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Revived Viacom suit spells trouble for Google

Logo: Google; Modifications: Erik Sherman

(MoneyWatch) Almost 18 months ago, Viacom (VIA) lost its copyright infringement lawsuit against Google (GOOG). Guess what? It's back.

A district court had dismissed the suit in 2010 after ruling that Google was protected by a 1998 U.S. law that provides a legal "safe harbor" when copyright-infringing material is posted by consumers onto an Internet service. But a three-judge panel of the 2nd Circuit of the U.S. Court of Appeals on Thursday reinstated the lawsuit, saying that the lower court erred in its judgment.

Although Viacom and Google seemed to have settled their differences -- the two companies are now partners in some content deals -- the revived litigation poses serious risks for Google. The suit also has broader implications for the Internet.

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Google's defense hung on the safe-harbor provision of the Digital Millennium Copyright Act (DMCA). Under that law, a company could follow a series of steps and provisions to avoid violating copyrights for material that its customers posted.

One of these requirements is that the content publisher cannot "induce, enable, facilitate, or conceal infringement." To avoid that, a company must not edit, review, or otherwise take control of the material. If it does, then it effectively becomes complicit in the act, because it knows in advance that is making illegal use of the published material.

In other words, to paraphrase Google's code of conduct, if it didn't know about the copyright infringement in advance, then it wasn't being evil. Except that in this case, awareness is in the eyes of the beholder. According to the appeals court, a jury might have reasonably decided that Google actually did, in fact, know about the copyright infringement in advance and simply refused to address it.

The federal court's ruling is a major setback for Google. A matter that seemed long settled is once again in play. Worse, the legal protection provided under the DMCA appears to be less absolute than Google had claimed. That means some party could sue Google -- or any other Internet company that allows users to post material -- and allege that the company in question was aware of the infringing activity.

Will Viacom again take up its suit? That's hard to say. Some of Viacom's properties -- Paramount and Comedy Channel, for example -- now have YouTube channels. The media company could decide that it is unwise to renew its fight with Google, which is today a source of revenue for Viacom. But Viacom's decision to pursue the appeal, which led to the latest ruling, suggests that the company is at least considering moving forward with the suit.

Google may not be in the clear even if Viacom ends the litigation. Encouraged by the federal court's verdict, other content owners whose material appears on YouTube without their permission could file suit, while Google may no longer have what amounts to blanket protection under the DMCA.

More broadly, the court's action today to reinstate Viacom's suit against YouTube raises questions for entertainment firms, newspaper and magazine publishers, retailers, and other companies that let consumers post material. Any pattern of copyright infringement could suggest that the companies were aware of the activity and chose to ignore it, exposing them to legal liability.