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UNITED STATES DIS'!'RICT COURTSOUTHERN DISTRICT OF NEW YORK

ATLANTIC RECORDING CORPORATION; )BMG MHSIC;CA..ITOL RECORDS, INC.; )ELEKTRA ENTERTAINMENT GROUP INC.; )INTERSCOPERECORDS; MOTOWN )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. )

06 CV 3733 (DAB)

MEMORANDUM OF LA \VIN SUPPORT OF nEFENDANT'S MOTION TO DISVUSS

KRONISH. UES, WEINER & HELLMAN LLPATTORNEYS AT LAV'

: 14 _AveNUE OF THE AMERCr~S, NEVI YOHK" N.Y. r0036-l7SH3

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TABLE OF CONTl:NTSPage

TABLE OF .AlJTHOR.ITIES ........ .............................. ..... ....... ................... ...... ............................... iiPREUMINARY STATEMENT.... ........................................... ............................................ ......... 1STATEMENT OF FACTS... ..................... ..... ........... .................................. ......... ...... ......... ........... 2

i\. XM Satellite Radio Inc. ..................................................................................................2B. The Inno ................................... ............................... ........................................ ................ 5

1. Th.c' Radio .FUTlctioli........... .....A.............. ....................... ,.. .... ...... ......... ...... ..................... 52. The Recording Function.............. ........ ................. ....................................... .... .......... 63. The Storage Function..................................... .......................... ....... ......... ...... ........... 8

C. The inno Does Not Create an "Interactive Service" ................................................. 8D. The inno Does Not Download Songs............................................................................ 10

AR.GUMENT ,...... ............................. ................... ................................................. ........................ 111. THE AHRA BARS PLAINTIFFS' INFRINGEMENT CLAIMS (COUNTS I-VII) ......... 13

A. The Plain Language of the AHRA Prohibits Plaintiffs From Filing thisComplaint and Immunizes XM From Suit................................................................... 13B. The Legislative History of the AHRA Confirms XM's Entitlement to

Section 1008 Inl111unity... .............................................. ........................... ....... ....... ....... 17U. STATE LA Vi CLAiMS SHOULD BE DISMISSED ................................................ 21

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

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TABLE OF AUTHORITiES:FEDERA.L CASES Page

Adams Fruit Co. v. Barrett, 494 US. 638 (1990)..............................................................17Agee v. Paramount Conillunications, Inc., 59 F.3d 317 (2d Cir. 1995)..............................9Cortec Industrial, Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir. 1991) .........................12Crystal Semiconductor Corp. v. Tritech lvlicroelectronics International, Inc., 246'F.3d 1336 (Fed. Cir. 200 i)................................... ............................. ....................... ......4Curto v. Ednnmdson, 392F.3d 502 (2d Cir. 2(04)............................................................1 iFriedlanderv. Rhoades, 962 F. Supp. 428 (S.D.N.Y. 1997).............................................21Germano v. Cornell Universi(v, 2005 U.S. Dist. LEXIS 17759

(S.D.N. Y. ,Aug. 17, 2005) .. ................................. ............ ....................... .............. ........12Hernandez v. Coughlin, 18 F.3d 133 (2d Cir. 1994) .........................................................111. Me.rer Pincus & Associate, Pc. v. Oppenheimer & Co., Inc., 936 F.2d 759

(2d Cir. 1991)............................ .......................... ................ ......................... .............. ..12International Audiotext Network, inc. v. America Telegraph and Telegraph Co.,62 F .3d 69 (2d Cir. 1995)................. .................................................... ....................... .12Lee v. Bankers Trust Co., 166 F.3d 540 (2d Cir. 1999).....................................................17i'vlarvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) .......................................17Meadowlands Investments, LLC v. ClBC World j\farkets Corp., 2005 U.S. Dist.LEXIS 21102 (S.D.N.Y. Sept. 22,20(5).....................................................................11Natural Resources Defense Council, Inc. v. Muszynski, 268 F.3d 91

(2d Cir. 2001) ........................ ...................................................... ........................... .... ..17Rapoport v. Asia Electronics Holding Co., Inc., 88 Supp. 2d 179

