Digital Media

Update 4:15 p.m.: To include comments from YouTube and Viacom.

A federal district court says Veoh, a Web video site that has come under legal fire from entertainment companies the past several years, is not liable for the copyright violations committed by its users, a decision that could help YouTube defend itself against Viacom's $1 billion copyright suit.

Universal Music Group, the largest of the four top record companies, accused Veoh of copyright violations in a lawsuit filed two years ago. But on Friday, U.S. District Judge A. Howard Matz granted Veoh's motion for summary judgment, and ruled that the company is protected against such claims by the Digital Millennium Copyright Act.

The decision would have meant more for Veoh if the video site was still relevant. The company has fallen on hard times since YouTube and Hulu took control of most of the online-video sector. Veoh's legacy, however, could be that it helped to establish that Internet service providers aren't liable for crimes committed by users.

"This decision reaffirms the judicial consensus and what we've known all along: the DMCA protects services like YouTube," Zahavah Levine, YouTube's chief counsel said. "With the DMCA, Congress intended to foster online platforms like YouTube, which empower users, offer new distribution channels for content owners, and respect copyright."

To be sure, Universal Music will file an appeal to Matz's decision and the case likely still has a long way to go.

"The ruling today is wrong because it runs counter to established precedent and legislative intent and to the express language of the DMCA," Universal Music said in a statement. "Because of this and our commitment to protecting the rights of our artists and songwriters who deserve to be compensated for the use of their music, we will appeal this ruling immediately."

Martz's decision is not binding on other courts and it must be noted that the case was heard in the Ninth District while YouTube's court fight is in the Second District.

"Our case is in a different forum, not bound by the Veoh case," said Michael Fricklas, Viacom's general counsel, in a statement. "We remain confident that we will prevail on the law and the facts. Today's decision contradicts the consensus that sites and copyright owners share the responsibility to use readily available tools to minimize copyright infringements."

How YouTube may benefit
YouTube and Google could be the big winner in all of this, said Fred von Lohmann, senior attorney for the Electronic Frontier Foundation. Viacom accused YouTube of infringing its copyright in a lawsuit filed in March 2007.

"Veoh's policies are very similar to YouTube's," von Lohmann said. "The judge gave Veoh a clean bill of health. I think the court in New York (where the Viacom-YouTube case is being heard) is going to take this ruling very seriously. The facts are very, very close."

In Martz's decision, he noted that this was not the first time a court has ruled that Veoh is covered by the DMCA's Safe Harbor provision.

"On August 27, 2008, Magistrate Judge Howard R. Lloyd, sitting in the Northern District of California, wrote that the court does not find that the DMCA was intended to have Veoh shoulder the entire burden of policing third-party copyrights on its Web site (at the cost of losing its business if it cannot)," Martz wrote in his decision.

"Rather, the issue is whether Veoh takes appropriate steps to deal with copyright infringement that takes place. The record presented demonstrates that, far from encouraging copyright infringement, Veoh has a strong DMCA policy, takes active steps to limit incidents of infringement on its Web site, and works diligently to keep unauthorized works off its Web site. In sum, Veoh has met its burden in establishing its entitlement to safe harbor for the alleged infringements here."

While the judge ruled against Universal Music group and delivered a blow to copyright owners, he also confirmed that such sites must take reasonable steps to stop infringement once they've been made aware of its existence on their sites.

The legal fight between Viacom and YouTube will likely go to trial sometime next year. Many observers thought that case would be the one to establish whether managers at YouTube and similar services would be required to police their sites. But YouTube vs. Viacom could be anticlimatic, according to von Lohmann.

"The ironic thing is that so much attention has been paid to the YouTube litigation," von Lohmann said. "But the law is actually being made in other cases because the YouTube case is turning into an eternal trench war. In the meantime, smaller companies like Veoh and Perfect 10 are defining the law. The courts have consistently given an interpretation (of the law) that has been in line with what Web 2.0 companies have been arguing."

Online video-sharing Web site Veoh announced Wednesday that it was laying off 20 percent of its workforce, or about 20 employees, in the face of a softening ad market.

A Veoh representative blamed the uncertain economic climate for the cuts, but insisted that company revenue was growing at a healthy clip.

"We know the realities of the market," spokeswoman Gaude Paez said Wednesday. "But no one knows how soft the ad market will get."

Paez went on to say that the company is "in good shape" and has "plenty of cash in the bank." Although she wouldn't reveal how much funding remained, she did say the company was growing revenue 20 percent each month and that revenue was in the "double-digit millions" range.

The layoffs come less than a month after it denied rumors that it was gearing up to lay off 40 percent of its workforce. At the time, Paez told CNET News that the only recent or planned cuts were the elimination of 15 to 18 jobs based in St. Petersburg, Russia, that were transferred to the U.S., Paez said.

The company announced in June that it has received another round of funding, this time for $30 million, from such new backers as Intel and Adobe Systems. Previous investors include Goldman Sachs and former Disney CEO Michael Eisner. The investment brought the company's total money raised to $70 million, giving the video-sharing site a valuation of about $120 million.

However, Veoh, which competes with YouTube and Hulu, hasn't managed to break out of the pack of also-ran video sites.

(Credit: Veoh.com)

The unprecedented decision by a U.S. district court judge to dismiss a copyright infringement case against video-sharing site Veoh is definitely favorable to Google, YouTube, and all user-generated sites, copyright attorneys say.

