Stop the music! Diamond Multimedia faces lawsuit over its Rio player

Diamond Multimedia Systems Inc. on Friday was sued by the Recording Industry Association of America, alleging that Diamond's Rio player, a portable Walkman-like device for playing MP3 music files downloaded from the Internet or recorded on a user's home PC, violates a federal copyright infringement law.

The RIAA, the main trade organization for the recording industry, is seeking preliminary and permanent injunctions against Diamond that would keep the company from releasing the product, now scheduled to ship later this month.

'The RIAA strongly supports the development of new technology as it exposes music to a wider audience. But technology must respect creative works.' -- RIAA President Hilary Rosen

But Diamond (Nasdaq:DIMD) officials shot back that the Rio player does not violate the Audio Home Recording Act because it simply plays back music already stored on a computer user's hard drive, rather than directly recording the audio files.

The law prohibits the unauthorized copying of protected musical works, and covers devices "designed or marketed for the primary purpose of, and that are capable of, making a digital audio recording for private use."

Landmark case?
The outcome of the suit, filed Friday in Federal District Court for the Central District of California, could have a significant impact on the still-nascent market for digital distribution of music.

It also comes a day after the Senate passed a digital copyright protection measure that has been widely hailed by the recording industry.

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"The RIAA strongly supports the development of new technology as it exposes music to a wider audience," RIAA President Hilary Rosen said in a statement. "But technology must respect creative works. It is the mission of the RIAA to ensure that as new technologies become part of consumers' everyday lives, copyright protection keeps pace."

Diamond: Not in violation
Diamond officials said during a conference call on the lawsuit that they are confident their product does not violate the law, and that they have no plans to delay shipping the Rio player.

They also alleged the suit was prompted by old-media recording interests who feel threatened by the Internet's power to connect musical artists directly with fans.

"We are not condoning unauthorized or unlicensed music," said Ken Wirt, Diamond's vice president of corporate marketing. "We won't promote unauthorized or unlicensed use of music."

"Clearly, it appears that the RIAA's lawsuit is being driven by the interests of its largest members, the big five record labels, who are seeking to maintain their control of music distribution and prevent the unfettered freedom of musicians without recording contracts to distribute their music to a broad audience," said Ken Wirt, Diamond's vice president of corporate marketing, in a statement.

Millions of legal downloads
The RIAA claims the MP3 format used by the Rio player is used mainly by those trafficking in unlicensed online music, but Diamond officials said that more than 4 million legal songs have been downloaded from their MP3.com Web site since its inception.

But RIAA officials charged that illegal MP3 sites are flourishing, and said its investigators found more than 80 such sites containing more than 20,000 unlicensed works available for download in one day's investigation.

ZDTV's Alice Chegia contributed to this story.