In a decision that could change the face of the music industry, multimedia hardware maker Diamond Multimedia Systems staved off the music industry's attempt to scuttle a product that plays high-quality music files downloaded from the Internet.
"This is a great outcome for independent musicians that want to distribute music over the Internet," said Ken Wirt, Diamond's vice president of corporate marketing.
In mid-September, Diamond (Nasdaq:DIMD) announced the Rio PMP300 -- a Walkman-sized device that can hold up to an hour of music in a compressed audio format known as MPEG-1 Layer 3, or just MP3. The format compresses music so small that one minute only requires around 1 MB. That's only one-tenth the size that music takes up on a CD, yet the quality is almost as good. Better still, the format is one of the first digital "products" that is small enough to download from the Net, yet valuable enough to get consumers to pay for it.
On Oct. 9, the Recording Industry Association of America (RIAA) -- which represents half a dozen music giants that account for 90 percent of the music business in the US -- filed suit against Diamond, alleging that that Rio violated the Audio Home Recording Act (AHRA). Seven days later, California District Court Judge Audrey Collins granted the RIAA a temporary restraining order that prohibited Diamond from continuing work on the Rio until today's hearing -- a total of 10 days. Diamond then got the thumbs up from Judge Collins to restart its production lines and ship the Rio.
The RIAA, in a 71-page argument, asked the judge to place a preliminary injunction on the Rio player. Such a court order would have prevented Diamond from shipping the player until the case went to trial. "This case is -- not about the ability of artists, independent labels or anyone else to use the MP3 format," said the RIAA in its argument. (It's) about a specific device that is engineered to copy music without complying with the requirements of the AHRA." The RIAA could not be reached for comment after the trial.
While the delay was a set back, it was minor, said Wirt. "The (temporary restraining order) definitely delayed the product," he said, "but we are still going to be able to ship in November."
And now, the ball is back in the RIAA's court. The association has two options: They can appeal the ruling, or continue their suit and attempt to get a permanent injunction against the Rio player. In either event, Diamond's Wirt estimates that the company has at least 90 days before it will be back in court.