But Judge Diarmuid O'Scannlain of the 9th U.S. Circuit Court of Appeals ruled that the AHRA did not apply. He concluded that because the Rio works in tandem with a computer hard drive, the RIAA's argument "is contrary to the statutory language and common sense," and that "the Rio is not a digital audio recording device subject to the restrictions of the Audio Home Recording Act of 1992."

The Net rejoiced. The attack on Rio was the RIAA's first high-profile Internet prosecution, and the Diamond ruling couldn't help setting the tone for the unfolding debate between record companies and the online world.

As Napster's Sept. 12 filings with the 9th Circuit Court illustrate, the Diamond case remains central to the company's claim that it's not liable for copyright infringement. Again and again, Napster lawyers come back to the Diamond case, arguing that because Rio did not fall under the Audio Home Recording Act, Napster's file-sharing community should also be exempt. So far, Napster has had zero success with the strategy -- District Court Judge Marilyn Hall Patel went so far as to dismiss it as "irrelevant."

Similarly, when defending its MyMP3.com service earlier this year against a suit brought by the RIAA, MP3.com also relied heavily on RIAA vs. Diamond, hoping to use the ruling to create a "fair use" defense. But Manhattan federal District Court Judge Jed Rakoff would have none of it: "In sum, on any view, defendant's 'fair use' defense is indefensible and must be denied as a matter of law."

The real beneficiary of the Rio decision, say industry experts, may actually be the loser, the RIAA.

"The RIAA learned a lesson and that is you find a case you can win, and you drive it," says Potter. "The MP3 case has nothing to do with consumer application or fair use or downloading. It has to do with one act: MP3.com reproducing CDs onto MP3 servers. They could've brought a much broader complaint, and they probably would've lost. Instead this one had home run potential for summary judgment." The RIAA did in fact win its MP3.com case on summary judgment.

"Anybody who thought record companies were going to crawl back in a hole after Rio didn't understand the depth and intensity of these companies' allegiance to their shareholders, their assets and their own paychecks," notes Potter.

Others suggest the arrogance adjustment undertaken by the RIAA in the wake of the Rio loss has served the association well this year. "They thought they had Diamond nailed and there was a lot of bluster," remembers Wert. "I don't think they'd lost a case in 30 years because they usually go after legitimate criminals, like warehouses duplicating CDs. They're usually right on principle."

Instead, says Wert, the RIAA learned a valuable lesson from Diamond: "We better take this stuff seriously."

Now, as Napster scrambles to stay alive, awaiting its Oct. 2 court date for final arguments, it is turning once more to the Diamond case for help. But Kenneth Steinthal, a partner at Weil, Gotshal & Manges who specializes in intellectual property, wonders if Napster will find any relief. "The RIAA's case against Diamond was about trying to stop new technology. Its case against Napster is about trying to stop infringing. Those are two very different things."

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