In the first major legal test between the music industry and the Net, between the Recording Industry Association of America (RIAA) and Diamond Multimedia, the new guys had come out on top.

"The whole thing was electrifying," recalls Ken Wert, then vice president of corporate marketing for Rio's parent, Diamond Multimedia. "It represented a changing of the guard, of the Internet changing the rules."

But 15 months after Diamond's victory, as Napster and MP3.com fight for their lives in court after suffering a string of lopsided judicial defeats, observers are wondering whether some in Silicon Valley read too much into the Diamond win. The landmark case may instead have provided, as Emusic chairman Bob Kohn puts it, "a false sense of security" among pioneering online music players -- thus setting up the current litigants for a big fall.

"Was Diamond a significant defeat for the RIAA? Sure. Was it spiritually energizing and delusional, in that it created the idea that all of a sudden the Berlin Wall had fallen down? For some," says Jonathan Potter, executive director of the Digital Media Association.

"Some people didn't look at the specifics of the case and got the feeling the gates were open," suggests Wert, now CEO of Riffage.com, a music and media company. "They figured the law doesn't cover the new technology stuff and the feeling was the courts will give us the benefit of the doubt." That, says Wert, turned out to be "wishful thinking."

The Diamond case, while often portrayed in the press as a sweeping win for technology companies over record labels, was actually decided on quite narrow terms. Indeed, instead of providing a precedent upon which Napster and MP3.com could build, the decision may actually have had the opposite effect -- the RIAA's humbling Diamond loss may have worked to the organization's benefit by forcing its legal team to sharpen its strategies, an adjustment MP3.com and Napster are now paying for.

"The Internet music industry was probably too full of itself after the Rio case, says Potter. "But that's part of the ebb and flow of building our industry."

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