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Viacom’s Unusual Legal Tack Against YouTube–And Why It Just Might Work

There’s a curious thing about Viacom’s recently appealed copyright case against YouTube (NSDQ: GOOG). Viacom’s evidence and allegations focus on the YouTube of 2005 to 2007, not the YouTube of 2010. Why does this matter? Because it suggests that, for all the bad blood between the two companies, Viacom (NYSE: VIA) doesn’t actually object to how YouTube currently filters content and deals with copyright–or, if Viacom does have a problem with present-day YouTube, it thinks that case would be too hard to win.

What Viacom does have, however, after years of paying lawyers to dig for dirt, is a very unflattering portrait of the young YouTube. And here’s why that might still be enough to win.

Since 2007, Viacom’s lawyers have combed through a mountain of emails and instant messages, and found much of what they were looking for. YouTube’s founders and early employees knew there was a lot of pirated video on the site, even offering estimates that copyrighted material made up a majority of their site. YouTube executives wrote that “the truth of the matter is, probably 75-80% of our views come from copyrighted material.” (In a declaration, co-founder Steve Chen says the quotes in Viacom’s briefs were taken out of context.) In its court briefs, Viacom noted that “Google’s pre-acquisition due diligence… confirmed that at least 60% of YouTube video views were of premium copyrighted content, and at most 10% of those premium views were of authorized videos.”

At one point co-founder Jawed Karim uploaded copyrighted video himself, apparently from an aviation website, and was scolded by Chen, who wrote: “[J]awed [i.e. Karim], please stop putting stolen videos on the site. We’re going to have a tough time defending the fact that we’re not liable for the copyrighted material on the site because we didn’t put it up when one of the co-founders is blatantly stealing content from another site and trying to get everyone to see it.”

Why all the focus on the early days of YouTube? One possible reason: That’s all Viacom believes it can go after. The internet has moved on, and even Viacom isn’t seeking damages related to YouTube’s behavior after 2008. That’s essentially an admission that the YouTube of today is legit-or at least legit enough-even in Viacom’s eyes.

Viacom declined to comment for this story about its view of present-day YouTube.

While discussing what a startup was saying about handling user content in 2005 feels like ancient history in internet terms, it still matters. When the U.S. Supreme Court issued the decision that shut down the file-sharing site Grokster in 2005, it created a legal doctrine known as “inducement” to infringe copyright. That basically means a service can be on the hook for heavy penalties if it at any point encouraged users to break copyright law — even if the company subsequently changed its marketing message. That doctrine has led lawyers to focus on the early behavior of companies, when those firms may be more apt to take greater risks to land new customers.

Given that it’s still not clear what kinds of online services courts will deem “bad guys,” this focus on portraying the young YouTube as a service run by scofflaws-trying to taint YouTube with some kind of copyright “original sin” it can’t live down-looks like a sound legal strategy. It’s worked before. Here are some examples:

»  Napster. The original explosive free-music service, Napster actually held copies of copyrighted material on its own servers. Later peer-to-peer services avoided such egregious behavior. Yet courts have shut some of them down anyhow, often by somehow connecting them to Napster, or to Grokster, a peer-to-peer service shut down after it lost its case before the U.S. Supreme Court in 2005.

»  Aimster. In an opinion written by the famed Chicago appeals court Judge Richard Posner, the defendant Aimster “should have known” that its users were illegally swapping files: “Willfull blindness is knowledge.” Aimster didn’t qualify for the “safe harbor” under the Digital Millennium Copyright Act that has protected YouTube, because “far from doing anything to discourage repeat infringers of the plaintiffs’ copyrights, Aimster invited them to do so, [and] showed them how they could do so with ease using its system.”

»  Grokster and Kazaa. These two services were part of the first wave of next-generation file-sharing services. Rather than hosting files directly as Napster did, they simply acted as indexing services that allowed users to efficiently swap files with each other. Since Grokster wasn’t holding the material themselves, both a Los Angeles federal district court and a panel of judges at the U.S. Court of Appeals for the 9th Circuit cleared Grokster of wrongdoing.

But those decisions were then overturned by the Supreme Court’s decision in MGM v. Grokster. What was the problem with Grokster? Importantly, they reached out to former users of Napster, “the notorious file-sharing service.” Former Napster users were “a known source of demand for copyright infringement,” and by reaching out to them the new services were “inducing” copyright infringement. Grokster promptly went under, as did Kazaa, after it reached a settlement to pay $100 million to record labels. (Kazaa today is simply a little-known subscription music service, like Napster, with no connection other than the name to the original file-sharing company.)

»  Limewire. The Limewire file-sharing service probably peaked in popularity around 2006. This October, Limewire was ordered by a New York court to stop distributing its software. So what did Limewire-which, like Grokster and Kazaa, wasn’t hosting any copyrighted material and said it would comply with take-down letters from copyright owners-do wrong? It reached out to Napster users.

In her injunction order, U.S. District Court Judge Kimba Wood wrote that she wasn’t happy with how Limewire executives initiated “press campaigns on college campuses relating to ‘file-sharing and getting free MP3’s'”; the company also hired campus reps at “Napster-banned colleges” and ran a “Napster Independence Day” promotion. And it bid on search keywords to get its advertising in front of Google users who typed in phrases like “replacement napster” and “napster download,” as well as searches related to “”kazaa” and “morpheus.” Another mistake: back in 2000, Limewire conducted tests of its own system efficiency by doing searches for copyrighted content-including the “definitive test,” running a search for Sinead O’Connor’s song “Nothing Compares 2 U.”

Limewire cut much of that behavior out by 2006, following the Grokster decision. It implemented filters and made users swear they wouldn’t use the service for copyright infringement before they were allowed on. But it was all too little, too late for Judge Wood-LimeWire had already built up its user base and profitability by blowing off copyright law, and that “original sin” was to be the service’s undoing.

While U.S. courts have a long and growing history of shutting down a variety of file-sharing services, there’s no such history with regard to user-generated content sites like YouTube. There’s also the fact that user-generated video sites are widely used now and have a more “wholesome” image than file-sharing sites. (Would Barack Obama have shared videos over Grokster?)

In his order favoring YouTube, Judge Louis Stanton largely ignored the dirt the two companies spent millions digging up. He ruled that YouTube had done what was required of it by law, and that Viacom would have to police its own copyrights. But Viacom is looking to the history of court victories over file-sharing sites to buttress its appeal. And from Kazaa to Grokster to Limewire, courts have been willing to issue harsh punishments even to file-sharing services that dramatically change their ways.

For entrepreneurs and investors looking to build the next big thing in online services, this focus on early behavior-the hunt for copyright “original sin”-isn’t a good thing. The kind of careless talk at the early YouTube might not be much different than what happens at lots of other startups. But the desire to compete and profit can be made to look suspect by law firms that have lots of time to money to hunt through piles of documents and arrange facts in the worst possible light.

4 Responses to “Viacom’s Unusual Legal Tack Against YouTube–And Why It Just Might Work”

  1. no personcommittee dot or g .. the other case against YouTube that has never seen a single article written about it in any major media or news source. *except a couple web articles regurgitating Chad’s close buddy Michael Arrington, and 1 legal journal entry* It’s the case you’ve probably never heard about. Well, back to my ghetto.

  2. Chairman Miao

    The article states: “Napster actually held copies of copyrighted material on its own servers. Later peer-to-peer services avoided such egregious behavior.” That is incorrect. Napster ran a centralized directory service, but the actual infringing copies moved from Peer to Peer (why they call it that, duh), and those copies never transited through Napster servers.