Digital Media

Updated at 12:11 p.m. PDT with comment from a Viacom spokesman.

Video-sharing site Veoh defeated a copyright infringement lawsuit Wednesday in federal court, potentially giving Google's YouTube a tool in its defense against a $1 billion lawsuit filed by Viacom, according to a report posted on PaidContent.org.

Veoh was hit with a copyright infringement lawsuit in 2006 by the Io Group, an adult entertainment company, but it defended its actions, citing provisions within the Digital Millennium Copyright Act. That provision calls for a party to remove copyrighted material from its Web site, when notified by the copyright holder.

A judge for the U.S. District Court for the Northern District of California in San Jose, Calif., found that Veoh was not liable for hosting copyrighted videos that its users uploaded to its site because the company used an automated process to post videos and did not play an active role in getting the material onto its site. The court also found that Veoh removed the material when informed by the copyright holder, putting it in compliance with a "safe harbor" provision of the DMCA law, according to the report.

The ruling may bolster Google's efforts to defend its YouTube video-sharing site against Viacom's $1 billion copyright infringement lawsuit. In a post in The Wall Street Journal, Google issued this statement:

It is great to see the court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights...YouTube has gone above and beyond the law to protect content owners while empowering people to communicate and share their experiences online.

The Google-Viacom case is still pending.

A Viacom spokesman, however, said the ruling does nothing to change the company's stance on the legality of YouTube's operations.

Even if the Veoh decision were to be considered by other courts, that case does nothing to change the fact that YouTube is a business built on infringement that has failed to take reasonable measures to respect the rights of creators and content owners. Google and YouTube have engaged in massive copyright infringement--conduct that is not protected by any law, including the DMCA.

A federal judge on Wednesday gave more weight to the concept of "fair use" when he threw a lifeline to a Pennsylvania mother's lawsuit against Universal Music.

The judge refused to dismiss Stephanie Lenz's suit claiming that Universal abused the Digital Millennium Copyright Act when it issued a takedown notice to YouTube over a 30-second video of Lenz's baby dancing to a Prince song.

In the first ruling (PDF) of its kind, Judge Jeremy Fogel held that copyright owners must consider fair use before sending DMCA takedown notices.

"Fair use is a lawful use of a copyright," the judge wrote. "Accordingly, in order for a copyright owner to proceed under the DMCA with 'a good-faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,' the owner must evaluate whether the material makes fair use of the copyright."

Lenz first filed suit in October 2007, after Universal requested that her video be taken down, and YouTube kept it off its site for more than a month. Lenz argues that the Prince song is barely audible in the short clip and clearly represents fair use, which allows for limited use of copyrighted materials without permission. In order to protect First Amendment rights, the DMCA allows for targets of illegitimate takedown notices to seek damages against the copyright holder.

The suit was initially thrown out of the federal court in April of this year, but the Electronic Frontier Foundation, which is representing Lenz, filed a second complaint just 10 days later.

Corynne McSherry, an attorney for EFF, called the ruling "a major victory for free speech and fair use on the Internet" that will "help protect everyone who creates content for the Web."

Although Fogel refused to throw out the case a second time, he expressed doubt that Lenz would win. "The Court has considerable doubt that Lenz will be able to prove that Universal acted with the subjective bad faith," he wrote.

First it was fashion giant LVMH Moet Hennessy Louis Vuitton SA complaining about counterfeit fashion goods on eBay. Then it was Tiffany taking eBay to court.

Now it's the software industry telling eBay that it needs to do more to detect and delete listings for counterfeit goods--or else.

The Software and Information Industry Association, a Washington, D.C., trade association that counts companies such as Intuit, Sun Microsystems, and Red Hat as board members, said on Thursday that it's contemplating a lawsuit against eBay. Another option, the group said, would be lobbying Congress to rewrite the Digital Millennium Copyright Act and make online auctioneers liable for what's sold.

"Their refusal to work with us will only push us closer and closer to a lawsuit," Keith Kupferschmid, SIIA's senior vice president for intellectual property policy and enforcement, said in an interview.

