any other XM channel" but buffer only begins copying particular song when user is "already
tuned to that channel") (emphasis added).
Digital audio files transferred fTom CDs to computers are commonly stored in an unencryvted
!Òrmat known as "'rvlP3,"' 5;ee UivICi Recordings, Inc. v. MP3.com, Inc., 92 F, Supp. 2d 349
(S.D.N.Y.2000). Thus, the slogan "XM 'MPr - which appears in the Product Guide and is
quoted in the complaint - describes the fact that the inno both receives and records XM
broadcasts and can be used to store MP3 tiles converted from the subscriber's own CD
collection. Product Guide at 2.

8
broadcast plaintiffs' sound recordings.5'ce p. 3 and n. 3, supra. In i11ct, XM has not breached its

statutory pertèH1nance license, and the complaint does not allege that XM bas done so.

'fhe Copyright Act distinguishes between interactive and non-interactive digital

transmission of sound rccordings. K "Interactive service" is a defined tcnn. An "interactive

service" is one that "enables a member of the public to receive a transmission of a program

specially created ten' the recipient, or on request, a transmission of a particular sound

recording. . . which is selected by or on or behalf of the recipient." 17 U.S.C. § 114(j)(7). In

essence, a service is "interactive" if it allows the consumer to order a speci lic song for herseif,

much like a consumer might order a particular product from a mail order retailer.

Xlvl is not an "interactive service" within the meaning of § 1 i 4(j)(7) because an Xlvi

subscriber hears only what XM chooses to play. An XM subscriber cannot order a particular

song from XM tCH' her inno. ') See geneïafzv User Guide at 33-36 ("Recording XM"). Nothing in

L I. 1 . 10
t1e eompamt suggests ot ienvise.

~ XM is a "preexisting satellite digital audio radio service," a te1l1 deíÏned in § i J 4(j)(1 0), and is
eligible for a statutory license pursuant to § i 14(d)(2). Separate provisions governing interactive
services are set out in * 114(d)(3).
'Í The Úict that, like many radio stations, listeners occasionally are able to call XM and request
that a particular song be played does not render XM "interactive" as that ten11 is defined in the
CopyTight Act. 17 U.S.c. § I 14(j(7) ("The ability of individuals to request that particular sound
recordings be perfÖrrned . . . in the case of a subscription service, by all subscribers of the
service, does not make a service interactive, if the programming on each channel oftÌ1e service
docs not substantially consist of sound recordings that are performed within 1 hour of the request
or at a time designated by either the transmitting entity or the individual making such request.")
10 Given xrvrs statutory license, the complaint does not allege that XM has inlì-inged plaintiffs'
exclusive rÎght to publicly per!Òrm their sound recordings by means of a digital audio
transmission. Instead, citing various provisions of the Copyright Act, the complaint alleges that
XM's licensed pertèirmances somehow violatc the plaintiffs' exclusive right to distribute their
works. See Com. 41-48 (Count i (alleging violation ofl7 .S.C. § 106(3)). This claim has
no merit because, as the complaint itself alleges, XM transmits sound recordings (see, e.g., Com.
ii,i 26,32) and as a matter of law, a transmission is not a "distribution." Agee v. Paramount
Con¡1liinications, Inc., 59 F.3d 3 ¡ 7,325 (2d Cir. 1995) ("It is clear that merely transmitting a

9
D. ¡uno Does Not Download Songs

The complaint also conclusorily asserts that the inno is a "digital download service."

Com. 2-3. This misleading allegation leaves the Court with the impression that the imio is

something different than what the tàcts pleaded in the complaint actually establish.

XM (whether or not coupled with thc inno) does not offer a downloading service like

iTuncs or Napster. II Such download services distiibute digital audio ties over the Internet to a

consumer who has made a request that a specific song or album be "downloaded" to her

computer. See Com. 41 i 7 (describing services such as í'runes and Napster). \Vhile the complaint

uses the phrase "download service," it never alleges that an XlvI subscriber who uses an irmo to

record a song broadcast by XM is requesting the delivery of digital audio files to a computer. To

the contrary, the complaint and the materials integral to the compIaint demonstrate that the inno

is a device that an XM subscriber can use only to listen to and record a one-\vay broadcast of

music. much like a traditional radio/cassette recorder.

