Veoh, a provider of online streaming videos, has, at least for now, been absolved of claims of copyright infringement made by Universal Music Group. On December 20, 2011, the California Court of Appeals ruled in Veoh’s favor, dismissing Universal’s allegations that Veoh was responsible for copyright violations, namely, by allowing Veoh users to access videos copyrighted by Universal. The Court decided that Veoh was protected by the “safe harbor” provisions of the Digital Millenium Copyright Act.

There were two chief issues in dispute in the lawsuit: 1) whether the infringing videos were being uploaded onto Veoh’s servers without Veoh’s actual knowledge; and 2) whether Veoh’s practice of reformatting the videos uploaded by users and storing the various formats on its servers caused a violation of U.S. federal copyright laws and the DMCA.

In analyzing the Court’s decision, a couple of facts seemed to decide Veoh’s fate. First, the Court noted that Veoh was not participating or supervising each and every user’s uploading of videos (nor was it viewing those files); rather Veoh was using an automated process that automatically initiated when each user attempted to upload videos. Veoh’s automatic process would convert the video uploaded by the user into a more readable format (Flash 7) and made publicly accessible for streaming and downloading to the general public.

Second, the Court also determined that the “safe harbor” provisions of the Digital Millenium Copyright Act protected Veoh, because Veoh did not actually know that infringing videos resided on its servers. Veoh had received a demand letter at one point in time that infringing videos resided on its servers, but that letter was sent by the RIAA, not Universal. In fact, Universal never sent a demand letter, as set out by the DMCA’s notice protocol, notifying Veoh and putting Veoh on notice of Universal’s belief that infringing content was residing on Veoh’s servers. The Court also determined that there was no proof that infringing content continued residing on Veoh’s servers, once Veoh became aware of them.

It is important to note that the lawsuit brought by Universal was dismissed by the trial court in its beginning stages, and that dismissal was affirmed by the California Court of Appeals in the decision handed down a couple of days ago. So, it is very possible that Universal could undertake further investigation and bring claims against Veoh yet again in another lawsuit.

In the meantime, there are a few lessons that can be drawn from the Veoh decision for companies providing streaming videos or other filesharing:

Take Demand Letters Seriously. Although Veoh did not receive a demand letter from Universal, businesses should be wary of receiving any demand letters asking to cease and desist from certain conduct because infringement is allegedly occurring. These kinds of notices are usually a prelude to legal action or other form of escalation, and a lawyer should be consulted if any such demand letter is received. Your lawyer will be able to help your company respond to the demand letter, and determine whether it is legally effective. In Veoh’s case, at one point in time before the lawsuit was brought, an email was sent by the CEO of Disney to Michael Eisner, who was a Veoh investor, notifying Eisner that content belonging to Disney was found on Veoh. However, the Court ruled that Disney’s email was ineffective at providing sufficient notice to Veoh of Universal’s belief that copyright infringement had occurred and had not been rectified.

Is There Actual Knowledge of Infringing Material? If your company offers users or consumers an opportunity to upload content, video, or any other type of media to servers hosted by your company, be cautious about whether the uploading processes require manual approval by the company, or whether they occur and post to your company’s servers automatically. If your company representatives are actually screening uploaded content before it is made available publicly, they may want to be extra diligent in ensuring that no infringing works are being made available publicly.

Act Quickly. Under the Digital Millennium Copyright Act, safe harbor exists, in some cases, for service providers who are notified of infringement, as long as they “act expeditiously to remove or disable access to” the offending content. In Veoh, there was evidence that once he was notified about Disney’s copyrighted content being located on Veoh’s servers, Michael Eisner, a Veoh investor, notified the founder of Veoh to take down Cinderella III and various episodes of Lost “right away,” and the Court commented that Universal had no proof that this had not actually occurred. Acting quickly when notified of infringement can be construed as evidence of good faith by service providers.

Consult Legal Counsel. The best and most appropriate way to respond to allegations of copyright infringement is going to be different based on the circumstances of each case and the facts. Companies should be wary about handling accusations independently and without the advice of legal counsel, as the penalties could be stiff and legal fees, should a suit arise, could be unpredictable.

The Veoh decision will not be the end of video-sharing copyright lawsuits. There are several other similar cases that are currently pending, in California, for example, the lawsuit brought against IsoHunt, a bit-torrent filesharing site, by Columbia Pictures. Further, the Stop Online Piracy Act, presently in Congress, could undercut the DMCA’s safe harbor provisions in the future.