On October 18, 2011, the U.S. Court of Appeals for the Second Circuit heard oral arguments in an appeal filed by Viacom, which is seeking to overturn a lower court’s ruling that Google-owned YouTube did not commit copyright infringement in making copyrighted works available via the popular media-sharing website. Viacom argued that YouTube’s business is generated and facilitated by the use of copyrighted material and that the safe-harbor provisions in the Online Copyright Infringement Liability Limitation Act (“OCILLA”) and in the Digital Millennium Copyright Act (“DMCA”) do not protect YouTube.

In June 2010, in a case styled Viacom International, Inc. v. YouTube, Inc., No. 07 Civ. 2103, the U.S. District Court for the Southern District of New York ruled in favor of Google in its defense against Viacom’s allegations that YouTube reproduced and copied original works owned or licensed by Viacom. The trial court held that Google had no specific knowledge of the copyright status of all of the material on its web site, and it noted that it would be overly burdensome to determine the copyright status of every video uploaded to the web site – an obligation not contemplated by the DMCA.

The appeals court heard arguments by Viacom attorneys that Google had general knowledge of extensive copyright-infringement violations occurring on YouTube’s web site and failed to take action. However, Google countered that without actual knowledge of specific copyright infringement, the DMCA protected it from penalty. The three-judge panel is expected to issue a ruling in several months.

The case has the potential to cause significant business changes for all kinds of online-hosting web sites, not just YouTube. Since the original lawsuit, YouTube has developed software to identify copyrighted material in an effort to avoid copyright-infringement claims. However, it is unclear if such efforts would be sufficient to protect the company, if the Viacom succeeds in its appeals.

Business owners hosting third-party, copyrighted (or copyrightable) content on their servers need to pay close attention to the outcome of this litigation and should discuss its ramifications with corporate counsel, especially if Viacom wins the day at the Second Circuit or at the U.S. Supreme Court (where the losing party undoubtedly will try to take the case next).