The only Üictual suppoii offered by the plaintiffs for the claim that the inno ushered in a

ncw kind of service comes tI-)lli a selective quotation trom XM's Product Guide. Citing the

Product Guide, the complaint asserts: "XM promises its subscribers that this nett' service

'delivers new Ilmsic to you everyday and lets you choose tracks to create your own custom

sound recording to the public on the airwaves docs not constitute a 'distribution. '''). In any
event, as we demonstrate below, the Court need not consider this or the many other legal
deticiencies of the individual inIÌ'ingement counts because the AHRA bars plaintiffs from
bringing this suit and inimunizes XM against all such claims.
i ¡ It is precisely hecause the inno is not a downloading device that XM has partnered with
Napstcr, an authorized, legitiniatc avenue fèir the distribution of digital music via the Internet.
(\)111. '117. An inno user iiiay download nics tì'om Napster to her computer and then transfer
those tiles to her inno. User Guide at 55. Moreover, while the complaint asserts that an inno
user will have "little need" to buy "legitimate copies" of plaintiffs' sound recordings (Com. '13),
Napster obviously does not think so, having made the decision to partner with XM.

10
playlists,' thereby providing the 'Ultimate Music Experience.'" See Com. ii 2 (emphasis added).

However, the Product (juide never describes the il1no or its kin as offering a "new service." 12 In

fact both the Product Guide and User Guide cited by the plaintiffs throughout their complaint

consistently refer to xrvI's new radio/recorders as "devices," "players," "radios," "receivers,"

and "products."

A.RGUl\lENT

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint should bc dismissed

where "plainti1T can prove no set of facts in support of his claim which would entitle him to

relief." Curto v" Edmundson, 392 F.3d 502, 503 (2d Cir. 2004) (citations omitted). In

considcring a motion to dismiss, the Court "rnust accept the material facts alleged in the

eOluplaint as true and construe all reasonable inferences in the plaintiffs Ülvor." Hernandez v.

Coughliii, 18 F.3d i 33, 136 (2d. Cir. i 994). However, "(c)oncIusory allegations or legal

conclusions masquerading as Üictual conclusions wil not suffice to prevent a motion to dismiss."

Smith v. l_oc(ll 819 i.B. 1' Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002) (citation omitted);

Meadmvlands i/lvesrmenrs, LLC v. Cl13C World Markets Corp" 2005 U.S. Dist. LEXIS 21 ¡ 02,

12
The fnll quote is as follows:
XM + MP3 .:, Best of Both \\lorIds. Imagine a single Digital Music Player that
gives you all of the music, news, sports, talk and entertainment that you love. A
Digital /vlusic Player that delivers new musie to you everyday and Jets you choose
tracks to create your o\vn playlists and buy tracks with case. 'I'hat Digital Music
Player has arrived: Introducing the neXus.
Product Cìuide at 5 (emphasis added to identify the words omitted fiom the complaint's
quotation). To clarify, in addition to the inno, the Product Guide also describes two other XM
radios, the neXus, which is the subject of the quotation above and which has the same basic
recording tùnctíonality of the inno, and the rIclix (made by Samsung) which is virtually identical
to the inno (made by Pioneer). Product Guide at 2-3.

ii
at *11 (S.D.N.Y. Sept. 22, 20(5) (Batts, .I.) (dismissing count where facts pleaded in the

coinplaint contradicted plaintitf's conclusory allegations of claim).

On a motion to dismiss, the complaint is deemed to include "any wiitten instrument

attached to it as an cxhibit or any statements or documents incorporated in it by reference."

