Editors Note: Caroline Horton Rockafellow is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.

RESEARCH TRIANGLE PARK, N.C. – When the news hit that Google had acquired YouTube for an incredible $1.65 billion dollars, much of the commentary focused on the financial strategy and corporate impact of this acquisition.

From a financial standpoint, this acquisition is quite interesting, but for copyright lawyers, it is even more interesting in view of the potential impact that it could have on the ongoing evolution of digital copyright laws.

In recent years, Google has been the source of significant copyright litigation and disputes. From cases involving everything from scanning and indexing of library materials to the use and application of thumbnail images to caching of information, Google has provided a useful foundation for the ongoing evolution of digital copyright laws. Google has clearly been on the forefront of pushing the envelope when it comes to the application of copyright laws and regulations and has been willing to defend its actions, even at great financial cost to the company. The outcome of many of the Google copyright cases has had, and will continue to have, a significant impact on the evolution and interpretation of digital copyright laws.

Now that Google has acquired YouTube, the company’s copyright litigation may take an even more interesting turn. YouTube is a relatively young company going back only to early 2005. Although as a video posting site, YouTube is working in an area ripe for copyright claims and litigation, to date they have managed to avoid significant copyright disputes. Although YouTube has been in skirmishes with such major players as NBC and Universal, with only one exception it has managed to resolve the disputes before facing litigation.

In early 2006, YouTube was not yet a household name, and for the most part even the copyright experts following the company did not hold it out as having a high likelihood of setting new precedent in copyright case law. Many in the industry believed that YouTube had taken appropriate actions with its detailed use policy, limitation on clip length and policing efforts to avoid claims of copyright infringement. However, by the summer of 2006, YouTube was becoming better known by the general public and was faced with its first copyright infringement lawsuit. Now with the Google acquisition, even non-tech savvy individuals are familiar with the company and, as a result, any thoughts that YouTube could function without facing close scrutiny by the copyright community have disappeared.

Do Deep Pockets Create More Risk For YouTube?

Companies with little or no revenues and few resources are not generally good candidates for a lawsuit. In fact, they are not often on the radar screen of companies that are likely to move forward with a lawsuit. As long as YouTube was a minor video sharing site known only to a handful of college students, it was relatively insulated from claims of copyright infringement, regardless of whether or not it was an infringing party. Now that Google has valued the company at $1.65 billion dollars, it is no longer a minor industry player.

With the backing of Google, it is now in the big leagues and is on the radar screen of every party who might have a claim of copyright infringement. The fact that YouTube now has real resources behind it definitely makes it more of a target. So the question is, what is the risk that the inevitable lawsuits will have a significant impact on the business of YouTube?

Avoiding Copyright Litigation?

YouTube has been proactive in trying to avoid the fate of earlier online parties such as Napster, Aimster and Grokster. YouTube provides detailed notice on the proper use of its site, it removes materials that it is notified include infringing content and it provides users with a process for notifying it of infringing content. To this point, these activities have been sufficient to avoid most claims of copyright infringement, but it remains to be seen whether this will be enough going forward. The case filed last summer has yet to be decided and there is increasing concern that the Digital Millennium Copyright Act (DMCA), which provides a safe harbor for service providers (in most circumstances) will not protect the actions of companies like YouTube.

In particular, there is increasing concern that since the safe harbor does not apply to companies that receive a financial benefit from the infringing activity, companies like YouTube that accept ads and enter into profitable licensing deals may not fall under its shelter.

Earlier this month Universal Music Group filed a lawsuit against Grouper.com and Bolt.com claiming that both companies infringed Universal copyrights by allowing site users to upload and download videos over their site. These suits are relevant to the YouTube business model since both Grouper.com and Bolt.com provide services almost identical to YouTube. More importantly, the Universal lawsuit claims that both Groper.com and Bolt.com are not protected under the safe harbor provisions of the DMCA.

Even though YouTube has entered into a licensing deal with Universal, so it does not face direct risk of a suit from Universal, it does need to be concerned about the outcome of these cases. If smaller video sharing companies loose their claims that they are protected under the safe harbor provisions of the DMCA, the holdings could be applied in parallel litigation brought against YouTube, precluding it from using the defense of protection under the safe harbor provisions of the DMCA.

An Uncertain Future?

The fact that YouTube is now under the Google umbrella makes it much more likely target for interesting copyright litigation. However, while the backing of Google makes YouTube more likely to become a defendant in a lawsuit, the ultimate risk for YouTube may rest in the success or failure of much smaller and less financially stable companies, companies without the same financial ability to mount a significant defense.

Accordingly, while the Google/YouTube transaction is interesting, the Universal Grouper.com and Bolt.com suits may be much more interesting to watch. Ultimately, the financial backing of Google may not matter if smaller companies fail to succeed in lawsuits that could directly impact the business model of YouTube.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Caroline Horton Rockafellow concentrates her practice in the representation of entrepreneurial and technology-based business, focusing on corporate, technology and licensing matters. Questions or Comments can be sent to crockafellow@d2vlaw.com