The finding, made Friday by U.S. District Court Judge Diane Batts in New York, opens the door for music labels such as Atlantic Recording and Capitol Records to press their case against the satellite radio broadcaster.
The record industry alleged in a civil suit filed in May that XM allows subscribers to listen to, store and replay songs as MP3 files. Devices marketed as "XM + MP3" players help people trap the music from XM's broadcasts and then turn them into MP3s. The music labels argue that this infringes on their copyrights.
XM's stance is that listeners are legally allowed to record music off the radio for personal use under the Home Recording Act of 1992. The judge, however, disagreed. While listeners have for years been allowed to record songs off of standard over-the-air stations, satellite radio is different because the transmission is digital.that a listener of satellite radio can scan through the music library and rapidly record hundreds of songs.
"We're pleased that the court has rejected XM's attempt to misuse the Audio Home Recording Act (AHRA) as a legal loophole," the Recording Industry Association of America, the trade group that, said in a statement. "The (law) was never intended to allow a service offering distributions of music to duck paying creators what they are due."
XM responded to the judge's decision in a statement: "At this stage of the proceeding, the court's ruling is required to be based on the false characterizations set forth in the plaintiff's 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."
Congress may soon take up a similar debate. Last week, a group of senators led by Dianne Feinstein (D-Calif.)that would require satellite and Internet radio services to restrict the ability of listeners to record and replay individual songs.
The bill has been marketed as a way to ensure that satellite and Internet radio services pay "fair market value" for the use of copyright music. But opponents, including consumer groups and the electronics industry, argue that it goes far beyond that, trampling on listeners' home-recording rights.
CNET News.com's Anne Broache contributed to this report.