UNITED STATES DISTRICT COURT
Plaintiffs Motion for a Preliminary Injunction came on for hearing on October 26, 1999. After reviewing the materials submitted by the parties, the arguments of counsel, and the case file, the Court hereby DENIES Plaintiff's Motion for Preliminary Injunction.
I. Factual Background
This action arises from the efforts of Plaintiffs RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC. and ALLIANCE OF ARTISTS AND RECORDING COMPANIES ("Plaintiffs") to preliminarily enjoin alleged violations of the Audio Home Recording Act of 1992, 17 U.S.C. §§ 1001 et seq. ("AHRA") by Defendant DIAMOND MULTIMEDIA SYSTEMS, INC. ("Defendant").
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The material facts of this case are undisputed. Plaintiffs are trade organizations representing the creators, manufacturers, and distributors of over ninety percent of all legitimate sound recordings. Defendant is a leading, manufacturer of computer products, specializing in products to improve multimedia, audio, graphics, video and communications uses video of personal computers. Defendant is currently manufacturing -- and intends to distribute -- a device it calls the Rio PMP 300 (the "'Rio"). The Rio is a lightweight, hand held device, capable of receiving, storing, and re-playing digital audio file stored on the hard drive of a personal computer. After the Rio receives digital audio file, the Rio user can detach the Rio from the computer and play back the audio file separately through headphones while away from the computer. Notably, the Rio has no digital audio output capability, and therefore is incapable of passing on digital musical files to other Rio devices, or to other manufacturers' devices.
The Rio relies upon a relatively new technology for compressing sound files: MPEG 1 Layer 3 ("MP3"). MP3 compresses by a 10:1 ratio, allowing approximately 60 minutes of music to be compressed to 32 megabytes of memory. The Rio itself contains 32 megabytes of memory, but this can be doubled by the purchase of a removable memory "card." Because the card is removable, a Rio user could record music on the memory card, and then give that card to any other Rio user.
II. Procedural Background
On October 9, 1998, Plaintiffs filed a Complaint and Ex Parte Application for Temporary Restraining Order and Order to Show Cause Re Preliminary Injunction. The Complaint alleged a single cause [begin page 3] of action for violation of the AHRA. On. October 13, 1998, Defendant filed an Opposition to the Ex Parte Application for TRO. On October 14, 1998, Plaintiffs filed their Reply.
On October 16, this court heard oral argument on the merits, and issued a TRO enjoining Defendant from manufacturing or distributing the Rio. The TRO was contingent on Plaintiffs posting a bond in the amount of $500,000.
On October 20, 1998, Defendant filed its opposition to the application for a preliminary injunction. On October 22, 1998, Plaintiffs filed their Reply,
Traditionally, a court may issue a preliminary injunction if it determines: (1) the moving party will suffer irreparable injury if the relief is denied; (2) the moving party will probably prevail on the merits: (3) the balance of potential harm favors the moving party and, depending on the nature of the case, (4) the public interest favors granting relief. International Jensen v. Metrosound U.S.A., 4 F.3d 819, 822 (9th Cir. 1993).
Under the "alternative standard," a party may obtain a preliminary injunction by demonstrating either: (1) a combination of probable success on the merits and the possibility of irreparable injury if relief is not granted; or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor. Id. "The alternative standards are not separate tests but the outer reaches of a single continuum." Id. (quotation omitted). Essentially, the trial court must balance the [begin page 4] competing claims of injury and must consider the effect on each party the granting or withholding of the requested relief. Schwarzer & Tashima, Federal Civil Before Trial, at 13:39.
Plaintiffs advance two arguments in support of a departure from the traditional equitable considerations governing injunctive relief. First, Plaintiffs cite Trailer Train Co. v. Board of Equalization, 697 F.2d 860, 869 (9th Cir. 1983) for the proposition that "traditional proof of irreparable harm is not required . . . [w]here a federal statute grants authority to enjoin violations." Pf.'s Reply at 19:24-26. Although Plaintiffs are correct that irreparable harm is not mandatory when a federal statute authorizes injunctive relief, the existence of an authorizing statute does not per se preclude consideration of traditional equitable factors, including irreparable harm. Miller v. National Labor Relations Board, 19 F.3d 449, 457-58 (9th Cir.1994) (provision of National Labor Relations Act authorizing injunctive relief "as deemed just and proper" requires consideration of traditional equitable factors). As noted in Miller,
Id., at 458 (quoting Weinberger v. Romero-Barcelo, 456 U.S. 305, 313 (1982), Flynn v. United States, 786 F. 2d 586, 591 (3d. Cir. 1986) (unless federal statute requires mandatory injunction, [begin page 5] traditional equitable considerations apply).