Cartee fndus., fnc. v. Suiii 1101ding L.P., 949 F.2d 42, 47 (2d Cir. 1991). A court may also

consider m.aterials that are integral to the complaint - e.g., materials the plaintiff relied upon in

bringing suit even if they are not attached to the complaint or incorporated by reference. See,

e.g., int 'l Audiotext NeIH'ork, iiie. v. Am. TeL. and TeL. Co., 62 F.3d 69, 72 (2d Cir. 1995) (where

plaintiff does not attach or incorporate doeument upon which it relies and which is integral to

case, court may still consider document); 1. Meyer Pincus & Assoc.. PC. v. Oppenheimer &

Co..lnc., 936F.2d 759, 762 (2d Cir. i 991); Germano v. Cornell Univ., 2005 U.S. Dist. LEXIS

17759, at *18 (S.D.N.Y. Aug. 17,2005) (Batts, J.). lUhe documents relicd on contradict

allegations in the complaint, the documents eontrol and the court need not accept the allegations

ofthecoinplaint as true. See Rapoport v. Asia Electronics Holding Co., fnc., 88 F. Supp. 2d 179,

184 (S.D.N.Y. 20(0) (granting motion to dismiss wherc plaintiffs allegations \\'crc contradicted

by two documents he relied on but failed to attach to the complaint); see also Sazerac Co., fiic. v.

Falk, 861 F. Supp. 253, 257 (S.D.N.Y. 1994) (court need not accept allegations of a complaint

which are contradicted by a document made a part thereof)

'fhe complaint relics on two documents which are not attachcd as exhibits: the User

Guide and the Product Guide. These documents provide detailed information about the inno and

fÒrm the basis fÓr plaintiffs' discussion othow the inno works and why it allegedly inihnges

their copyrights. Indeed, plaintiffs cite both documents clemly a.nd substantially throughout the

12
complaint. Com. 2-3.34,80-81, 91. Accordingly, thc User Guide and the Product Cìuide are

integral to the complaint and may be considered by the Court on this motion.

'rhese documents should also be deemed to have been incorporated by reference. See

Stuto v. Fleishman, 164 F.3d 820, 826 n.l (2d Cir. 1999) Uinding incorporation by reference

where plaintiff had notiee of document and discussed it in his complaint); Salichs v. Tortorell,

2004 U.S. Dist. LEXIS 4942, at *6 (S.D.N.Y.March 29, 2004) (Batts, 1.) (documents are

incollxmited by reference where the complaint makes a "clear, deflnite and substantial reference"

to them) (citations omitted).

Judged by these well-established standards, the complaint does not state a claim for

relief Even if the conduct alleged in the complaint constitutes copyright infringement and it

docs not - the plaintiffs are barred from bringing this suit and XM is completely immunized by

the AHRA. Accordingly, XM's motion to dismiss should be granted.

i.

THE AURA.. BA.RS PLAIN1TFFS' INFRINGE.MENT CLAJlVIS (COUN'rS I-VB)

A. The Plain Language of the AMRA Prohibits Plaintiffs

From Filng this Cornplaint andhmm:mizes XLV ¡¡'rom Suit

Section i 008 is entitled "ProhibitÍon on certain infringement actions." It prohibits any

party - including the plaintiffs in this case fì'om filing claims tèir copyright infringement based

on the manuÜìcture, importation, sale or consumer use of "digital audio recording devices."

Thus, § 1008 provides immunity or a "safe harbor" that protects conduct that, but lor theAHRA,

might be actionable as infringement. Thus, even if the conduct at issue in this case constitutes

copyright infringement - an assertion XM strongly disputes - XM is immune tì'om suit so long

as the inno meets the requircmcnts ofthe ABRA. See genera/~)! S. Rep. No.1 02-294, at 52

13
(1992) C'tjhe committee intends the immunity troiiilawsuits provided by § 1008 to provide full

protection against the specified t.ypes of copyright infringement actions. . . ").

'The AHRA provides:

No action shall be brought under this title alleging intì-ingement of copyright

based on the. . . distribution of a digital audio recording device. . . or based on
the noncommercial use by a consumer 0 f slich a device. . . h)r making digital
l1iusical recordings. . . .