(S.D .N. Y. 2(00)............ .............................................................................. ............. ....12Recording Indiisiry Association o/America v. Diamond i\;ultmec/ia S.vstems, Inc.,180 F.3d 1072 (9th Cir 1999) ...............................................................................14, 19Salichs v. Tortorell, 2004 US.Dist. LEXIS 4942 (S.D.N.Y.March 29, 2004)................13Sazerac Co., Co v. Falk, 861 F. Supp. 253 (S.D.N.Y. 1994) ...........................................12

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Smith v. Local 819 J.B.T Pension Plan, 291 F.3d 236 (2d Cir. 2002) ............................11Stuto v. Fleishman, 164 F.3d 820 (2d Cir. 1999)..............................................................13UMG Recordings, Inc. v. A1P3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2001).................8l.Jnited Mine Workers a/America v. Gibbs, 383 U.S. 715 (1966).....................................21United States v. Molirbacher, 182 F.3d 1041 (9th Cir. 1999) ...........................................16

FEDERAL STATUTES17 U.S. C. 106........ .......... ........... ................................. ............................................. ..... ....917 U.S.C. 114(d) .......................................................................................................3-4, 71 7 lJ. S. C. 114(j)................................................................................................................ 917 lJ. S. (~. 1001....................... ............................................................,...................... 14-1617 lJ .S.C. 1002......................... ......... ................................. ....................................... 19-2017U. S.C. 1003-1004 ............ ............................................................................. ......... ..1817 U .sC. 1003-1007 ......... .................................................................................... .18, 2117 U. S. C. 1008..... ......................................................................................... 13-14, 18, 21

17U. S.C. 1009................. ........ ................................... .................................................. ..2128 lJ .S.C. 1331...... ............................. ....... ................ ................... .............. ................ .....2128 U. S.C. 1338......... ...................................................................................................... .21

MISCELLANEOUSFed. R. Civ. P. 12(b) ......................................................................................................2,11H.R. Rep. No. 102-780 (1992)................................................................................. ........ ..18H.R. Rep. No.1 02-873 (1992)...........................................................................................17H.R. Rep. No. 105-796 (1998).. ............................................................................... ......... ...3S. Rep. No. 102-294 (1992)..............................................................................13-17,19-21

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

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

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PRELIMINARV STA TEiViENTThis 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" byprohibiting 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/recorderdistributed 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 ofconsumers in using statc of the art digital devices to record songs (()r their personal use; (2) theinterest of the recording industry in preventing "serial" copying (making copies J-om copies)

using digital recording devices; and (3) the interest of the consumer electronics industry indevcJoping and marketing innovative personal recording devices without risk of nfringemcntactions. The AHRA rcquircs that every "digital audio recording device" prevent the making ofserial digital copies and that royalty paYTnents be made to the music industry for each suchdevice; in retunl, the AI-IRA bars infringement claims based on the manul.cture, importation,distribution or use of sueh a device.

The Recording Industry Association of America CRIAA") counsel to plaintiffs in thiscase 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 asa generic solution that by design would apply both to existing recording devices and recordingdevices of the future.

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Although the inno fits squarely within this statutory scheme, the complaint ignores theAURA and defies Congress' effrts to insure that the powerliil recording industry would not beable to restrict the right of consumers to record songs that are broadcast over the radio or sti f1einnovation by chiUing the development and use of the latest recording technologies.

Under the AHRA, XM and its subscribers have an absolute immunity from being suedfeil' copyright infringernent based on the use of the irmo or other similar devices. Thus, even ifplaintiffs' claims of copyright int'ingemcnt had any merit an assertion XM vigorously disputes

plaintiffs' infhngement clalns cannot stand.In short, t is the plaintiffs who have violated the Copyright Aet by bringing an

infhngement action in the ice of a clear statutory bar. Accordingly, Xl'r asks this Comi todismiss the complaint in its entirety.

