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.
In spite of the DMCA's impact on the Web, it is still a relatively young law, say legal experts. It is still being challenged, and a long body of case law firmly establishing its breadth and limits has yet to be established. "The law is still developing in this area and that is probably going to happen for a while," says Jennifer Urban, director of the USC Intellectual Property & Technology Law Clinic.
Judges and lawmakers are typically more sympathetic to arguments that protect companies from rights holders' lawsuits when their industries are still nascent. Few want to squash a developing industry and few rights holders want to spend thousands to millions suing a company that can't offer them substantial compensation. In recent years, however, many Web sites have started to sell ads against their user-generated content, giving rights holders the ability to seek higher damages and argue that the young industry has grown up.
Rethinking Users' Latitude
Already, there have been rulings limiting the scope of the DMCA. The decision against peer-to-peer file-sharing company Grokster in 2005 created case law that made sites more vulnerable to lawsuits. Under the ruling, sites could be liable for users' actions if they took measures that deliberately encouraged users to do illegal things. In its lawsuit, Viacom is arguing that YouTube is "inducing" users to commit illegal actions by highlighting copyrighted videos in areas such as YouTube's most-watched section. Viacom also argues that YouTube wants illegal content to stay on the site since it potentially profits from the additional traffic such content draws in. "We don't know if the court is going to buy that argument, but the consequences are enormous," says Electronic Frontier Foundation senior staff attorney Matt Zimmerman. "It will depend on the way the ruling comes down."
Viacom has been clear about its plans for YouTube users. The company says it has no plans to go after people who watched a few episodes of The Daily Show or The Colbert Report. "The information we've requested will be used to support Viacom's claims that Google and YouTube are infringing its intellectual property," says Mike Fricklas, Viacom's general counsel. "I also can say with complete certainty that we will not use any of the data provided to pursue individual end users."
As for the DMCA laws, Zimmerman and Urban both believe they should provide protection to YouTube. After all, it takes down material once it's notified and, according to Google, tries to keep the same infringing material from being posted again.
Ultimately, however, the judge will have to decide whether Google or YouTube is liable. And, if Judge Louis Stanton rides the current wave coming out of Europe, Web sites may have to seriously rethink how they manage their users.