17 U.S.C. § 1008.

The critical question in applying § 1008 is whether the device (here, the inno) is a "digital

audio recording device." Recording Jndust¡:v Association of America v. Dzamond All1ltimedia

Systems, Inc" 180 F.3d 1072, 1075 (9th eir. 1(99). Thc AHRA defines a "digital audio

recording device" as:

any machine or device of a type commonly distributed to individuals for use by

individuals, whether or not included with or as part of some other machine or
device, thc digital recording function ofwhieh is designed or markcted fix the
primary purpose of. and that is capable of, making a digital audio copied
recording for private use. . . .

ì 7 U .3.C. § 100 i (3). When this definition is applied to the allegations of the complaint and the

other materials the Court may consider on this motion, there can be no doubt that the inno is a

"'digital audio rccording device" entitled to immunity undcr the AHRA.

The inno is a "madiiuc or device of a type commonly distributed to individuals":

The complaint alleges that the inno is a "portable device" and a "receiver/recorderf)." Com.

29-30 (describing Ínno and two other XM products). The complaint also alleges that the inno is

sold to individual subscribers. See, e.g., Com. i: 32 ("When an individual purchases an inno, the

individual must contact XM to have the inno activatcd . . . "). For purposes of the AHRA, to

"distributc" includes to "seH . . . a product in the United States. . .." 17 U .S.c. § 1001 (6).

Thus, the inno is a device that is commonly distributed to individuals.

14
 'fhe hmo is "for use by individuals": According to the complaint, the inno is used by

individual subscribers. For example, plaintifls allege that: "(WJhen listening to a live or pre-

recorded block of programming, the subscriber may select, disaggregate, and pemianentl y store

individual songs with the simple press of a button." Com. ir 37. Thus, the inno is "for use by

indi viduals."

The "digital recording function" of the inno is "designed or marketed for the

primary purpose of making, and is capable of making, a digital audio copied recording for

private use": The inno has a "digital recording function." See, e.g" Com. '12 (inno makes

"digital copies ofPlaintift:S' sound recordings"). The "primary purpose" of that recording

function is to enable XM subscribers to make copies ofXM programming for their "private use."

See, e.g., Com. '1 37 ("(wjhen a subscriber presses the record button. . . the Inno instantly. . .

creates a copy/phonorecord ofthe individual song and stores it . . . in the subscriber's personal

library"); User Guide at 33 CYour inno enables you to record XM content for personaL non-

commercial use.").

"1'he fact that the inno is also a radio docs not affect the "primary purposc" analysis. As

the text of the statute makes clear, the "primary purpose"' focuses on the Pui1X)SC of the "digital

audio recording function." 17 USe. § 1001(3). See also S. Rep. No. 102-294, at 47 C(TJhe

primary purpose test is applied only to the 'recording function' of the machine, and not to all of

the features of the machine taken together.").

The recordings made by the inno are "digital audio copied recordings": A "digital

audio copied recording" is "a reproduction in a digital recording fÖrmat of a digital musical

recording, whether that reproduction is made directly from another digital musical recording or

indirectly from a transmission." 17 U.S.C. § 1001(1). The inno's recordings arc in a "digital

15
recording Icml1aL" Com. 412, and arc made "from a transmission." See, e.g.. Com. 4126 (the

sound recordings that Xlvl subscribers receive are "iransmÜted by XlV, over an XlV-sanctioncd

receiver") (emphasis added); 4132 (describing how the inno "receivers) and decrypt(s) the XlV

tnmsmissions'l And the inno makes its digital audio copied recordings from broadcast

transmissions of"cligital music recordings." 5'ee 17 U.S.c. § lOOI(S). 13

In sum, the inno satisfies all the elements of the definition of a "digital audio recording

device" under the AHRA. TherefÒre, recording XM broadcasts on the inno is not actionable as

copyright infringement by virtue of the AHRA's grant of immunity.

* *

As noted above, plaintiffs attempt to obfuscate the true nature of the iilHo by refelTing to

it as a"digital download subscription service." See, e.g., Com. 2,28. "Downloading"

involves "an electronic request by one computer owner to another computer owner to deliver

tiles or data electronically to the requesting owner's computer." United States v. Mohrbacher.

