YouTube Back on Defense Versus Viacom

Its granted appeal of the giant copyright case adds new pressure

Viacom (NYSE:VIA.B) Chairman Sumner Redstone, who coined the phrase “content is king,” is a happy man today because a federal appeals court has reinstated the company’s landmark $1 billion copyright infringement suit against Google‘s (NASDAQ:GOOG) YouTube business.

Viacom, parent company of Comedy Central, MTV and Paramount Pictures, filed suit in 2007 claiming that YouTube users had illegally downloaded more than 62,000 clips of popular Viacom programs such as The Daily Show with Jon Stewart and The Colbert Report. YouTube had sought a dismal of the case, arguing that it had removed the infringing content as it was notified, per the requirements of the Digital Millennium Copyright Act (DCMA).

A federal judge in 2010 ruled in Google’s favor, but that ruling that was unexpectedly reversed Thursday by the U.S. Court of Appeals in Manhattan. As Bloomberg News noted, the appellate decision vindicates Viacom, stating that “a reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website.”

Not surprisingly, the ruling delighted Viacom. “We are pleased with the decision by the U.S. Court of Appeals,” the New York-based company said in a statement. “The Court delivered a definitive, common sense message – intentionally ignoring theft is not protected by the law.”

The case is being closely watched by media companies, some which have complained for years that YouTube does a poor job of policing piracy on its website. Indeed, even with the publicity surrounding the case, finding Viacom content on YouTube isn’t hard. Google couldn’t immediately be reached for comment.

“That’s the right result,” said Andrew Berger, an intellectual property attorney with Tannenbaum Helpern Syracuse & Hirschtritt in New York, in an interview. He added that there was plenty of evidence of “red flag knowledge if not actual knowledge” of infringement by YouTube. “This case should not have been dismissed on summary judgment.”

On its website, Viacom argued that YouTube “welcomed” infringement to build traffic on its site, which the DCMA’s Safe Harbor provision was never designed to protect. The case has broad ramifications beyond questions over video clips, the media company says.

“Our economic future will be largely built on innovation, information and the growth of trade in intellectual property — the incentive to innovate is extinguished if investment in content is not protected under U.S. law,” according to Viacom.

Whether other companies will wage similar battles with YouTube is unclear. In the years since Viacom filed its lawsuit, the video channel has tried to convince Hollywood that it’s a friend. Ironically, YouTube recently announced a deal with Paramount to let YouTube users stream the studio’s films. YouTube has similar arrangements with every Hollywood studio except 20th Century Fox (NASDAQ:NWS).

“When you take on Google, you take the tiger by the tail,” Berger said. “I don’t know whether others will emerge and try the same.”

Given the complexities of copyright and trademark law, predicting the outcome of the YouTube-Viacom battle is difficult. These types of cases are often settled out of court, but given this one’s duration and the stakes involved, any resolution might cost Google big bucks. Unfortunately for shareholders, who have seen Google shares barely move this year, Berger thinks the legal battle may linger for another two years or so.

–Jonathan Berr does not own shares of the companies listed here. Follow him on [email protected]

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