In the instant action, the AHRA states that "the court -- may grant temporary and permanent injunctions on such terms as it deems reasonable to prevent, or restrain such violation[s]." AHRA § 1009(c)(1). In light of this discretion, the Court declines to depart from traditional equitable considerations in assessing the propriety of injunctive relief.
Second, Plaintiffs argue, that "[t]he AHRA is inextricably related to the rights provided under the Copyright Act," and that therefore Plaintiffs are "entitled to [the] presumption of irreparable harm that arises," in copyright actions. Plfs.' Reply at 18:10-24.1
The Court disagrees. It is undisputed that "[a] copyright plaintiff who makes out a prima facie case of infringement is entitled to a preliminary injunction without a detailed showing of irreparable harm. Triad Systems Corp. v. Southeastern Express Co., 6-4 F.3d 1330, 1335 n.9 (9th Cir. 1995) (emphasis added,) (quoting Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 124-01 1254 (3d Cir. 1983)). In, the instant action, however, Plaintiffs are not asserting a copyright claim. If, as Plaintiffs contend, the Rio is subject to the AHRA, then copyright infringement is impossible as a matter of law. See AHRA 1008 (prohibiting copyright infringement actions). Even if the [begin page 6] Rio is not subject to the AHRA -- and therefore governed by the Copyright Act -- Defendant has a potential "fair use," defense that might defeat any prima facie showing of infringement. See Sony Corp. Universal City Studies, Inc., 464 U.S. 4,17, 439-40 (1983).
Moreover, the relatively few copyright cases that actually explain the rationale for the presumption confirm inapplicability to the instant action. For example, Plaintiffs quote from Fisher Price, Inc. v. Well-Made Toy Mfg, Corp., 25 F.3d 119, 124 (2d Cir. 1994) for the proposition that copyright infringement "will damage the copyright holder in incalculable and incurable ways." Plfs.' Reply at 18:16-18. Adding context to the Fisher-Price quotation, the full paragraph reads:
Id.; see also Country Kids 'N City Slicks, Inc. v. Sheen, 77 F. 3d 1280, 1288-89 (10th Cir. 1996) (presumption appropriate "[b]ecause the financial impact of copyright infringement is hard to measure and often involves intangible qualities such as customer goodwill"); Marcy Playground, Inc. v. Capitol Records, Inc., 6 F. Supp. 2d 277, 281 S.D.N.Y. 1998) ("the theory underlying the presumption, rests on the difficulty of remedying confusion in the market place by an award of damages").
The instant action, however, does not raise issues of "reputation," "quality of goods," or consumer "confusion." Moreover, [begin page 7] although a copyright action might "normally" entail "incalculable and incurable" injuries, the instant action does not. The only potentially incalculable injury, asserted by Plaintiffs is the Rio's contribution to the traffic in illegal MP3 files. As explained in greater detail below, however, even if the Rio were to incorporate SCMS technology, and thus comply with the AHRA, the Rio would still contribute to the traffic in illegal MP3 files. This type of injury is precisely why the AHRA provides for royalties. Accordingly, although this type of injury is undeniably "incalculable," it is not a compensable injury under the Act, and fails to justify an extension of the irreparable harm presumption applicable in Copyright actions.
Because the Court has no precedent to guide its interpretation of the AHRA, the Court begins its analysis with the "familiar canon of statutory construction that the starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary that language must ordinarily be regarded as conclusive." Continental Cablevision, Inc. v. Poll, 124 F.3d 1004, 1048 (9th Cir. 1997) (quoting Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, (1980)).
The AHRA defines a digital audio recording device" as:
Defendant proffers two theories why the Rio is not a digital [begin page 8] audio recording ("DAR"') device. First, Defendant argues that the Rio not a DAR device because the source of the copy -- the computer's hard drive -- is not a "digital musical recording." Therefore, the Rio is not capable of making a "digital audio copied recording," which, as defined by Section 1001(1), is "a reproduction in a digital recording format of a digital musical recording." Second, Defendant argues that the Rio is not a DAR device because it does not have a digital "recording function."
The AHRA governs "digital audio recording devices," defined as
A "digital audio copied recording," in turn, is defined as
Finally, a "digital musical recording" is defined as
A "digital musical recording" does not include
To qualify as a DAR device, therefore, the Rio must be "capable of making" a reproduction of a "digital musical recording".
Plaintiffs argue that the exception in Section (5)(B)(ii) for "material objects . . . in which one or more computer programs are fixed" is "not a 'hard drive' exception," but rather "an exception for computer programs, originally designed to clarify that copying of CD ROMs containing incidental audio tracks is not intended to be addressed by the AHRA." Plfs.' Reply at 12:5-7. Plaintiffs do not dispute that hard drives are not subject to the AHRA, but argue that this exemption results not from Section (5)(B)(ii), but rather from the Section 1001(3) definition of "DAR device," which excludes devices that do not have as a "primary purpose" the recordation of digital audio.