182 FJd 1 041, l047 (9th Cir. 1999) ("down-loading is analogous to placing an order through a

mail order catalogue except that a computer lì1s the order automatically"). The complaint does

not allege facts that would SUPPOl1. a conclusion that XM offers a digital download subscription

service, and the materials it relies upon demonstratc othenvise. Indeed, recording XlV programs

on the inno does not require the use of a computer at aIL See pp. 6-8, supra.

The \vords that plaintiffs have chosen to describe the inno are thus utterly conclusory and

can bei gnorcd. See pp. 11-12, supra. But even if the Court were to credit those conclusory

allegations on this motion, the complaint should still be dismissed. The facts pleaded in the

13 As in the example Congress gave when passing the AHRA, "a digital audio recording made
from a commercially released compact disc or audio cassette, or from a radio broadcast of a
commercially released compact disc or audio cassette, would be a 'digital audio copied
recording.''' S. Rep. No. lO2-294, at 47.

16
complaint and the materials integral to it demonstrate that the inno is a "digital audio recording

device" within the meaning of the AHRA Therefore, plaintiffs are prohibited from bringing and

XlVI is immune from this infringeinent action. Accordingly, Counts I" iV (claims for direct

infringement) and Counts V.-VII (claims iÖr secondary infringement) ..~ all ofwhieh arc based on

the inno and its use to make digital recordings ih)m XM radio transmissions- should be

dismissed.

It The Legislative History of the AURA Confirms

Xl'Fs Entidement to Section 1008 Immunity

"Statutory analysis begins with the plain meaning of the statute." Natural Res. Del.

COlinczl, Inc. v.Mu.";zynski, 268F.3d 91,98 (2d Cir. 2001). is axiomatic that the plain

meaning of a statute controls its interpretation. . . .,. Lee v. Bankers Trust Co., 166 F.3d 540,

544 (2d Cir. 1(99). Where the language of a statute "is not dispositive" courts look to "the intent

of Congress as revealed in the history and purposes of the statutory scheme." Adams h~uít Co. v.

Barrett. 494 U.S. 638,642 (1990). "In so doing, Icourts) must 'construct an interpretation that

compOliS \vith the statute's primary purpose and does not !cad to anomalous or unreasonable

results.'" Marvel Characters, Inc. v. Simon. 310 F.3d 280, 290 (2d Cir. 2002) (citation omitted).

Because the text of S 1008 is cIear, there is no need for this Court to look beyond its words.

Nonetheless, we note that the legislative history fiilly suppOlis the conclusion that this action is

barred.

With the advent of digital recording technology in the late 19808, the recording industry

became concerned that the high quality of digital copies of sound recordings would lead to

massive unauthorized copying of its w'orks. H.R. Rep. No. 1 02-873, pt. 1, at 18 (1992) as

reprinted ín 1992 U.S.C.C.A.N. 3578, 3588. At the same time, Congress wanted to provide a

degree of certainty to those who were subjected to lawsuits, or the threat of lawsuits, for

17
infringement based on the distribution of new recording devices. S. Rep. NO.1 02-294, at 51

L -
("in the absence of legislative resolution, the distribution of consumer digital audio recording

technologies has been subject to challenge in the courts based on claims of contributory

copyright infringement. ").

The legislative history makes clear that any solution to the problem had to .'ensure the

right of consumers to make analog or digital audio recordings of copyrighted music for their

private, noncommercial use." S. Rep. No.1 02-294, at 30. 'rhe Senate RepOli describes tÌ1c

protection of the right of consumers to record \I/hat they hear on the radio using up to date

technologies as "a key purpose" ofthe AHRA. ld. at 51. Congress was very concerned that the

ongoing dispute between the recording and consumer electronics industries and the litigation it

engendered \vere interfering with the right of consumers to record copyrighted music broadcast

over the radio for personal use:

American consumeLrls have been denied overall access to digital audio recording
technology, which is the most innovative audio recording technology to date, due
to litigation and disputes between the electronics industry, recording industry,
songwriters and l1msic publishers in the tJnited States.

