Google Inc. (GOOG) (GOOG)'s YouTube video-sharing website must defend itself against claims that it violated Viacom Inc. (VIAB) (VIAB)'s copyrights by letting users post clips from shows including "The Colbert Report" without authorization, an appeals court ruled.
The U.S. Court of Appeals in Manhattan today reversed a lower court's decision to throw out the case before trial. The lower-court judge had said YouTube was protected from liability because it removed infringing videos when notified.
"A reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website," a two-judge panel said in a 39-page decision.
Viacom sued in 2007, seeking $1 billion in damages and claiming that YouTube users were illegally uploading thousands of videos of Viacom television programs, such as "South Park" and "The Daily Show With Jon Stewart," and movies from its Paramount Pictures studio.
"The court delivered a definitive, common sense message -- intentionally ignoring theft is not protected by the law," Jeremy Zweig, a Viacom spokesman, said in an e-mail.
U.S. District Judge Louis Stanton ruled in 2010 that YouTube was protected from liability by the Digital Millennium Copyright Act because it removed the offending videos when told they had been posted. New York-based Viacom appealed, saying YouTube was aware of the copyright violation when it displayed the videos without authorization.
Google, based in Mountain View, California, fell $3.39 to $631.76 at 2:20 p.m. New York time in Nasdaq Stock Market trading. Viacom Class B shares rose 2 percent, to $47.34.
'Knowledge or Awareness'
The appeals panel agreed with Stanton that the DMCA requires online service providers to have "knowledge or awareness of specific infringing activity" before being held liable for copyright infringement.
Stanton erred by granting summary judgment to YouTube on the alleged facts of the case and in interpreting a provision of the law, the appeals court said. While returning the case to the lower court for more "fact-finding," the appeals judges also said that three of YouTube's software functions were protected under the law. A fourth function, involving the syndication of videos to third parties, will be subject to more fact-finding, the justices said.
'Tiny Percentage'
"All that is left of the Viacom lawsuit that began as a wholesale attack on YouTube is a dispute over a tiny percentage of videos long ago removed from YouTube," Google said in an e- mailed statement. "Nothing in this decision impacts the way YouTube is operating."
In court, Viacom argued that YouTube used unauthorized copyrighted material to draw visitors and make the website more attractive to potential buyers. The site benefited financially from infringement by reaping revenue (GOOG) from advertisements placed next to the videos, Viacom said.
Paul Smith, a lawyer for Viacom, said in a telephone interview that the video clips at issue were "the stuff everybody was going to watch. It was a clear draw to the site when they were trying to build their business." He said the case could eventually be tried by a jury.
Garth Brooks
The case has attracted wide attention. More than 125 so- called friend-of-the-court briefs supporting either Google or Viacom were filed by parties including the Associated Press, the Songwriters Guild of America, musicians Garth Brooks and Sting, Microsoft Corp., the Consumer Electronics Association, EBay Inc., Facebook Inc. and Yahoo! Inc.
Google, operator of the world's biggest Internet search engine, bought (GOOG) YouTube in 2006 for $1.65 billion. Google said in a filing that Viacom had also been interested in buying the site.
After Google made its successful offer, Viacom sent the "takedown" notices required by law when a content provider wants infringing material removed from a site, Google said. Viacom said YouTube offered it a partnership agreement valued at $590 million before talks ended.
Google also said Viacom uploaded its own videos to YouTube to promote its programs. The website operator said Viacom couldn't tell which videos were unauthorized and which weren't.
YouTube was founded in 2005 by Chad Hurley, Steve Chen and Jawed Karim, who all had worked at the Internet payment provider PayPal, now part of EBay. When it started, YouTube displayed mostly homemade videos uploaded for free and viewed by other visitors. YouTube is now an aggregator of audio and video from major entertainment, media and sports companies.
The Football Association Premier League Ltd., a U.K. soccer organization, and some music publishers also sued YouTube and appealed the lower-court ruling.
The case is Viacom International v. YouTube, 10-03270, U.S. Court of Appeals for the Second Circuit (Manhattan). The lower- court case is Viacom v. YouTube, 07-2103, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: David Glovin in New York at dglovin@bloomberg.net; Don Jeffrey in New York at djeffrey1@bloomberg.net
To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.
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