When Google bought YouTube for $1.65 billion in stock last October, the property was widely seen as a fixer-upper. Based on a lawsuit filed by Viacom on Tuesday, the house that Chad Hurley, Steve Chen, and Jawed Karim built has a nice view but its foundation looks shaky.
Google's September 2006 10-Q financial filing put it thus: "[O]ur planned acquisition of YouTube may also subject us to additional copyright claims upon the closing of the transaction."
Rumors at the time, denied by Google CEO Eric Schmidt, suggested Google had set aside some $500 million to pay copyright claims. A company spokesperson reiterated Schmidt's dismissal of those rumors.
On Tuesday, Viacom, the parent company of MTV, Comedy Central, and Paramount Pictures, announced that it had filed a $1 billion lawsuit against Google and YouTube in New York for "massive copyright infringement of Viacom's entertainment properties."
The complaint asserts that almost 160,000 unauthorized clips of Viacom content have been made available on YouTube and that these clips have been viewed more than 1.5 billion times.
Echoing charges made by Microsoft executive Thomas Rubin last week at the Association of American Publishers annual meeting in New York, Viacom said in a statement: "YouTube is a significant, for-profit organization that has built a lucrative business out of exploiting the devotion of fans to others' creative works in order to enrich itself and its corporate parent Google. Their [sic] business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws."
Google, having heard and addressed such claims before on YouTube, and on other properties like Google News and Google Book Search, issued a statement insisting its behavior is lawful. "We are confident that YouTube has respected the legal rights of copyright holders and believe the courts will agree," the company said.
Gregory Rutchik, founding attorney at the San Francisco-based Arts & Technology Law Group, more or less agrees. "I think Viacom has an uphill battle to argue that YouTube, as a broadcast model, is really a media company and not a service," he said, referring to the Digital Millennium Copyright Act's "safe harbor" protection, which shields online service providers from liability for the actions of customers.
Google's statement, in fact, attempts to make clear the value of its service: "YouTube is great for users and offers real opportunities to rights holders: the opportunity to interact with users; to promote their content to a young and growing audience; and to tap into the online advertising market. We will certainly not let this suit become a distraction to the continuing growth and strong performance of YouTube and its ability to attract more users, more traffic and build a stronger community."
Viacom could have attacked that community by suing the individuals responsible for uploading those 160,000 unauthorized clips, following in the footsteps of the Recording Industry Association of America's ongoing crusade against song sharing. The fact that it didn't do that suggests Google's message -- there's money to be made with us -- isn't lost on Viacom.
"I think this is a negotiating tactic," said Rutchik. "It's an opportunity for Viacom to turn the heat up. It's very standard operating procedure in business litigation."