But the ruling doesn't mean that Google will necessarily prevail in the $1 billion copyright suit filed against it by Viacom, parent company of MTV and Paramount Pictures.

There are significant differences between Veoh and YouTube, according to Mark Litvack, a well-known copyright attorney who once worked for the Motion Picture Association of America (MPAA) and is now with the firm Reed Smith.

Veoh was sued by the Io Group, which does business as Titan Media, an adult entertainment company. According to court documents, Io said between June 1, 2006, and June 22, 2006, the company found 10 videos it owned--some as long as 40 minutes--posted to Veoh without its authorization. The Io Group filed suit on June 23, 2006, charging that Veoh had not done enough to protect its copyright.

The judge in the case, Howard Lloyd of the U.S. District Court for the Northern District of California found that Veoh and other sites that host user-generated videos can't be held solely responsible for vetting the clips. But what's different about Io and Viacom is that Io didn't notify Veoh of the copyright infringement on the site before filing suit.

In contrast, Viacom sent more than 100,000 "take-down notices" to YouTube prior to filing its $1 billion copyright complaint.

"The first reaction from Io was to sue rather than to work through the system," Litvack said. "They didn't find out whether Veoh worked to protect copyright, which it appears they do relative to the Digital Millennium Copyright Act."

What Litvack is referring to is the DMCA's Safe Harbor provision, which limits the responsibility of an Internet service provider for any criminal acts committed by users provided they follow a set of procedures. For example, ISPs must remove unauthorized content once they are made aware of it by the copyright owner, and must boot users who repeatedly violate copyright. They must also avoid profiting from any pirated content.

Litvack said that it appears Veoh followed these requirements and would have done so in Io's case had it been informed of the infringing content. Another important difference between Io and Viacom is that Io didn't prove Veoh's business model was dependent on piracy. In its ongoing lawsuit with YouTube, Viacom argues that YouTube is built on illegal content.

"What the Supreme Court said in the Grokster and Napster cases is that you have to look at the business model," Litvack said. "The files on Napster were something like 95 or 98 percent unauthorized copyright material that was illegally posted to the site. The copyright owners in that case demonstrated that Napster and Grokster were both well aware of the piracy on their site. There was no evidence that this was the case at Veoh."

Viacom issues statement following decision
The distinction was not lost on Viacom. Following the court's decision in the Veoh case, the media conglomerate issued this statement: "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."

Litvack said that Viacom's attorneys can still prevail provided that they prove YouTube is a business built on pirated material and that parent company Google has knowledge of the unauthorized clips on the site.

But even with these differences, Litvack said Lloyd's decision did not benefit Viacom: "I'd be hard pressed to say that the decision is a good precedent for Viacom."

Fred von Lohmann, a senior staff attorney at the Electronic Frontier Foundation, an advocacy group for Internet users, was much more optimistic about YouTube's chances after learning of the Veoh ruling.

One of the lawyers who worked on the Grokster case, von Lohmann said that: "I think it was a complete victory for Veoh and for the 11 or so other user-generated sites that have copyright cases pending. The decision was pretty much a vindication for sites that comply with the DMCA."

He conceded that Io's decision to sue first without sending any notice to Veoh may prove to be an important distinction between that case and YouTube's. He added that it shouldn't make much difference as long as YouTube "has been responding to all of Viacom's notices," which he said the company appears to have done.

But von Lohmann argues that the many similarities between Veoh's case and YouTube's may prove more significant.

He said that the court noted Veoh's efforts to protect copyright and said YouTube has long adopted many of the same practices, such as booting repeat copyright offenders and blocking videos that have been flagged as unauthorized so exact copies can't be reposted.

While von Lohmann acknowledged that Lloyd's decision in the Veoh case isn't binding and doesn't force other judges to consider his ruling, he thinks it will be a "very influential decision because it's the first to rule specifically on user-generated sites."

"Generally speaking, judges pay attention to what their colleagues have said in previous cases," von Lohmann said. "I think this strengthens all user-generated sites that comply with the DMCA Safe Harbor provision."

Veoh Networks, an online video start-up featuring content such as Lost, ESPN SportsCenter, and The Bachelorette, has begun a beta test of advertisements geared to users' earlier video-watching history and other activity at the site.

The new ad system "combines video consumption, searching, browsing, and community activity data from Veoh's more than 28 million viewers to deliver branded ads and content to viewers across multiple lifestyle and interest categories," the Los Angeles-based company said Monday. Tests of the system showed targeted ads perform more than twice as well as ordinary ads, the company said.

Behavioral advertising offers the promise of more closely matching advertisements to people who are likely to be interested, but they've led to controversy because of privacy issues stemming from potentially close monitoring of people's online activity. They've been a particularly touchy subject at social-networking sites, where users store a wealth of personal information and connections to friends and other contacts.

Behavioral advertising as a concept spans a range of monitoring possibilities: everything from showing ads related to what a user is doing on a site at a particular moment, to including the user's history of behavior on that site, to incorporating the user's personal profile data or contacts, to monitoring all of a user's Internet activity.

Veoh is optimistic about the technology, though.

"With more than a billion video views every quarter, Veoh is in the unique position to observe viewer behaviors and patterns across various forms and sources of content at an unprecedented scale," Veoh Chief Executive Steve Mitgang added in a statement.

The initial system will target ads to more than nine categories of users, but the company also can set up customized categories around specific advertiser preferences, Veoh said.