XM says the allegations are baseless because the device is protected by the Audio Home Recording Act passed in 1992. XM's lawyers argued that the player is no different from combination radio-cassette players that were widely used to record songs from radio airplay.

But Judge Batts dismissed this claim: "It is manifestly apparent that the use of a radio-cassette player to record songs played over free radio does not threaten the market for copyrighted works as does the use of a recorder which stores songs from private radio broadcasts on a subscription-fee basis."

While XM only pays for the right to broadcast music, the storage and playback capabilities of its player make it a de facto music distributor as well, Batts said.

After the setback, XM issued a statement reiterating its legal points and expressing confidence that it will prevail in a court case: "At this stage of the proceeding, the court's ruling is required to be based on the false characterizations set forth in the plaintiffs' complaint. The real facts strongly support our view that the lawsuit is barred by the Audio Home Recording Act. We look forward to making our case in court."

In a May interview, Fred von Lohmann, an attorney at the Electronic Frontier Foundation who practices digital copyright law, described the RIAA lawsuit as "a stretch." He thinks AHRA will ultimately protect XM: "The Audio Home Recording Act--which the lawsuit conspicuously fails to mention--gives XM and Sirius a pretty good defense. As far as I know, every one of these devices was designed to conform to the AHRA."

The lawsuit against XM came on the heels of threats of similar legal action against Sirius Satellite over its S50 player. This conflict was resolved in March by a deal between Sirius and four leading recording companies, in which Sirius paid them an undisclosed sum for each S50 device sold.

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