What Veoh’s Court Victory Means for Online Video Sites

Veoh had a good day in court yesterday, with U.S. District Judge A. Howard Matz saying its copyright policies are in the clear with regards to a 2-year-old lawsuit brought by Universal Music Group (s VIV) against the video site.

In the two years Veoh spent fighting UMG, it saw its standing in the video portal market disintegrate, and now it focuses on an alternate product, the Veoh Compass search plug-in. Founder and CEO Dmitry Shapiro said the company spent “many millions of dollars” on legal fees, with the lawsuit impacting employee morale, preventing the raising of additional capital, and hindering the closing of strategic partnerships. (Though this was not the only lawsuit Veoh was fighting.) So — if we read the situation as Veoh taking a bullet for the rest of the video industry — what does Matz’ judgment mean for everybody else?

First of all, UMG has already said it intends to appeal immediately, so this isn’t over yet. But with Viacom-YouTube (s VIA.B) (s GOOG) litigation ongoing, and a gap in the legal precedent for the application of the DMCA “safe harbor” — which video sites use to protect themselves from users uploading infringing content, as long as they take down videos right after copyright holders alert them — what does the Veoh decision mean in practical terms? Here’s what Matz said Veoh was doing right:

  • Veoh’s terms of use and upload process warn against copyright infringement.
  • When it receives a takedown notice, the site disables access to the allegedly infringing video within two days.
  • Veoh used “hash filtering” starting in 2006 to prevent repeat uploads. It implemented Audible Magic filtering in Oct. ’07 and in the summer of ’08 went through and filtered its back catalog. Matz said he doesn’t think it’s feasible for Veoh to verify Audible Magic’s database of songs.
  • Veoh has terminated thousands of accounts for repeat copyright violations.

Matz actually takes issue with the way UMG and the RIAA handled copyright infringement on Veoh, saying they did not adequately complete the takedown notice process. UMG actually hadn’t sent Veoh takedown notices, though the RIAA did provide the site with a list of artists. Matz said the statute actually requires a list of infringing works, identifying each instance with “information reasonably sufficient to permit the service provider to locate the material.”

Matz also said the financial benefit Veoh derives from advertising on its service does not make it liable for infringement, because it makes good efforts to curtail its users’ infringing activity.

Because this decision was made at the federal district court level, it’s not binding in other courts, though future cases could follow its reasoning if they think Matz did a good job laying out the issues, said Jonathan Steinsapir, a Santa Monica-based attorney with Kinsella Weitzman Iser Kump & Aldisert.

Steinsapir said he did think the way Matz laid things out was “well-reasoned,” and that it could have broader implications. He said via email that:

Judge Matz’s decision in UMG v. Veoh is definitely a big win for online video providers. The Court emphatically rejected UMG’s attempts to get around the DMCA’s immunity by arguing, among other things, that Veoh should be stripped of immunity because it knows, at a very general level, that there is content on its site that infringes others’ copyrights…It was not enough for UMG to prove that Veoh generally knew that some users inevitably upload content to its site that infringes someone else’s copyrights.

The highly litigious UMG has faced lesser video site opponents in the past — or at least ones that were driven out of business by its lawsuits, like Bolt and Stage6. Another, Grouper, sold itself to Sony (s SNE) in part to get help fighting UMG. Veoh, which is known to be shopping itself as an acquisition target, lasted at least long enough to take this one through to a court decision. That’s largely because Veoh used to be incredibly well funded, with $69.5 million invested by Intel Capital (s INTC), Adobe (s ADBE), Gordon Crawford, Shelter Capital, Spark Capital, Goldman Sachs, Michael Eisner’s Tornante Company, Time Warner Investments (s TWX) and Jonathan Dolgen.

This article also appeared on BusinessWeek.com.