Defendant, in contrast, argues that the Section (5)(B)(ii) is unambiguous on its face and that material objects . . . in which one or more computer programs are fixed" is not only computer programs on CD-ROM but also hard drives and other "material objects" including "Zip drives, integrated circuits, circuit boards and the like." Df.'s Opp. at 10:13-16. Defendant argues that excluding hard drives from the definition of "digital musical recording" was part of "Congress' intent to exclude the personal computer industry" from regulation under the AHRA. Df.'s Reply at 11-18:19. Although Defendant's interpretation of Section (5)(B)(ii) has superficial [begin page 10] appeal, it is ultimately unsupported by the legislative history, and contrary to the spirit and purpose of the AHRA.
Defendant relies heavily on the declaration of James Burger, an attorney and former Chairman of the Intellectual Property Committee of the Information Industry Council ("ITI"), a trade association representing the interests of the computer industry. Burger Decl. ¶ 2. In his capacity as Chairman of ITI, Burger purports to have "engaged in direct discussions with representatives of the [Consumer Electronics Manufacturers Association "CEMA."] and RIAA officials regarding the AHRA, as well as Legislators and their staff. Id. ¶ 4. On the issue of whether Section (5)(B)(ii) encompasses hard drives, Burger provided the following narrative:
Burger Decl. ¶¶ 10-11 (emphasis added). Although Burger unequivocally opines that Section (5)(B)(ii) includes hard drives, his reference to the legislative history is not persuasive.
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The sentence Burger quotes from the Senate Report2 to support Defendant's interpretation of Section (5)(B)(ii) actually appears in the context of a discussion of Section 1001(3), the definition of "DAR device". The previous paragraph of the Senate Report emphasizes that "[t]he definition [of a DAR device] makes clear that a '[DAR] device' must be a machine or device that has a recording function that is designed or marketed for the primary purpose of making a digital audio copied recording." (Emphasis added). Continuing, the Senate Report elaborates on the application of the "primary purpose" standard, illustrating the application of the standard to a videocassette recorder. Senate Report at *52. As a second example of the "prima primary purpose" test of Section 1001(3), the Senate Report includes that language quoted by Burger;
Because this language addresses the Section 1001(3) definition of primary purpose," rather than the Section (5)(B)(ii) definition of "material object," Burger's reference to the passage appears misplaced.3
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In contrast, other portions of the legislative history support Plaintiffs' contention that Section (5)(B)(ii) was only intended to avoid immunizing the illegal copying of computer programs. The House Judiciary Committee Report,4 for example, states that
House Report at *21. These passages, albeit far from unequivocal, suggest a legislative intent to avoid immunizing the illegitimate copying of computer programs from liability for copyright [begin page 13] infringement.
More importantly, Defendant's construction of Section (5)(B)(ii) would effectively eviscerate the AHRA. Any recording device could evade AHRA regulation simply by passing the music through a computer and ensuring that the MP3 file resided momentarily on the hard drive.
Defendant makes no attempt to rationalize this result, but rather argues that technology has outpaced the AHRA, and that this Court should not re-legislate statutes which failed to anticipate new technology. See Transcript of Oral Arg. (TRO Hearing) at 16:2-5 (October 16, 1998). Although the line between "interpretation" and "re-legislation" is not easily defined, the Court is skeptical that Congress intended Defendant's counter-intuitive construction of Section (5)(B)(ii).
As previously noted, the AHRA only governs DAR devices, defined as
Defendant argues -- albeit briefly5 -- that the Rio has no "recording function" because "unless software on [the] personal computer is used to manage the transfer of files, the Rio will not record anything." Df.'s Opp. at 8:18-20. Although not expressly stated, Defendant's [begin page 14] argument suggests that if a peripheral device were reliant on a personal computer for any step in the recording process -- thereby precluding truly "independent" recording -- the peripheral device has no "recording function" for purposes of the AHRA.
Defendant's argument is premised on a single reference in the legislative history:
Aside from this passage, nothing in the legislative history even remotely suggests that lack of a completely independent recording function removes a device from the purview of the AHRA. To the contrary, the legislative history establishes that the phrase "recording function"' included to ensure that the "primary purpose" test was only applied to the audio recording function of a device that could record audio, video, and multimedia. [Cite to Sen Report].
Similarly, nothing in the definition of Section 1001(3) remotely suggests that DAR devices must be able to record independently from the computer. The statute only requires that DAR devices be "capable of making a . . . recording." AHRA § 1001(3). It does not say "independently capable of making recordings."
