Viacom's (VIA) $1 billion lawsuit against YouTube -- which is owned by Google (GOOG) -- went public Thursday after a federal judge ordered the release of documents in the three-year-old case. From the beginning, Viacom claimed that YouTube was awash in its copyrighted content, including popular shows like South Park and The Daily Show. Google has countered that it takes down infringing material when asked, as required by law.

For the last three years, the lawsuit has been grinding along mostly under the public radar, until Thursday, when the judge released competing briefs containing eyebrow-raising disclosures and sharp attacks. Meanwhile, Viacom and Google unleashed dueling press statements designed to win the battle for public opinion in the closely watched case.

Entertainment industry watchers view the case as a key battleground in the war over Internet piracy. The basic issue is whether YouTube officials knowingly encouraged copyrighted videos to be posted on the site. That would violate the "safe harbor" provision of the 1998 Digital Millenium Copyright Act that protects websites if they promptly remove infringing content. Each side is asking for summary judgment in its favor, prompting the release of the filings.

"Tale of Two YouTubes"

Eric Goldman, associate professor at Santa Clara University School of Law and director of the High Tech Law Institute, says that after three years, "the parties are both losers for not finding a way to settle this case."

"Only the lawyers win when two heavyweight contenders get locked into a cosmic death struggle," Goldman wrote Thursday. "Everyone else would be better off if Viacom and YouTube instead had poured their millions of dollars of legal fees towards developing innovative and profitable ways to serve consumers' interests. It's ridiculous that they can't find a way to do this."

But it's easy to see why the parties are so deadlocked: it's basically indisputable that YouTube's early success was due, at least in part, to infringing content -- music videos, TV shows -- which frequently went viral. The early YouTube emails clearly show the founders knew such content was driving growth. But even Viacom acknowledges that for the last several years YouTube has been compliant with take-down requests. YouTube users frequently see videos removed over copyright claims.

"Combined together, the filings tell a 'Tale of Two YouTubes,'" Goldman wrote. "Viacom focuses on YouTube of Yore, circa 2005-06, while YouTube's brief largely focuses on YouTube of Now."

A Question of Motives

Viacom is trying to show that YouTube flouted the DMCA before and after it was purchased by Google for $1.65 billion in 2006. Google maintains that it has been vigilant about following the law, and it accuses Viacom of hypocrisy for actually using YouTube as a promotional vehicle while simultaneously suing the site. In order to make its case, Viacom seeks to assign malevolent motives to YouTube's founders.

"YouTube was intentionally built on infringement, and there are countless internal YouTube communications demonstrating that YouTube's founders and its employees intended to profit from that infringement," Viacom said in blunt statement. "Google bought YouTube because it was a haven of infringement. Google knew that YouTube's popularity depended on infringing materials, with several senior Google executives warning that YouTube was a 'rogue enabler of content theft.'

"Instead of complying with the law, Google willfully and knowingly chose to continue YouTube's illegal practices," Viacom said.

Google: 'Safe Harbor' Protects Us

For its part, Google has long claimed protection under the DMCA's "safe harbor" protections for websites that promptly take down infringing material. And Google has long publicly discouraged users from posting copyrighted material.

"The DMCA (and common sense) recognizes that content owners, not service providers like YouTube, are in the best position to know whether a specific video is authorized to be on an Internet hosting service," Google said in a blog post written by Zahavah Levine, YouTube's chief counsel.

But then Google went further, accusing Viacom itself of secretly uploading its own content to YouTube, "even while publicly complaining about its presence there." Viacom "hired no fewer than 18 different marketing agencies to upload its content to the site," Google said.

Viacom "deliberately 'roughed up' the videos to make them look stolen or leaked,'' Google said. "It opened YouTube accounts using phony email addresses. It even sent employees to Kinko's to upload clips from computers that couldn't be traced to Viacom."

Further, "Executives as high up as the president of Comedy Central and the head of MTV Networks felt 'very strongly' that clips from shows like The Daily Show and The Colbert Report should remain on YouTube," Google added.

Bitter Charges Back and Forth

Viacom dismissed Google's blog post. "The statements by Google regarding Viacom activities are merely red herrings and have no relevance on the legal facts of this case," Viacom said.

Viacom asserts that "the law is clear that Google and YouTube are liable for their infringement," by pointing to the 2005 Grokster case, in which the Supreme Court found the file-sharing site liable because its intention was to facilitate copyright infringement, even if it didn't upload the offending material itself.

"By their own admission," Viacom said, YouTube "contained 'truckloads' of infringing content, and founder Steve Chen explained that YouTube needed to 'steal' videos because those videos make 'our traffic soar.'"

Google can point to its own supporting legal precedent, a recent case in involving Universal Music Group and Veoh, another web video site. In that case, the judge ruled that Veoh was "not liable for the copyright violations committed by its users," as CNET reported.

Google said Viacom had taken the early YouTube emails out of context, and then went on to mock Viacom, which it said "tried repeatedly to buy YouTube." Google produced a Viacom memo proposing that the company buy YouTube, saying it would be a "transformative acquisition."

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