Kupferschmid said the SIIA has offered at least 20 suggestions to eBay listing ways it can aid the software industry in curbing the sale of pirated software. Among the suggestions: not allowing the "Buy It Now" option on software; placing a notice in a user's feedback if they have been caught selling pirated software; adding a delay on software auctions so they can be reviewed; and permitting the SIIA to run a paid ad on the Web site telling eBay visitors about the risk of buying pirated software.

"They just say no," Kupferschmid said. "We've never been given any rationale."

Instead of taking legal aim at eBay--no suit has been filed so far--the SIIA has busy targeting individual pirates on the site.

It made a point of touting a federal prosecution in which Jeremiah Mondello, 23, of Eugene, Ore., was sentenced on Wednesday to four years in prison for selling $1 million worth of counterfeit software. Prosecutors said Mondello made more than $400,000 in profit from the sales, and included an aside in a press release saying that the SIAA provided "assistance to the investigation."

The SIIA has relied on civil cases filed against eBay users. This year it says it has filed 32 civil complaints, and Kuperfschmid said all previous cases have resulted in victories. The users convicted of copyright infringement were kicked off the site, and some also paid monetary damages at an average of $50,000.

But assailing only individuals isn't sufficient for the SIIA, who said it is considering suing eBay itself for copyright infringement.

"That's something that we have talked about with our members and talked about internally...we are certainly waiting to see if eBay will do more, or actually do anything to address the software piracy problem they have on their site," Kuperfschmid said.

It may be an uphill battle. In last week's decision, a federal judge in New York wrote that eBay cannot be forced to shoulder the burden of examining individual auction listings for possible counterfeits.

"The court is not unsympathetic to Tiffany and other rights holders who have invested enormous resources in developing their brands, only to see them illicitly and efficiently exploited by others on the Internet," U.S. District Judge Richard Sullivan wrote. "Nevertheless, the law is clear: it is the trademark owner's burden to police its mark."

For its part, eBay says it spends $5 million a year on maintaining its fraud search engine, which has 13,000 rules that are designed to identify counterfeit listings based on words such as "replica" or "knock-off." Listings flagged by the search engine are manually reviewed by customer service representatives. In addition, eBay offers a Verified Rights Owner ("VeRO") program that lets trademark owners report and remove infringing listings.

Making matters tricky is that it may (or may not) be legal to resell legitimately purchased software if the End User License Agreement, or EULA, says you can't. Courts in different states have reached different conclusions about whether the EULA contract can trump the generally recognized right, called the first sale doctrine, of customers to resell books, DVDs, or audio CDs.

"Counterfeits are very bad for our business--we don't want them on our site. People don't want to buy them and we don't want to sell them. But we can't be the expert," eBay spokesperson Nichola Sharpe said on Thursday. "We recognized very early on we need to partner and collaborate. We established the VeRO program in 1998 and we partner with 18,000 associations, including the SIIA."

Sharpe said the VeRO program allows a copyright owner to patrol the site and notify eBay to take down the listing. In addition, she said her employer takes extra steps to prevent illegal goods such as luxury goods and software from being listed, though it will not remove the "Buy It Now" option at SIIA's request.

SIIA's concern isn't exactly new: It launched a so-called auction litigation program in May 2006 and has been occasionally agitating against eBay ever since.

The SIIA said it had been waiting until the results of the counterfeit lawsuit brought by jewelry maker Tiffany were in.

Kuperfschmid thinks that any SIIA lawsuit would be taking a different approach, perhaps relying more on copyright law than trademark law, which had been Tiffany's strategy. (Tiffany's lawyers said last week that their client was likely to appeal.)

"The standards are somewhat different under copyright than trademark law," Kuperfschmid said. "If you look in the statute under the DMCA (Digital Millennium Copyright Act), it does have a standard for determining when eBay may or may not be liable," Kuperfschmid said.

And if courts eventually rule that the DMCA doesn't force eBay to be the kind of Net-cop that the SIIA might like, there's always one remaining option: rewrite the law.

"There may be a point where we decide to go up to Congress and ask for legislation that would make eBay and other similar sites required to take what I would call 'preemptive and proactive steps' to prevent infringement on parts of their sites," Kuperfschmid said. "And if they didn't, they could be liable."

CNET News' Declan McCullagh contributed to this report