H.R. Rep. No. 102-780, pt. 1, at 21 (1992).

The AHRA was a legislative comproniise designed to protect the interests of all parties.

Thus, the AIIRA prohibited in1:'ingement suits based on the mamifacture, importation,

distribution and personal use of digital recording devices so long as the devices met the statutory

deIÌnition of a "digital audio recording device." 17 U.S.c. §1 008. In return for immunity', the

AIIRA required that copyright owners receive a royalty based on the price of each device. 17

U.S.C. §§ 1003-1007.14 The distributors also agreed to incorporate serial copying controls that

14 Congress mandated that distributors of digital audio recording devices pay royalties in the
amount of two pereent of the transfer price of the device. 17 U.S.c. §§ 1003-1004. The Register

18
\vould prevent the rnaking of second-generation digital copies tì'om the copies made by the

digital audio recording device. See l7 U.S.c. § 1002. 'fhis compromise insured that consumers

would have access to the latest digital recording technologies for making private copies of songs

for their personal use. As described in the Senate Report:

!The ABRA) is a direct response to the needs of the music industry, the consumer
electronics industiy, and consumers. The bil incorporates the (serial copying
managementl system, and a royalty provision on digital audio recorders and
media, thus ensuring the consUlners . right to record both analog and digital
audio material/Ór their private use.

S. Rep. No.102..294, at 33 (emphasis added). See also Dimnond, iso ¡.'3d at 1079 ("the

fAHRA'sJ main purpose (is) the facilitation of personal use" of digital recording devices by

consumers; "such copying is paradigmatic noncommercial personal use entirely consistent \vith

the purposes ofthe Act.").

The legislative history also makes clear that thc AllRA was intended to cover future, as

well as then-existing, technologies. Congress wanted to make sure consumers \verc being

aff()rded the opportunity to use the newest and best technologies availablc for pcrsonal recording.

Moreover, it did not want to revisit the issue of digital copying every time someone invented a

new recording device. Hence, "fal central pUl1)ose of(the AHRAl is conclusivelv to resolve this

debate, both in the analog and digital areas, thereby creating an atmosphere of certainty to pave

the way fl.)l the development and availability to consumers of ¡¡eH' digital recording technologies

and ne\v musical recordings." S. Rep. No. io2~294, at 51 (emphasis added).

of Copyrights receives these royalties, deposits them into t\VO funds and distributes them to
interested copyright parties in accordance with a detailed fonnula laid out in § § ì 006(bH c) ancl
1007.

19
 In testifying before Congress in connection \'lith the passage of the legislation. the then-

president of the RLAA - the plaintitIs' trade organization and counsel in this action speci fîcally

identifled this aspect of the AHRA as one of its benefits:

(The AHRAJ wil facilitate access by consumers to He\V generations of digital

technoIogics . . .. It is not otten, Mr. Chaimian, that we have the oppoiiunity to
amend the copyTight la\v in anticipation of the strains that come with the benetÌts
of new teehnology . . .. (The AHRAJ is a generic solution that applies across the
board to all 1'011115 of digital recording technology. Congress \viIi not be in the
position after enactment of this bill of having to enact subsequent bills to provide
protection for new 1~)Ins of digital audio recording technologies.

The Audio 110me Recording Act 0//99/: Hearing Be.Òre the Subcomm. on Patents, Copyrights.

and lJ-uiemarh tilthe S. ('omm. on the JudicimT. 102d Congo 111, Serial No. J-l (ß42, at 1 i 0-

II (Oct. 29, i 991) (oral statement ofJason S. Ben1111, President, RIAA); :,'ee also id. at 89 (the

AHRA "addresses all digital audio recording technology -- present and future alike").