Finally, Defendant's interpretation of the phrase "recording function" is contrary to the purposes of the AHRA. Any device not capable of truly independent recording would evade regulation under the AHRA, even though the device was capable of making digital audio reproductions. The Court is not inclined to undermine the entire [begin page 15] statutory scheme based on a single, isolated comment in the legislative history.
The AHRA defines "serial copying" as
The Court concurs with Plaintiffs that the two step process at issue here (audio CD to hard drive; hard drive to Rio) appears to technically satisfy the definition of "serial copying." A conventional audio CD is a "digital musical recording," and the MP3 file "ripped" from an audio CD and stored on the hard drive is a "digital reproduction" of that "digital musical recording." Finally, the version in the Rio is a "duplication" of the "digital reproduction" on the hard drive. Although a personal computer is not a "digital audio recording device," the definition of "serial copying" in Section 1001(11) does not require that the digital reproduction (i.e., the MP3 file on the hard drive) be generated by a "digital audio recording device."
However, although the Rio is bundled with software that facilitates the first step (audio CD to hard drive), that software is independently available today. The innovation the Rio makes possible is the second step (hard drive to Rio).
Although the two-step process technically satisfies the definition of "serial copying," the AHRA does not directly prohibit serial copying. Rather, Section 1002(a) states that
Thus, if Defendant incorporated SCMS technology into the Rio, no violation of Section 1002 occurs because the Rio would satisfy subsection (a)(1). This holds true even though the two-step process (CD to hard drive; hard drive to Rio) technically satisfies the Section 1001(11) definition of "aerial copying." Incorporating SCMS into the Rio, however, accomplishes nothing. The Rio could not "act upon copyright and generation status information" because the MP3 files on the computer's a hard drive do not contain this information.6 Similarly, it is undisputed that the Rio does not permit downstream copying because the Rio itself has no digital output capability, and the removable flash memory cards cannot be copied by another Rio device. Therefore, it is nonsensical to suggest that the Rio must "sen[d]. . . . copyright and generation status information."7 In summary, incorporating SCMS into the Rio appears an exercise in [begin page 17] futility. Because a Rio with SCMS would not violate section 1002, and because a Rio without SCMS is functionally equivalent to a Rio with SCMS, the Court is convinced that the Secretary of Commerce will conclude that the Rio adequately "prohibit[s] unauthorized serial copying" for purposes of subsection (a)(3).8 Accordingly, Defendant is only violating Section 1002(a) in a most technical sense by failing to acquire a certificate.9
In summary, Plaintiffs' probability of success on the merits is mixed. Although Plaintiffs have established a probability that the Rio is a "digital audio recording device," Plaintiffs have not established a probability of success in establishing that the Rio, if assessed by the Secretary of Commerce, would fail to satisfy Section
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Plaintiffs acknowledge that, for purposes of preliminary injunction, the irreparable injury "must be caused by the alleged wrongful conduct." Stanley v. University of So. Cal Calif., 13 F.3d 1313, 1324-25 (9th Cir. 1994) (emphasis added) (cited in Plaintiffs, Reply at 19:26-28).
Assuming that the Rio is subject to the AHRA, and that Defendant ultimately pays any required royalties, the only potential "wrongful conduct" is Defendant's failure to encode SCMS information on recordings stored in the Rio. For the reasons articulated above, the Court is skeptical that the Secretary of Commerce would require Defendant to incorporate SCMS technology. Even if the Secretary did impose that requirement, Plaintiffs have failed to demonstrate a sufficient causal relationship between this "wrongful conduct" and their alleged injuries.
Plaintiffs contend that distribution of the Rio in its current configuration "'will harm plaintiffs and the public interest by dramatically stimulating the traffic in illegal MP3 files." Pfs.' Reply at 20:10-22. Although the Rio will inevitably be used to record both legitimate music (e.g., commercially available CDs) and illegitimate music (e.g., copyrighted music illegally posted on the Internet), the absence of the SCMS information does not cause the illegitimate uses. Even if the Rio did incorporate SCMS, a Rio user could still use the device to record unauthorized MP3 files posted to the Internet. Moreover, to the extent Plaintiffs are injured through an illicit use of the Rio, this is precisely the type of injury for [begin page 19] which the royalty provisions were adopted. Under these circumstances, the Court concludes that Plaintiffs have failed to establish any irreparable or incalculable injury.10
In contrast, Defendant has offered credible evidence that an injunction would substantially impact its projected revenues from the sale of the Rio. See Df.'s Opp. at 7:1-27. Regardless of the accuracy of Defendant's estimate ($200 million over the next two years), the Court is convinced that Defendant would at a minimum suffer multi-million dollar losses. Moreover, because the Rio is capable of recording legitimate digital music, an injunction would deprive the public of a device with significant beneficial uses.
For all these reasons, the Court hereby DENIES Plaintiffs, Motion for a Preliminary Injunction.