Appeals Court Cites ‘Many Hurdles’ In Viacom-YouTube Appeal

More than a year after a federal judge threw out Viacom’s $1 billion claim against YouTube (NSDQ: GOOG), the parties were back at it today before an appeals court. The court will decide whether one of the largest copyright cases in history can be put to rest or if 63,000 clips from YouTube’s early days should instead be put before a jury.

The epic copyright case began in 2007 when Viacom (NYSE: VIA) sued YouTube and its new owner, Google, over unauthorized Jon Stewart and South Park clips that appeared on the fledgling video site. Shortly after, a group of music and sports plaintiffs, led by the English Premier League, filed a related suit.

The cases turned on whether YouTube had lost the protection of a so-called safe harbor — which shields Internet companies from liability for the acts of their users – because it had allegedly turned a blind eye to copyrighted content on its site. A federal judge dismissed the case without a trial in June of 2010 after finding that the safe harbor did indeed apply to YouTube because the site did not have specific knowledge of infringing videos.

Before a panel of three appeals court judges, Viacom argued today that the lower court made an error by not putting the story of YouTube’s early days before a jury. Viacom’s lawyer, Paul Smith, claimed that YouTube’s founders chose to ignore copyrighted content in order to grow their business which they eventually sold to Google for $1.6 billion. In response to a question from the court about YouTube’s decision to provide filters that helped content owners find and screen their content, Smith said the company used the filters as a “hostage system” – forcing owners to sign a license before they could use the filters.

The judges frequently appeared skeptical of sending the case back to be heard by a jury, noting the difficulty of determining which of the thousands of clips were actually infringing and how much to award in damages. “Is a jury going to determine YouTube’s actual knowledge or awareness with regard to 63,000 clips?” asked a member of the panel.

YouTube’s lawyer, Andrew Schapiro, urged the court not to disturb the lower court ruling, saying that it is important for immunity laws such as the safe harbor to provide clear boundaries so that Internet companies can operate free of legal uncertainty. The court appeared receptive to Schapiro’s position that it was not the job of YouTube to monitor for infringing content but instead that of the copyright holders. The lower court had partly based its decision on the principle that YouTube had to have more than a general awareness of people uploading unauthorized files – to be found liable, the company also needed to have specific knowledge of when and where the infringement was taking place.

The court repeatedly brought up English soccer matches to call attention to what might be the plaintiffs’ strongest argument – that YouTube had lost its immunity by turning a blind eye and enriching itself from the copyright infringement. How, the court wondered, was Google able to show advertisements for Premier League gear next to clips of Premier League matches yet not at the same time recognize that the clips infringed copyright? The judges also asked about evidence that suggested that executives had asked for the number of sports clips on the site in order to determine how much YouTube was worth.

Schapiro responded that the company had been attempting to monitor more than 500 million clips and that it was impossible to determine which were infringing without a direct notice from the copyright owners.

The essential issue the appeals court must determine is whether the lower court jumped the gun by dismissing the case. Early in the hearing, one of the appeals court judges noted that there were “many hurdles” for the plaintiffs to overcome in order to knock down the summary judgment. The court will hand down its ruling in the coming weeks or months.

For more on the background to the case, see our preview from this morning.