Viacom vs. YouTube: Beyond Privacy

As Viacom is granted access to YouTube user records, a bigger threat to user-generated sites emerges: The law is increasingly siding with rights owners

by Catherine Holahan

Just before the holiday weekend, media giant Viacom (VIA) won a legal victory over YouTube that set off fireworks across the Internet. The July 1 ruling gave Viacom access to records of what people watch on YouTube, which is owned by Google (GOOG) and is the most popular video site on the Web. Bloggers and consumer advocates warned of the potential privacy violations, particularly if Viacom uses the information to track down and sue people who watch copyrighted video clips on the site.

But there's an even larger issue at stake than privacy: The legal tide may be turning against many of the most popular companies on the Web. Numerous Internet companies, from YouTube and Flickr (YHOO) to eBay (EBAY) and MySpace (NWS), have built their success on the participation of their users. In the past, the courts have been quite clear that if those users violate laws—by posting copyrighted video of Viacom's Comedy Central shows on YouTube, for example—the Web company is not liable.

Increasingly, however, the courts are siding with rights owners and ruling that Web sites are responsible for illegal submissions. The new legal position, if it becomes the standard for the industry, will have profound implications for Internet companies everywhere. They may have to change their business practices to proactively screen out user submissions that could violate laws. That could dampen the growth of Web sites that depend on user submissions, and, in some cases, make their business models untenable.

Are Takedown Rules Enough?

The Viacom legal victory in its ongoing $1 billion copyright infringement suit against YouTube is the latest example of a judge ruling in favor of content holders. Earlier this week, eBay lost its third court case with luxury brands concerning counterfeit items listed for sale by eBay's users (BusinessWeek.com, 7/1/08). A French judge ordered eBay to pay Louis Vuitton handbag manufacturer LVMH (LVMH.PA) $61 million in damages. In doing so, the judge rejected eBay's argument that it is not responsible for illegal items sold by users because it provides tools to request removal of infringing goods and takes them down once notified.

The French court's decision is not binding in the U.S., and European courts, in general, have been more sympathetic to rights holders' arguments against U.S. technology companies. However, lawyers with cases in U.S. courts are likely to argue the international precedents should, at least, influence the thinking of American judges faced with their own cases challenging whether takedown rules are sufficient to protect sites against liability.

Sympathy for Rights Owners

There are several reasons why the courts may be growing more sympathetic to rights owners' arguments. First, companies such as YouTube increasingly look like they're cannibalizing the revenues of content creators like Viacom. In the past, YouTube and Google could make a "fair use" legal argument because YouTube typically shows clips—not whole episodes. But now, content creators are trying to make money from appending ads to roughly the same clips and distributing them on their own online networks. Just take a look at all the ad-supported clips on Hulu, News Corp. (NWS) and NBC Universal's joint venture.

Second, the Digital Millennium Copyright Act (DMCA) may prove less of a legal shield for Web companies than it has in the past. Enacted in 1998, the law essentially protects Web sites from liability for their users' actions (BusinessWeek.com, 5/28/08), provided they remove illegal material once they are formally notified of its appearance on their site. The protections in the DMCA are among the main reasons sites across the Web—from social networks to media sites including BusinessWeek.com (MHP)—can solicit an array of user contributions.