Website's clips in suit's crosshairs

Simmering tensions exploded into all-out war Tuesday between the world’s biggest Internet company and the traditional media conglom that’s feeling the most pain from the Net.

Viacom’s decision to sue YouTube and its corporate parent Google for $1┬ábillion reflects MTV Networks’ vulnerable position as it loses young viewers to the Internet and raises major questions about the Digital Millennium Copyright Act, the law that governs online piracy.

Ironically, Viacom’s MTV2 was the first network to formally use YouTube for promotion early last year. But by the fall the conglom asked YouTube to take down several thousand long clips, and last month it ordered the site to remove more than 100,000 pirated videos after talks about a revenue-sharing pact broke down.

Netco’s discussions with other congloms have also stalled recently, but Viacom has been the most publicly hostile, a position that reached its apex with Tuesday’s lawsuit.

Many MTV Networks programs appeal to young auds and are clip-friendly. It’s thus no surprise that “The Daily Show” and “Flavor of Love” have been among the most popular pirated shows on YouTube.

There’s no way to tell what, if any, impact that has had on the programs’ offline viewership. Comedy Central, for instance, saw ratings rise last year, while MTV has been struggling.

It’s undeniable, however, that Viacom has been investing hundreds of millions on digital businesses in the past few years but still suffers from a severe case of YouTube envy. According to February data from Nielsen/Net Ratings, YouTube’s 42 million unique viewers in the U.S. dwarf the 30 million who spent time at all of Viacom’s Web sites combined.

Viacom insiders claim that’s in part because there’s so much infringing material that should be exclusive to its Web sites and those of partners. But it’s impossible to test whether that’s true or whether the conglom’s digital strategy is simply lagging, and it’s looking for a scapegoat.

“There is no question that YouTube and Google are continuing to take the fruit of our efforts without permission and destroying enormous value in the process,” Viacom said in a statement.

But Google’s general counsel Kent Walker shot back: “YouTube has become even more popular since we took down Viacom’s material. We think that’s a testament to the draw of the user-generated content on YouTube.”

Viacom would benefit hugely if it got a court injunction forcing YouTube to effectively filter copyrighted videos, a move that might temporarily shut the site down.

More likely, if the case goes well for Viacom, would be a settlement from Google’s $11 billion cash horde. Experts say the $1 billion figure is less than what Viacom could legally ask for but more than it is likely to get in a settlement.

When it bought YouTube, Google set aside more than $200 million worth of stock to deal with potential lawsuits.

Previous copyright suits against popular homes for pirated content on the Net — such as the entertainment industry’s landmark lawsuit against Kazaa and Grokster — were undertaken by a united front of studios, labels and guilds under the aegis of the RIAA and MPAA. But Viacom is embarking on its legal crusade against YouTube alone.

The Screen Actors Guild was one of the few groups to publicly support Viacom’s suit, in a vague statement that said, “We support any efforts to protect copyrighted materials.”

Among major congloms, Time Warner seemed the most friendly toward the suit. A TW spokesman told Reuters: “It is clear from this lawsuit that it is time for YouTube to remove unauthorized material from its site. We are in talks, and hopeful we can work together toward a solution that would effectively identify and filter out unauthorized material and license copyrighted works for an appropriate revenue share.”

Of course, other congloms have their owns reasons to sit out a legal battle, at least for the time being.

Despite a recent breakdown in talks, CBS has a modest deal with YouTube and is thought to be interested in further licensing with its parent company Google.

Disney has largely focused on its internal digital strategy and stayed out of the public fray.

Suits from News Corp. or Sony would be awkward since MySpace and Grouper — Web sites the congloms respectively own — are both being sued for copyright infringement by Universal Music Group.

That leaves NBC U, which has sent a strong letter to YouTube demanding that it do more to fight piracy, as the most likely partner in a suit. But the company on Tuesday was hedging its legal options.

Viacom reportedly talked to other companies to gauge their feelings about a suit but concluded the agendas of the various congloms would overly complicate the suit’s aims.

If and when it reaches trial, the lawsuit will be a major test of the DMCA in the age of viral video, particularly the law’s “safe harbor” provision meant to protect online service providers.

“The law is relatively short and clear about what we need to do, and obviously we have studied and made sure we follow it,” said Alexander Macgillivray, Google’s associate general counsel for products and intellectual property.

Under the DMCA, Web sites can be held liable if they preemptively filter some copyrighted content but not all. Legal experts say that’s why YouTube hasn’t moved beyond obeying takedown notices except from companies such as Warner Music and the BBC, with which it has a partnership protecting it from a lawsuit.

In other words, unless and until YouTube is able to filter out every single piece of pirated video, making its best effort to preemptively block Viacom content from being uploaded could cost it much more money than just responding to takedown requests.

“The DMCA handcuffs publishers from doing the right thing, because if we try to delete content but stuff slips through, we could get sued,” said Aaron Cohen, CEO of video Web site Bolt.com, which recently settled a similar lawsuit with UMG and has agreed to be acquired by GoFish.com.

Viacom, however, says that Google has the technology to filter any content it wishes, a claim the Netco denies.

“There isn’t a good example of this out there and working,” Macgillivray told Daily Variety. “But we are trying to come up with one to be part of that example.”

YouTube had previously said it would have a content filtering system working by the end of 2006. Its failure to hit that deadline enraged many in Hollywood.

But Google claims it is still protected by safe harbor because, per the law’s provisions, it always takes down pirated content promptly when copyright owners complain, as it did for Viacom’s 100,000 clips last month.

That’s a bone of contention for the conglom, however, which claims it’s a shirking of responsibility.

“YouTube’s intentional strategy has been to (shift) the entire burden — and high cost — of monitoring YouTube’s infringement onto the victims of that infringement,” Viacom said in the suit.

While indeed YouTube appears to be following the DMCA in relying on takedowns, experts say the Netco may still be liable if it knows about copyright infringement or is profiting off of it.

No one could argue that Google execs are unaware YouTube is full of pirated content. The question is whether it must know about specific instances.

“It may surprise you to know we don’t look at all the clips on YouTube,” Macgillivray said. “It’s hard for us to know about specific cases. But we do have the technology to make sure the exact same clip isn’t uploaded after we take it down.”

Viacom said in its lawsuit that’s not a good enough answer.

“Users routinely alter as little as a frame or two of a video and repost it on YouTube where it will remain until YouTube receives a new takedown notice.”

Similarly, Google is clearly earning money from ads on YouTube. But the Netco doesn’t run paid advertisements next to actual video clips — only on the home page and search results pages — a move legal experts say is no accident.

“They may claim they’re not getting any direct financial benefit from the Viacom content, but the argument is also about the overall enterprise value,” said Michael Sherman, chair of the entertainment group at law firm Jeffer, Mangels, Butler & Marmaro.

He pointed out that Viacom argues numerous times in its lawsuit that YouTube built itself up to the $1.7 billion value that Google paid for it in large part on pirated content.

(Michael Learmonth and Dave McNary contributed to this report.)

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