In sum, the iegislative history reveals that the AHRA was intended to strike a balance that

would: (a) protect the right of consumers to use ncw digital reconlìng technologies tÖr personal

recording; (b) cncourage technological advances by shielding the consumer electronics industry

fh.H11 infringement actions relating to the use of digital audio recording technologies for private

use; and (c) provide the music industry with a royalty payment system and protection against

serial copying, while at the same time not requiring Congress to revisit the issue of digital audio

recording when nevv devices were developed and íntroduced into the market.

The inno fìts perfectly into this statutory scheme. The innois a nc\\! digital recording

technology designed tè)r consumers that enahles them to exercise their "right to record. . . digital

audio material for their private use." S. Rep. No. 102-294, at 33. The inno prevents a subscriber

from moving the digital copies of XM transmissions of sound recordings to other devices or

locations. See 17 U.S.c. § 1002. As the User Guide n1akes clear, "XM content cannot be

20
exported from the inno." User Guide at 32. Finally, the recording industry benefits Jì'om the

inno because its importer or manufacturer is required by law to make a quarterly royaJty payment

and file, under pcnalty of peijury, a quaiierly statement of account with the Register of

opyng is. d.,.I.... §\i ,)- i. '0

C .'. h 17 T . S' 1' ", Sl 00" J O()~ j 'Î

In biinging this suit, plaintiffs are atteinpting to upset the balance that COI1f,rress struck

when it enacted ihe AHRA and ignore the very statute \vhich the plaintiffs, through the RIAA,

played a key role in passing. The law plaintiffs supported requires their complaint to be

dismissed.

THE STATE LAW CLAIMS SHOULD BE DISMISSED

Plaintiffs allege that this COUli has subject matter jurisdiction based on federal question

jurisdiction pursuant to 28 U.S.C. § 1331 and pendeiitjurisdiction based on 28 U.se. § 1338(b).

When the federal claims are dismissed at the outset of an action, the courts should decline to

exercise pendent jurisdiction and instead dismiss the remaining claims. ,')'ec L./nžted Atziie

Workers olAnieržca 1'. Gžbb."', 383 U.S. 7 j 5 (1966); Fržedlander v. Rhoades, 962 F. Supp. 428,

434 (S.D.N.Y. ¡ 9(7) (Batts, J.).

15 Plaintiffs would be prohibited by § 1008 from biinging suit based on copyright infringement
even itthe inno did not contain protections against serial copying or if the required royaltìes
were not paid. As the Senatc Report makes clear, AIIRA immunity is "not dependent upon
compliance with other requirements under this chapter" and thc protection granted by ~ 1008
"applies to all digital audio recording devices and media regardless of whether applicable royalty
payments have been made for a deviee or medium or whether a device includes ¡seriaJ copy
protections)," S. Rep. No. 102-294, at 52. '1'he rcmedy for a t~1ilure to comply with these
requirements is an action under 17 U.S.c. § 1009 alleging a violation of AHRA, not an action f()1'
copyright infringement.

21
 CONCLUSION
For the reasons set forth above, XM respectfully requests that the Complaint be dismissed

in its entirety.

Dated: New York, New York

July 17,2006

KRONISH LIEB WEINER & IIEILMAN LLP

By:

C:elia GoJÜwag Bm'enholtz (CB (126)

StcvenM. Cohen (SC 1537)
StcphenA. Wieder (SW 1442)
Shannon McKinnon (SM (377)
Benjamin H. Kleine (13K J (75)

1114 Avenue of the Americas

New York, Nevil York 10036
(212) 4 79m6000 (phone)
(212) 479..6275 (fax)

CONS1'AN"fINE CANNON, P.c.

Lloyd Constantine (LC 8465)
Axel Bernabe (AB (547)

450 l,cxington Avenue, 17th Floor

New York, New York 10017
(212) 3502700 (phone)
(212) 350-2701 (fax)

Seth D. Greenstein (Sa 8331) (admission pro hac vice

pending)
Todd Anderson (1' A 5619) (admission pro hac vice
pending)
Amy Roth (AR 4534)

1627 Eye Street, N.W.

Washington, D.C. 20006
(202) 2043500 (phone)
(202) 204-3501 (fax)
AttorneysforXlvl Satellte Radio iflc.