STATEIVIENT OF FACTSDespite the innuendo, rhetoric and misrepresentations, the complaint aUeges icts and

relics on documents that demonstrate that plaintiffs arc prohibited under the AlTRA frombringing 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 ietsaUeged 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(uide" refers to the Inno l)ser Guide: and "Product Guide" retrs to the XM ConsumerElectronics Show 2006 Product Guide. ('opies of the complaint, User Guide and Product Guideare annexed to the Declaration of Celia Goldwag Barenholtz, dated July 17,2006 ("BarenholtzDec.") as Exs. 1-3, respectvely.

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Unlike a traditional i\M/FM radio, which receives programming broadcast f'om anumber of different radio stations, an Xi'' radio receives only XM programming. Thus, \vhileeach channel on an XM radio provides a particular format of rnusic, talk or sports content, all thechannels received on an XM radio emanate from a single service the XM satellite radioservice. Com.'1 22; Product Guidc at 10-12.2

XM broadcasts nearly 70 channels of24 hour a day commercial-free music as wen aschanncls dedicated to news and public affairs, talk, and spoiis. For example, XM broadcasts 7channels dedicated to various types of "Country," i 3 channels that play "Rock," 5 channels thatplay "Jazz & Blues," 7 channels of"Hip Hop & Urban," 3 channels of "Classcal, and 9 "Popand Hits" channels. Com. '122. A fuil list of the channels available on XM radio can be tundin the Product Guide at 10-1 ! .

XM pays royalties to the plaintiffs t)r the right to broadcast their sound recordings to XMsubscribers. S"ee, e.g.. Com. 5,23 (citing 17 U.S.c. i 14(d)(2)).This payment is madeunder 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 channelswhich rebroadcast content fom other sources, such as CNN and Fox NeViS. See Product Guideat 11~ 12. The Court may consider thc Product Guide because it is integral to and incorporated byreference by the plaintiffs in the complaint. See general~v. pp. 12-13, tf'a.. Congress created this statutory liccnsc at the same time that it granted an exclusive right withrespect to the perfonnancc of sound recordings by means of a digital audio transmission becauseit wanted to ensure that digital broadcasters would be able to perfoID1 sound recordings inexchange f()I' paying a royalty. See geiieral~v 2 MelviJe B. Nimmer & David Nimmer, Nirnmeron 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'hedispensation tr preexisting satellite radio services reflects the enormous investment that theyhad to make to build their operations. See II.R. Rep. No. j 05-796, at 80-81 (1998). Forexample, XM (under its imncr name) purchased a "spectrum" of the public ainvays at a FederalCommunications Commission auction in 1997 tbr approximately $90 Tnilion. Public Notice,

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As the cOl1iplaint alleges, Xivl "providcsllistcncrs with what traditional broadcast radioprovides, 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 Guideat 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 isrequired for other digital transmission services - but is undertaken voluntarily by XM. (~ompare17 U.S.c. 1 14(cl)(2)(C)(ix) (statutory license provision applicable to new digital transmissionscrvices requiring transmission of idcnti(ying information to enable display of title of soundrecording and name of artist) lj'ith i 7 U .S.c. i 14( d)(2)(A)(iii) (statutory license provision thatFCC Announces Auction Winners fr Digital Audio Radio Service (April 2, 1997), available athttp://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 isconverted into an electrical signal. , .. A digital recording converts the same sound source intoa series of binary numbers, Is and Os. This digital signal represents the sound source." CrystalSemiconductor ('orp. v.1itech i\dicroe!ectronics Int 'I, inc', 246 F.3d 1336, 1343 (Fed. Cir.20(1),

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digital satellite transmission, should, iffeasihle, transmit titc and name infnmuion encoded in asound recording, although such inlrmation is not required to be displayed).

XM has gn)\vn significantly since its launch. According to the complaint, XM currentlyhas weIl over 5 million subsciibers. Com. ~ 25.

.B The huwIn 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 essentialfunctions.

