Veoh CEO Steve Mitgang, who left Yahoo to take the helm at Veoh just a few weeks ago, said in a statement that Universal "prefers to take actions that are designed to stifle innovation , shut down new markets, and maintain the status quo instead of working to change and evolve models for today and the future."

Universal spokesperson Peter LoFrumento responded that, unlike YouTube, with which Universal launched a content-sharing deal last October, Veoh is "trying to build a business on the backs of our artists and songwriters without fairly compensating them for the use of their works. It is perpetuating a disservice to the entire creative community."

DMCA and Safe Harbor

Veoh has asked for declaratory relief, a preemptive defensive move in which the court, if it agreed with Veoh, would issue a finding that the online video business is protected by the DMCA. If Veoh were to win its motion, Universal would be at a distinct disadvantage in suing for copyright infringement.

The DMCA Safe Harbor provisions protect Internet businesses from liability when users upload infringing content. The protection is available to "service providers" who provide an automated method for users to transmit content "through" their system to the Internet.

Under the DMCA, providers waive this protection if they don't respond to a take-down notice by the copyright holder. "Consistent with our policy, [we] are prepared to respond when and if UMG provides us with DMCA notice," Mitgang said in his statement.

Because Veoh appears to qualify as a service provider under DMCA and claims that Universal has not provided a take-down notice, it seems to have a strong argument, suggested Denise Howell, an intellectual property attorney in California.

A Preemptive Strategy

The motion for declaratory relief "is a good strategy when you've been threatened, feel you have a strong legal position, and want to take preemptive measures. Universal can now assert its claims via cross-action," Howell said.

Veoh's spat with Universal could have an impact on the big daddy of copyright-infringement cases, Viacom's $1 billion suit against Google-owned YouTube. Indeed, Google recently won a case against soft-porn producer Perfect 10 in part by claiming DMCA Safe Harbor protections. Perfect 10 had claimed that by caching Web sites that illegally copied Perfect 10's images, Google was secondarily liable for copyright infringement, but Google successfully argued that the DMCA protected it from liability for other sites' infringements.

In the case of MGM v. Grokster, the U.S. Supreme Court held that Grokster was secondarily liable for copyright infringement by its users. Secondary liability is imposed, the Court said, when one "intentionally induce[s] or encourag[es] direct infringement." Grokster, by word and deed, showed a "purpose to cause and profit from third-party acts of copyright infringement."

If the courts decide against Veoh or Google and its YouTube property, the legal landscape for such Web 2.0 sites could be substantially altered. "Google has basically been following the advice of the best lawyers in Silicon Valley," Electronic Frontier Foundation's Fred Von Lohmann said at the time Viacom filed its case. "If Viacom wins, that would call into doubt all of the business models that relied on the same kinds of legal advice."