March 13 (Bloomberg) -- Viacom Inc., producer of ``The Daily Show,'' filed a $1 billion lawsuit against YouTube and its owner Google Inc. that would eliminate some of the most popular programming on the Internet's biggest video-sharing site.

The complaint, filed in federal court in New York, alleges ``massive intentional'' copyright infringement, New York-based Viacom said today in a statement.

Viacom, which had been in licensing talks with YouTube, escalated the dispute after failing to reach an agreement over the posting of almost 160,000 clips of shows such as ``South Park'' and ``The Colbert Report.'' The suit, which follows court challenges by News Corp. and producer Mark Cuban, is the most aggressive action so far against the video site.

``Viacom is taking a very strong stance,'' said James Goss, an analyst at Barrington Research in Chicago who rates Viacom shares ``outperform.'' ``The issue is control over what you own. With the lawsuit, they want to draw a line in the sand.''

Shares of Mountain View, California-based Google, the most- used search engine, fell $11.72, or 2.6 percent, to $443.03 at 4 p.m. New York time in Nasdaq Stock Market trading. Class B shares of Viacom, owner of MTV Networks and Nickelodeon, declined 9 cents to $39.48 in New York Stock Exchange composite trading.

`Brazen'

YouTube showed ``brazen disregard'' for copyright laws, Viacom said in the complaint, and has ``deliberately chosen not to take reasonable precautions to deter the rampant infringement on its site.'' The videos were viewed more than 1.5 billion times, Viacom said.

``We're confident about our legal position and we won't let this case distract us,'' said Alexander Macgillivray, Google's associate general counsel for products and intellectual property. Google removes unauthorized clips when notified and is giving content owners more ways to identify infringing material, he said.

YouTube, bought by Google for $1.65 billion last year, agreed in February to remove more than 100,000 Viacom clips after the companies failed to agree on payments for use of the shows, Viacom said at the time.

Arm Twisting

``They are trying to twist YouTube's arm as much as possible to extract better economic terms,'' said Youssef Squali, a Jefferies & Co. analyst in New York who rates Google ``buy'' and said he doesn't own the shares. ``They don't like the economic split.''

More than 133 million people visited YouTube in January, 14 times more than a year earlier, according to Reston, Virginia- based Web-use tracker ComScore Networks Inc.

``Lawsuits are generally not very good negotiating tactics with us,'' Google's Macgillivray said.

Broadcasters disagree on whether the benefits of added viewers on YouTube outweigh the potential loss of revenue. Google argues that YouTube delivers a younger audience and lets networks tap the online ad market.

The suit was filed after Google Chief Executive Officer Eric Schmidt said media companies will have no choice but to put their TV shows and movies on video sites such as YouTube.

``The growth of YouTube, the growth of online, is so fundamental that these companies are going to be forced to work with and in the Internet,'' Schmidt said in an interview aired last weekend on ``Conversations With Judy Woodruff.''

Earlier Court Action

This month, YouTube was ordered by a federal judge in Dallas to identify a user who posted films such as the new horror movie ``The Host,'' distributed by Cuban's company. In January, News Corp.'s Twentieth Century Fox subpoenaed YouTube to identify the person who was uploading pirated copies of the television shows ``24'' and ``The Simpsons.''

Cuban, the billionaire owner of the Dallas Mavericks basketball team, said last year that Google would be ``crazy'' to buy YouTube because of the potential for copyright lawsuits.

CBS Corp., the TV network owner that split off from Viacom at the beginning of last year, has called YouTube a ``huge promotional vehicle'' and has an agreement to show clips on the site. YouTube also has deals with NBC Universal Inc. and The British Broadcasting Corp.

Time Warner Talks

Time Warner Inc., the world's biggest media company, said it is in talks with YouTube about placing material on the site.

``We are hopeful that we can work together toward a solution that will effectively identify and filter out unauthorized material and license copyrighted work for an appropriate revenue share,'' spokesman Keith Cocozza said.

Viacom's suit is ``highly unlikely'' to go to trial, said Tom Selz, a copyright lawyer with Frankfurt, Kurnit, Klein & Selz in New York. ``This is a more of a `Hey, take us seriously.'''

Google failed to control YouTube or to implement copyright- protection measures such as filters, Viacom said in its lawsuit. Instead, Google added a feature on its own site that allows users to find videos on YouTube.

``YouTube has the power and authority to police what occurs on its premises,'' Viacom says in the complaint. ``YouTube proactively reviews and removes pornographic videos from its library, but refuses to do the same thing for videos that obviously infringe plaintiff's copyrights.''

In addition to cash damages, Viacom wants a court to order Google and YouTube to prevent illegal videos from being posted on the site.

``You would think that Viacom has a really strong issue here,'' said Ben Schachter, an analyst at UBS AG in New York. While the lawsuit could be a threat, Google executives clearly thought through the implications of buying YouTube. ``Common sense is saying one thing, legal issues are another matter.''

The case is Viacom International v. YouTube Inc., 07-cv- 2103, Southern Distict of New York (Manhattan).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Jonathan Thaw in San Francisco at jthaw@bloomberg.net

Last Updated: March 13, 2007 17:49 EDT