L Radio FunctionThe 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 areaccessible by any XI'v1 subscribcr \vith any of the various XM radios. Com. 'I~ 29,32; tJserGuide at 26-32 (describing features of--Livc XlvJ'')5

Like all other XM radios, the inno contains a screcn that displays infonnation regardingwhat is playing on the channel to which the receiver is tuncd. If the inno is tuned to a musicchannel, it displays the name of the song and artist being played. Product Guide at 2 (picture ofinno 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 referenceby the plaintiffs in the complaint. See general!.v. pp. 12-13, ili-a,".J

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As noted above, this screen display is encouraged under the Copyright Act. See pp. 4-5, supra.2. The Recording FunctionThe 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 theeomplaint, the copies that a subscriber makes whcn she "presses the record button" are stored onthe 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; UserGuide at 33.

The digital music recorded on an inno cannot be transferred in digital fonnat to any otherdevice. 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 bereplayed only on thcinno. Uscr Guide at 33 ("XM content cannot bc exported from the inno")

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and 63 ('the content recorded tom XM cannot be bUl1ed onto a CD or DVD or otherwisetransferred off your inno").

To icilitate recording, the inno rnakes a short-terni "buffer" copy of what is being playedon the channel to which the listener is currently tuned. Com. '135; User Guide at 33. The buffercopy 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 trst 10 mInutes of a musical work she hasbeen listening to on an XM channel, the inno \-vill be able to record from the beginning of thatsong. 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 othertelevision recording device. However, unlike recording a previously-scheduled televisionprogram, XM subscribers do not know in advance the particular songs XM \vl play \V.hen theinno is recording. Indced, as a condition of its statutory license, XM is firbidden to publish a listof songs iii advance of its broadcast. See 17 use. 114(d)(2)(B)(ii) (transmitting entity maynot publish "an advance program schedule" or makc a "prior announcement" of the "specificsound recordings" to be transmitted).

Once a programmed recording session is completed, the inno user has the option ofseeing 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 namesof XM' s programming, infrmation 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 songsto replay, rctain or discard. She can also organize the recorded songs to create playlists (i.e.. an

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"index of songs that play in a certain order") in accordance with her personal preferences. Com.'i 36; User (uide at 4 I; see genera/~v User Guide at 38-47 ("Organizing Your Music'").6

3. The Storage FunctionFinally, 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 theauthority of Plaintiffs" (Com. '17) - or digital audio ilks she otherwise o\l/ns, such as songs on aCD she previously transferred to her personal computer. 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 ("UsingYour 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 tlseimpression 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. UsingTuneSelect a suhscriber tuned to one XM channel can program the inno so that an alert willsound 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 torespond) must physically switch to that channel to hear the song. User Guide at 29. Once sheswitches 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 becaptured by the recording, given that the buffer only recorded the channel to which the inno hadbeen tuned. User Guide at 29 and 33 (TuncSelect alerts user when a song is "currently playingon any other XM channel" but buffer only begins copying particular song when user is "alreadytuned to that channel") (emphasis added).

Digital audio files transferred fTom CDs to computers are commonly stored in an unencryvted!rmat 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 isquoted in the complaint - describes the fact that the inno both receives and records XMbroadcasts and can be used to store MP3 tiles converted from the subscriber's own CDcollection. Product Guide at 2.

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broadcast plaintiffs' sound recordings.5'ce p. 3 and n. 3, supra. In i11ct, XM has not breached itsstatutory pertH1nance license, and the complaint does not allege that XM bas done so.

