Google recently bought YouTube for $1,650,000,000. Analysts were divided on whether Google had snatched up the next big thing on the internet or whether Google had inadvertantly bought a mess of copyright liability. Everybody could agree on one thing: Google has a lot of money—and YouTube was suddenly worth suing. Viacom, the owner of MTV and Comedy Central, recently filed the first major copyright lawsuit against YouTube. Here's what's happening and why this lawsuit is worth watching:

Suppose some guy videotapes a cat and a baby playing. This guy now has a copyright on the video, which means that if anybody copies, distributes, displays, or makes derivative work without his permission, he can post it on YouTube. By doing so, he gives YouTube permission to copy and distribute the video. The guy gets his moment in the limelight, YouTube gets ad revenues, and we get to see a baby playing with a cat. Everybody wins.

Now suppose the guy instead takes a music video he has copied onto a DVR and uploads it onto YouTube. If Viacom owns the copyright to the music video, they might be unhappy. Now YouTube is getting the ad revenue MTV had wanted. Viacom can sue the guy. Copyright law could allow the Viacom to recover up to $150,000 from the guy as well as force the guy to destroy any copies he has of the video. Of course, MTV will probably get a whole lot less than $150,000—and there's no guarantee that the guy would be able to pay much anyway. So going after individual uploaders would be a serious hassle—not to mention the bad press.

Everything gets a whole lot easier for Viacom if it just sues YouTube. It did. Viacom could sue YouTube as a "direct infringer" which means that YouTube is doing the copying and displaying itself. Technically, every time YouTube backs up a server it is making a copy. It is also clearly distributing whatever people are watching. Most of the copyright law was written before the Internet came around, so what should actually count as "copying" gets a little hazy in some of these cases. Fortunately for YouTube, the law has a provision giving limited protections to ISPs and traditional web hosts. YouTube, in this case, is not a traditional web host—but it will certainly try to argue that it is close enough to fall into this protection. Additionally, YouTube itself is very careful not to post infringing videos or even to feature them. A court will probably hesitate to hold YouTube liable for direct infringement because doing so would open the door to all kinds of litigation against any site that allowed any kind of user-generated content.

Viacom is also suing YouTube for a few indirect theories of infringement. One is "inducement of copyright infringement." This is a relatively new concept that comes out of the Grokster case. The best definition of inducement is essentially, "to be like Napster." Grokster, unsurprisingly, was like Napster. YouTube, on the other hand, has made a very deliberate effort to dissociate itself from rampant copyright infringement. Grokster deliberately tried to make itself the new Napster. YouTube, on the other hand, has deliberately made itself the internet's choice place for home videos that perhaps should have remained at home. Unless YouTube changes its name to Tubester, it's probably safe on the inducement front.

Viacom is also claiming "vicarious" infringement. This basically means that if YouTube did not do all the infringing itself, it got somebody else to do it, and directly profited. Increased traffic and some amount of ad revenue is probably not enough for a direct profit.

Finally, Viacom is suing for "contributory" infringement. This was the big issue in the Sony case involving VCRs. Viacom essentially says that YouTube's main purpose is copyright infringement. YouTube needs to show "substantial non-infringing use." It isn't clear what counts as "substantial." Napster didn't have it. VCRs did have it. YouTube might have it. Many videos, like the cat and the baby video, are entirely user-produced and 100% legitimate. Many videos are clearly illegitimate. Most, however, fall somewhere in between. Somebody may be lip-syncing to a copyrighted song. Somebody might have spliced together a number of copyrighted works to create something wholly different. Many of these things would be considered fair uses. (In the interest of brevity, a full fair-use analysis, one of the more complex inquiries in copyright law, will wait until a later article.) Other things might have been infringements—except that YouTube has distribution agreements with the copyright owners. Finally, some producers, such as advertisers or musicians, may want the additional publicity YouTube could bring. Between all these non-infringing uses, YouTube will probably be able to demonstrate enough legitimate uses to escape contributory infringement.

Despite my pro-YouTube outlook, the risk to Google is quite real. Since Viacom has identified 150,000 infringing clips and is alleging willful infringement, which can carry statutory damages of up to $150,000, they could ask for up to 22.5 billion dollars, or slightly more than Google's total assets. In its complaint, Viacom is merely asking for "at least one billion dollars." The bigger concern is the precedent. If YouTube loses, any future licenses will be much more expensive, which could seriously hurt in the long run.

Of course, this case isn't likely to go to trial. First, most cases don't go to trial. Secondly, there is wide speculation that filing the suit is predominantly a tough negotiating tactic on Viacom's part. Finally, Google has the resources to fight the suit and, potentially, win. Losing would be nearly as damaging to Viacom as it is to YouTube. Even if this never makes it to trial, this case is worth watching because it is one of the rare occasions where two large companies have both the resources and the motivation to fight over how technology and copyright should interact.