LOS ANGELES (Reuters) - The world's major record companies on Tuesday filed a lawsuit against satellite provider XM Satellite Radio Holdings Inc., alleging its new Inno portable device which can store music infringes on their copyrights.

A spokesman for the Recording Industry Association of America, comprising major labels such as Vivendi Universal's Universal Music Group, Warner Music Group Corp. (Research), EMI Group Plc and Sony BMG, said the suit was filed on Tuesday in New York federal court.

XM said the Inno, which is manufactured by Pioneer Corp., is a legal device that allows consumers to listen to and record radio just as the law has allowed for decades.

While the labels are asserting the device has transformed radio broadcasts into a download service, XM said the device does not allow consumers to transfer recorded content. XM has also said that content recorded from radio broadcasts like XM's is not on demand, in contrast to the content that people buy from online music stores like Apple Computer Inc.'s (Research) iTunes.

XM said it will vigorously defend this lawsuit on behalf of consumers.

Additionally, XM said the lawsuit was a bargaining tactic. The labels are currently in talks with XM and its rival Sirius Satellite Radio (Research), to renegotiate digital royalty contracts.

"XM Radio is the largest single payer of digital music broadcast royalties, and royalties paid by XM go to the music industry and benefit artists directly," the company said.

"The music labels are trying to stifle innovation, limit consumer choice and roll back consumers' rights to record content for their personal use," the company said.

Jay Cooper, a veteran entertainment lawyer, said the music labels fear the new device could further erode music sales.

"It's a question of economic impact. Will these devices substitute for the purchase of a record? Everything is changing and the industry is petrified," said Cooper.

Shares of XM (Research) slipped in after-hours trading Tuesday after closing at $17.63 on the Nasdaq exchange.

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