'fhe Copyright Act distinguishes between interactive and non-interactive digitaltransmission of sound rccordings. K "Interactive service" is a defined tcnn. An "interactiveservice" is one that "enables a member of the public to receive a transmission of a programspecially created ten' the recipient, or on request, a transmission of a particular soundrecording. . . which is selected by or on or behalf of the recipient." 17 U.S.C. 114(j)(7). Inessence, 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 Xlvisubscriber hears only what XM chooses to play. An XM subscriber cannot order a particularsong from XM tCH' her inno. ') See geneafzv User Guide at 33-36 ("Recording XM"). Nothing inL I. 1 . 101e eompamt suggests ot ienvise.~ XM is a "preexisting satellite digital audio radio service," a te1l1 dened in i J 4(j)(1 0), and iseligible for a statutory license pursuant to i 14(d)(2). Separate provisions governing interactiveservices are set out in * 114(d)(3).' The ict that, like many radio stations, listeners occasionally are able to call XM and requestthat a particular song be played does not render XM "interactive" as that ten11 is defined in theCopyTight Act. 17 U.S.c. I 14(j(7) ("The ability of individuals to request that particular soundrecordings be perfrrned . . . in the case of a subscription service, by all subscribers of theservice, does not make a service interactive, if the programming on each channel oft1e servicedocs not substantially consist of sound recordings that are performed within 1 hour of the requestor 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 inl-inged plaintiffs'exclusive rght to publicly per!rm their sound recordings by means of a digital audiotransmission. Instead, citing various provisions of the Copyright Act, the complaint alleges thatXM's licensed pertirmances somehow violatc the plaintiffs' exclusive right to distribute theirworks. See Com. 41-48 (Count i (alleging violation ofl7 .S.C. 106(3)). This claim hasno 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. ParamountCon1liinications, Inc., 59 F.3d 3 7,325 (2d Cir. 1995) ("It is clear that merely transmitting a

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D. uno Does Not Download SongsThe 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 issomething different than what the tcts pleaded in the complaint actually establish.

XM (whether or not coupled with thc inno) does not offer a downloading service likeiTuncs or Napster. II Such download services distiibute digital audio ties over the Internet to aconsumer who has made a request that a specific song or album be "downloaded" to hercomputer. See Com. 41 i 7 (describing services such as 'runes and Napster). \Vhile the complaintuses the phrase "download service," it never alleges that an XlvI subscriber who uses an irmo torecord a song broadcast by XM is requesting the delivery of digital audio files to a computer. Tothe contrary, the complaint and the materials integral to the compIaint demonstrate that the innois a device that an XM subscriber can use only to listen to and record a one-\vay broadcast ofmusic. much like a traditional radio/cassette recorder.

The only ictual suppoii offered by the plaintiffs for the claim that the inno ushered in ancw kind of service comes tI-)lli a selective quotation trom XM's Product Guide. Citing theProduct 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 anyevent, as we demonstrate below, the Court need not consider this or the many other legaldeticiencies of the individual inI'ingement counts because the AHRA bars plaintiffs frombringing 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 withNapstcr, an authorized, legitiniatc avenue fir the distribution of digital music via the Internet.(\)111. '117. An inno user iiiay download nics t'om Napster to her computer and then transferthose tiles to her inno. User Guide at 55. Moreover, while the complaint asserts that an innouser 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.

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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 Infact 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\lENTPursuant 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 torelief." Curto v" Edmundson, 392 F.3d 502, 503 (2d Cir. 2004) (citations omitted). Inconsidcring a motion to dismiss, the Court "rnust accept the material facts alleged in theeOluplaint as true and construe all reasonable inferences in the plaintiffs lvor." Hernandez v.Coughliii, 18 F.3d i 33, 136 (2d. Cir. i 994). However, "(c)oncIusory allegations or legalconclusions masquerading as ictual 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 thatgives you all of the music, news, sports, talk and entertainment that you love. ADigital /vlusic Player that delivers new musie to you everyday and Jets you choosetracks to create your o\vn playlists and buy tracks with case. 'I'hat Digital MusicPlayer has arrived: Introducing the neXus.

Product Cuide at 5 (emphasis added to identify the words omitted fiom the complaint'squotation). To clarify, in addition to the inno, the Product Guide also describes two other XMradios, the neXus, which is the subject of the quotation above and which has the same basicrecording tnctonality of the inno, and the rIclix (made by Samsung) which is virtually identicalto the inno (made by Pioneer). Product Guide at 2-3.

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at *11 (S.D.N.Y. Sept. 22, 20(5) (Batts, .I.) (dismissing count where facts pleaded in thecoinplaint contradicted plaintitf's conclusory allegations of claim).

