SHERMAN OAKS, CALIF. — At an Internet cafe here, Barry Delatto toggles his computer screen from stock prices to e-mail and finds a URL for YouTube, the free website where users can post and watch video clips.
"It's [an e-mail] from my girlfriend," he says, clicking on a clip from the "Colbert Report," a mock-news TV show on Comedy Central. "I better watch this before the courts shut YouTube down. Either that, or make them pay so much nobody will do this anymore."
It's a scene repeated so often – 160,000 free video clips viewed at least 1.5 billion times – that Comedy Central's parent company, Viacom Inc., is asking the courts to make YouTube stop unauthorized postings of copyrighted video.
The suit has been followed by news Thursday that News Corp. and NBC Universal plan to create an online video site stocked with TV shows to compete against Google by controlling how their own shows are watched online. The new idea may launch as early as summer and help News Corp. and NBC from losing advertising dollars that have been siphoned off to the Web.
Viacom's lawsuit, filed March 13 in a US District Court in New York, seeks $1 billion in damages and asks the court to make YouTube, acquired by Google last year, halt the practice.
Much is at stake. Most obvious is billions of dollars in advertising for YouTube and Google. The outcome could also set precedent governing when and how video content crosses from TV screen to computer screen, as well as determine how Delatto and other users post, watch, and share videos online.
At the center of the case is a major federal copyright law: the 1998 Digital Millennium Copyright Act (DMCA). It endeavors to strike a balance between "promoting the continued growth and development of electronic commerce and protecting intellectual property rights."
"One [question] is whether the DMCA has teeth or can content owners sue hosting sites willy-nilly, thereby forcing such sites to block all content," says Mark Sigal, cofounder and CEO of vSocial Inc., an online video service provider. "Second is the larger question of whether consumers have the right to capture snippets of their favorite shows and virally distribute them. Is that a 'fair use'?"
No matter what happens – a finding for or against YouTube, or a settlement – the suit will help define the future of digital media for millions of users of online video sites, say experts.
The case "is the one everyone is watching because these are the two giants in the Internet kingdom, each representing a different philosophy on how to grow and succeed," says Leonard Fuld, president of Fuld & Co. in Cambridge, Mass., a research and consulting service for Fortune 500 companies. "Google wants to be the arbiter of all knowledge, and Viacom wants to control its own destiny, and those are sometimes competing objectives."
In its court filings, Viacom states that YouTube willfully infringes on copyrighted material from its shows on MTV Networks, VH1, Nickelodeon, Comedy Central, and other cable networks. It does so "on a massive scale," Viacom says, by streaming video snippets of shows ranging from "The Daily Show" to "SpongeBob SquarePants" to "MTV Unplugged" more than 1.5 billion times. The real number is much larger because, Viacom alleges, YouTube makes it difficult for copyrighted content to be easily detected.
The media giant seeks a permanent injunction to require YouTube to "employ reasonable methodologies to prevent or limit [copyright] infringement."
"We believe that we own our content and that, for any use of it, someone needs to seek our permission and we should be paid appropriately," says Carl Folta, Viacom spokesman. "This [suit] is something we feel we have to do to enforce our rights of ownership."
Google and YouTube say they comply with copyright law under the "safe harbor" provision of DMCA. That provision exempts hosting companies such as YouTube from liability for infringing copyright if the website takes copyrighted material down once it is notified the video has been posted.
"We feel we go above and beyond the DMCA law," says Glenn Brown, product counsel for YouTube and Google. Those additional measures include an automated takedown tool that can provide a quick search for copyrighted content, which YouTube offers to anyone who asks, he says. YouTube also has a 10-minute limit on videos, which limits abuse; a three-strikes provision that cancels the account of any three-time rule breaker; and a digital "hashing" feature that records when a file has been taken down to help prevent re-uploading of the same or similar material, he says.
"The DMCA ... has struck a very nice balance between copyright holders and safe harbor for neutral hosts of content, like us," says Mr. Brown. The law rightly requires copyright holders to be the police, not YouTube, he adds, noting it's hard to know the copyright status of a work. "We need [copyright holders'] help to know what is authorized and what's not."
Experts on intellectual property rights disagree about who has the stronger case.
Because YouTube is only a conduit for people to post videos, it can't be held liable for the content on the site unless it refuses to remove clips at the request of a copyright holder, says Larry Iser, an intellectual property lawyer and a partner at Kinsella, Weitzman, Iser, Kump & Aldisert in Santa Monica, Calif.
Nor does Viacom have the right to demand that YouTube screen its site for Viacom content and remove it, says Mr. Iser. The entertainment company can ask the website to remove only those copyrighted videos that Viacom finds. "Congress chose to balance the rights of intellectual property holders with the rights of an Internet service provider to run a business," he says.
But David Axtell, intellectual property specialist at the law firm Leonard, Street, and Deinard in Minneapolis, says YouTube probably violates DMCA's "safe harbor" section because "safe harbor" prohibits financial benefit from video posting.
"If you go back to the dawn of YouTube, it is hard to say with a straight face that it became popular for quirky, homemade videos," says Mr. Axtell. "YouTube became popular because of one-stop video shopping for copyrighted stuff off programming."
Still others say the suit amounts to Viacom posturing to force YouTube into a pact to distribute Viacom content. "This has to be seen as a mating ritual, the precursor dance before getting down to brass tacks on dollars and coordination of strategy," says Mr. Sigal.