Veoh Defeats Universal

Online video operator Veoh won an important court battle Sept. 11 when U.S. District Judge Howard Matz dismissed Universal Music Group’s copyright infringement lawsuit filed against it.

The issue was whether Veoh supported and induced infringing activity on its site. That’s what Universal contended when it filed the lawsuit in 2007.

Like YouTube, Veoh allows users to upload video. Although its terms of use explicitly prohibits infringing video, it should come as no surprise some users upload video footage that doesn’t belong to them, including clips of movies and TV shows as well as music videos.

It was the music video uploading that caught Universal’s attention, and ultimately led to the company’s lawsuit against Veoh, which counts Time Warner, Intel, Adobe Systems and Goldman Sachs among its many high-profile investors.

But Veoh had a good defense – at least good enough to persuade U.S. District Judge Howard Matz to dismiss the lawsuit. In defending itself against Universal’s allegations, Veoh claimed it was in full compliance with the Digital Millennium Copyright Act of 1998.

The DMCA, which covers a slew of situations that weren’t even imagined 11 years ago, requires providers to remove copyrighted content once it receives “take down” notices from rights holders.

That may have been pretty straightforward in 1998 when companies providing Web-hosting services worried they could be sued for the actions of their users. The concern during that time was that a hosting company might take it in the shorts if one of their users decided to post illicit MP3 files on their Web sites. By eliminating that liability – that is, as long as providers removed copyrighted material upon notification by the rights holders – Web companies were able to concentrate on hosting sites instead of policing them.

But 11 years later the DMCA’s provider clause is often cited by online companies operating services where users can upload pretty much anything under the sun. Like Veoh, if rights holders complain, the companies remove the infringing material from their sites.

But the key element in this equation is copyright holders must complain and issue takedown orders whenever they find their intellectual property posted on sites such as Veoh or YouTube. However, some entertainment companies insist such Web sites shouldn’t wait for the complaint, but instead should actively police their online real estate for copyright violations.

The problem, copyright holders contend, is that a rights holder could issue a takedown notice only to discover someone else has re-posted the infringing material, leaving the rights holders no option except to issue more notices.

Although that might not sound like an effective way to handle copyright violations, the alternative suggested by many rights holders – that companies operating sites like YouTube or Veoh must actively search for and remove copyrighted material – may cause more problems than it solves, if only because such efforts might be prohibitively expensive.

But then, so are lawsuits.

“We’ve been dragging a giant boulder on a chain. This frees us,” said Veoh CEO Dmitry Shapiro, claiming it cost his company “many millions of dollars” to defend itself against the lawsuit. “This lawsuit was simply Universal’s attempt to prevent innovation and shut down the company.”

Judge Matz’s dismissal of the lawsuit is not binding, meaning it doesn’t set a precedent for other courts to follow. But it might influence other courts to take similar action. Viacom is pressing a lawsuit against YouTube and parent company Google, claiming the two companies have the manpower and technology to block users from posting copyrighted material.

In response, Google and YouTube have claimed innocence, saying they comply with – you guessed it – the Digital Millennium Copyright Act.

Meanwhile, Universal says it will appeal Matz’s ruling.

Facebook’s Latest Milestone

Facebook has reached a point few in its business have yet to achieve – the company recently made more money than it spent.
Perhaps the person most surprised at this development is Facebook founder and CEO Mark Zuckerberg. That’s because the company had predicted it wouldn’t reach that particular benchmark until next year.

But reach it they did, as Zuckerberg noted on a Facebook blog posting, writing that his company had become “cash-flow positive” during its second quarter ending in June.

“This is important to us,” Zuckerberg wrote, “because it sets Facebook up to be a strong independent service for the long term.”
Zuckerberg’s statement merely means Facebook made more money than it spent during the second quarter and is not an indication the company might have actually made a profit. Other expenses, such as taxes and debt payments, could easily eat up all that extra cash Zuckerberg discovered at the end of the quarter.

But it’s a good sign for a company that has been valued in the billions although it hasn’t actually achieved profitability nor has it made a public stock offering.

On the other hand, maybe Facebook’s talent lies not in making a profit, but in accruing investors. The company has raised more than $600 million since it launched five years ago, and it’s latest big cash injection happened only a few months ago when Russian Internet investor Digital Sky Technologies invested $200 million in exchange for a 2 percent stake, valuing Facebook at $10 billion.

When Zuckerberg wasn’t blogging about money he was talking up Facebook’s user base, which now totals 300 million users worldwide.

If only Zuckerberg could talk those users into paying Facebook one dollar apiece, then he might have some real profit to blog about.