On a motion to dismiss, the complaint is deemed to include "any wiitten instrumentattached 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 alsoconsider m.aterials that are integral to the complaint - e.g., materials the plaintiff relied upon inbringing 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) (whereplaintiff does not attach or incorporate doeument upon which it relies and which is integral tocase, 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. LEXIS17759, at *18 (S.D.N.Y. Aug. 17,2005) (Batts, J.). lUhe documents relicd on contradictallegations in the complaint, the documents eontrol and the court need not accept the allegationsofthecoinplaint 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 contradictedby 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 complaintwhich are contradicted by a document made a part thereof)

'fhe complaint relics on two documents which are not attachcd as exhibits: the UserGuide and the Product Guide. These documents provide detailed information about the inno andfrm the basis fr plaintiffs' discussion othow the inno works and why it allegedly inihngestheir copyrights. Indeed, plaintiffs cite both documents clemly a.nd substantially throughout the

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complaint. Com. 2-3.34,80-81, 91. Accordingly, thc User Guide and the Product Cuide areintegral 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. SeeStuto v. Fleishman, 164 F.3d 820, 826 n.l (2d Cir. 1999) Uinding incorporation by referencewhere 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 areincollxmited 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 forrelief Even if the conduct alleged in the complaint constitutes copyright infringement and itdocs not - the plaintiffs are barred from bringing this suit and XM is completely immunized bythe 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 SuitSection i 008 is entitled "Prohibiton on certain infringement actions." It prohibits any

party - including the plaintiffs in this case f'om filing claims tir copyright infringement basedon the manucture, 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 constitutescopyright infringement - an assertion XM strongly disputes - XM is immune t'om suit so longas the inno meets the requircmcnts ofthe ABRA. See genera/~)! S. Rep. No.1 02-294, at 52

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(1992) C'tjhe committee intends the immunity troiiilawsuits provided by 1008 to provide fullprotection against the specified t.ypes of copyright infringement actions. . . ").

'The AHRA provides:No action shall be brought under this title alleging int-ingement of copyrightbased on the. . . distribution of a digital audio recording device. . . or based onthe noncommercial use by a consumer 0 f slich a device. . . h)r making digitall1iusical recordings. . . .

17 U.S.C. 1008.

The critical question in applying 1008 is whether the device (here, the inno) is a "digitalaudio 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 audiorecording device" as:

any machine or device of a type commonly distributed to individuals for use byindividuals, whether or not included with or as part of some other machine ordevice, thc digital recording function ofwhieh is designed or markcted fix theprimary purpose of. and that is capable of, making a digital audio copiedrecording for private use. . . . 7 U .3.C. 100 i (3). When this definition is applied to the allegations of the complaint and theother 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 nno and two other XM products). The complaint also alleges that the inno issold to individual subscribers. See, e.g., Com. i: 32 ("When an individual purchases an inno, theindividual 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.

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'fhe hmo is "for use by individuals": According to the complaint, the inno is used byindividual 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 storeindividual songs with the simple press of a button." Com. ir 37. Thus, the inno is "for use byindi viduals."

The "digital recording function" of the inno is "designed or marketed for theprimary purpose of making, and is capable of making, a digital audio copied recording forprivate 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 recordingfunction 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 personallibrary"); 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. Asthe text of the statute makes clear, the "primary purpose"' focuses on the Pui1X)SC of the "digitalaudio 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 ofthe features of the machine taken together.").

The recordings made by the inno are "digital audio copied recordings": A "digitalaudio copied recording" is "a reproduction in a digital recording frmat of a digital musicalrecording, whether that reproduction is made directly from another digital musical recording orindirectly from a transmission." 17 U.S.C. 1001(1). The inno's recordings arc in a "digital

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recording Icml1aL" Com. 412, and arc made "from a transmission." See, e.g.. Com. 4126 (thesound recordings that Xlvl subscribers receive are "iransmted by XlV, over an XlV-sanctioncdreceiver") (emphasis added); 4132 (describing how the inno "receivers) and decrypt(s) the XlVtnmsmissions'l And the inno makes its digital audio copied recordings from broadcasttransmissions 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 recordingdevice" under the AHRA. Therefre, recording XM broadcasts on the inno is not actionable ascopyright 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 toit 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 delivertiles 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 amail order catalogue except that a computer l1s the order automatically"). The complaint doesnot allege facts that would SUPPOl1. a conclusion that XM offers a digital download subscriptionservice, and the materials it relies upon demonstratc othenvise. Indeed, recording XlV programson 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 andcan bei gnorcd. See pp. 11-12, supra. But even if the Court were to credit those conclusoryallegations on this motion, the complaint should still be dismissed. The facts pleaded in the13 As in the example Congress gave when passing the AHRA, "a digital audio recording madefrom a commercially released compact disc or audio cassette, or from a radio broadcast of acommercially released compact disc or audio cassette, would be a 'digital audio copiedrecording.''' S. Rep. No. lO2-294, at 47.

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complaint and the materials integral to it demonstrate that the inno is a "digital audio recordingdevice" within the meaning of the AHRA Therefore, plaintiffs are prohibited from bringing andXlVI is immune from this infringeinent action. Accordingly, Counts I" iV (claims for directinfringement) and Counts V.-VII (claims ir secondary infringement) ..~ all ofwhieh arc based onthe inno and its use to make digital recordings ih)m XM radio transmissions- should bedismissed.It The Legislative History of the AURA ConfirmsXl'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 plainmeaning 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 intentof Congress as revealed in the history and purposes of the statutory scheme." Adams h~ut Co. v.Barrett. 494 U.S. 638,642 (1990). "In so doing, Icourts) must 'construct an interpretation thatcompOliS \vith the statute's primary purpose and does not !cad to anomalous or unreasonableresults.'" 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 isbarred.

With the advent of digital recording technology in the late 19808, the recording industrybecame concerned that the high quality of digital copies of sound recordings would lead tomassive unauthorized copying of its w'orks. H.R. Rep. No. 1 02-873, pt. 1, at 18 (1992) asreprinted n 1992 U.S.C.C.A.N. 3578, 3588. At the same time, Congress wanted to provide adegree of certainty to those who were subjected to lawsuits, or the threat of lawsuits, for

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infringement based on the distribution of new recording devices. S. Rep. NO.1 02-294, at 51("in the absence of legislative resolution, the distribution of consumer digital audio recordingtechnologies has been subject to challenge in the courts based on claims of contributoryL -copyright infringement. ").The legislative history makes clear that any solution to the problem had to .'ensure theright of consumers to make analog or digital audio recordings of copyrighted music for theirprivate, noncommercial use." S. Rep. No.1 02-294, at 30. 'rhe Senate RepOli describes t1c

protection of the right of consumers to record \I/hat they hear on the radio using up to datetechnologies as "a key purpose" ofthe AHRA. ld. at 51. Congress was very concerned that theongoing dispute between the recording and consumer electronics industries and the litigation itengendered \vere interfering with the right of consumers to record copyrighted music broadcastover the radio for personal use:

American consumeLrls have been denied overall access to digital audio recordingtechnology, which is the most innovative audio recording technology to date, dueto 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 statutorydeInition of a "digital audio recording device." 17 U.S.c. 1 008. In return for immunity', theAIIRA required that copyright owners receive a royalty based on the price of each device. 17U.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 theamount of two pereent of the transfer price of the device. 17 U.S.c. 1003-1004. The Register

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\vould prevent the rnaking of second-generation digital copies t'om the copies made by thedigital audio recording device. See l7 U.S.c. 1002. 'fhis compromise insured that consumerswould have access to the latest digital recording technologies for making private copies of songsfor their personal use. As described in the Senate Report:

!The ABRA) is a direct response to the needs of the music industry, the consumerelectronics industiy, and consumers. The bil incorporates the (serial copyingmanagementl system, and a royalty provision on digital audio recorders andmedia, thus ensuring the consUlners . right to record both analog and digitalaudio material/r their private use.S. Rep. No.102..294, at 33 (emphasis added). See also Dimnond, iso .'3d at 1079 ("thefAHRA'sJ main purpose (is) the facilitation of personal use" of digital recording devices byconsumers; "such copying is paradigmatic noncommercial personal use entirely consistent \viththe purposes ofthe Act.").

The legislative history also makes clear that thc AllRA was intended to cover future, aswell as then-existing, technologies. Congress wanted to make sure consumers \verc beingaff()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 anew recording device. Hence, "fal central pUl1)ose of(the AHRAl is conclusivelv to resolve thisdebate, both in the analog and digital areas, thereby creating an atmosphere of certainty to pavethe way fl.)l the development and availability to consumers of eH' digital recording technologiesand 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 tointerested copyright parties in accordance with a detailed fonnula laid out in 006(bH c) ancl1007.

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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 fcally

identifled this aspect of the AHRA as one of its benefits:(The AHRAJ wil facilitate access by consumers to He\V generations of digitaltechnoIogics . . .. It is not otten, Mr. Chaimian, that we have the oppoiiunity toamend the copyTight la\v in anticipation of the strains that come with the benettsof new teehnology . . .. (The AHRAJ is a generic solution that applies across theboard to all 1'011115 of digital recording technology. Congress \viIi not be in theposition after enactment of this bill of having to enact subsequent bills to provideprotection for new 1~)Ins of digital audio recording technologies.

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

and lJ-uiemarh tilthe S. ('omm. on the JudicimT. 102d Congo 111, Serial No. J-l (42, at 1 i 0-II (Oct. 29, i 991) (oral statement ofJason S. Ben1111, President, RIAA); :,'ee also id. at 89 (theAHRA "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 thatwould: (a) protect the right of consumers to use ncw digital reconlng technologies tr personalrecording; (b) cncourage technological advances by shielding the consumer electronics industryfh.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 againstserial copying, while at the same time not requiring Congress to revisit the issue of digital audiorecording when nevv devices were developed and ntroduced into the market.

The inno fts perfectly into this statutory scheme. The innois a nc\\! digital recordingtechnology designed t)r consumers that enahles them to exercise their "right to record. . . digitalaudio material for their private use." S. Rep. No. 102-294, at 33. The inno prevents a subscriberfrom moving the digital copies of XM transmissions of sound recordings to other devices orlocations. See 17 U.S.c. 1002. As the User Guide n1akes clear, "XM content cannot be

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exported from the inno." User Guide at 32. Finally, the recording industry benefits J'om theinno because its importer or manufacturer is required by law to make a quarterly royaJty paymentand file, under pcnalty of peijury, a quaiierly statement of account with the Register ofC .'. h 17 T . S' 1' ", Sl 00" J O()~ j 'pyng is. d.,.I.... \i ,)- i. '0

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 bedismissed.

THE STATE LAW CLAIMS SHOULD BE DISMISSEDPlaintiffs 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./nted AtziieWorkers olAnierca 1'. Gbb."', 383 U.S. 7 j 5 (1966); Fredlander 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 infringementeven itthe inno did not contain protections against serial copying or if the required royalteswere not paid. As the Senatc Report makes clear, AIIRA immunity is "not dependent uponcompliance 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 royaltypayments have been made for a deviee or medium or whether a device includes seriaJ copyprotections)," S. Rep. No. 102-294, at 52. '1'he rcmedy for a t~1ilure to comply with theserequirements is an action under 17 U.S.c. 1009 alleging a violation of AHRA, not an action f()1'copyright infringement.

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CONCLUSIONFor the reasons set forth above, XM respectfully requests that the Complaint be dismissed

in its entirety.Dated: New York, New YorkJuly 17,2006

KRONISH LIEB WEINER & IIEILMAN LLP

By:C:elia GoJwag 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 FloorNew York, New York 10017(212) 3502700 (phone)(212) 350-2701 (fax)Seth D. Greenstein (Sa 8331) (admission pro hac vicepending)Todd Anderson (1' A 5619) (admission pro hac vicepending)Amy Roth (AR 4534)1627 Eye Street, N.W.Washington, D.C. 20006(202) 2043500 (phone)(202) 204-3501 (fax)AttorneysforXlvl Satellte Radio iflc.