The judge disagreed. And his reasons for doing so will undoubtedly come into play in the Viacom case and others as well. “Veoh has simply established a system whereby software automatically processes user-submitted content and recasts it in a format that is readily accessible to its users,” the judge wrote. “Veoh preselects the software parameters for the process from a range of default values set by the third-party software. … But Veoh does not itself actively participate or supervise the uploading of files. Nor does it preview or select the files before the upload is completed. Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh’s users.”

Google (GOOG) was understandably quite pleased with the ruling: “It is great to see the Court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights,” Zahavah Levine, YouTube’s chief counsel,” said in a statement.

Viacom (VIA) was equally displeased, understandably. “Even if the Veoh decision were to be considered by other courts, that case does nothing to change the fact that YouTube is a business built on infringement that has failed to take reasonable measures to respect the rights of creators and content owners,” the company said in a statement. “Google and YouTube have engaged in massive copyright infringement–conduct that is not protected by any law, including the DMCA.”

And while that type of response might fly in the states, it’s not going to go over so well in India, where Web publishers can be held liable for the content created by their users.

The YouTube acquisition is certainly not without its own risks. The most significant issue facing Google following this acquisition is the potential for a deluge of litigation concerning copyrighted content on YouTube. A protracted legal battle in the courts could result in millions of dollars of legal expenses, and settlement outside the courts is also a possibility. The worst case scenario can be seen in the fates of companies like Napster and MP3.com. Our analysis of the top 100 most-viewed videos so far in November indicates that under 35% of these videos (by total views and number of videos) potentially contain contentious copyrighted material. This means that the majority of videos on the site are truly user-generated content. As a result, we believe the impact of Google/YouTube removing copyrighted content may be less than feared. However, it is unclear how much of YouTube’s traffic comes to the site primarily for copyrighted content rather than user-generated videos.”

–Credit Suisse analyst Heath Terry

Google may not have figured out the best way to cash in on its $1.65 billion YouTube purchase, but the entertainment industry obviously has: litigation. NBC Universal and Viacom have filed an amicus curiae, or friend-of-the-court, brief in support of a pending copyright-infringement lawsuit against the video site–one that could have a critical impact on the future of online video. Offered in support of journalist Robert Tur, who sued YouTube when his footage of the 1992 L.A. riots apparently was posted repeatedly on the site, the brief asks a U.S. District Court judge in Los Angeles to deny Google’s motion to dismiss Tur’s suit. “YouTube actively manipulates and modifies the content in ways that the uploading user clearly does not, including copying, reformatting and adapting the works (…) further disseminating them,” the brief states. “In operating its own commercial Web site, YouTube engages in activities that are reserved to the copyright holder.”

The brief continues: “Many of NBCU’s most valuable copyrighted works have been copied, performed and disseminated without authorization by YouTube and other similarly operated Web sites. NBCU has a strong interest in preserving the strength and viability of all of its legal rights and remedies in response to such conduct.” And it has an equally strong interest in seeing Tur prevail in court. Because if he does, it will establish the precedent that YouTube is not protected under the safe harbor provision of the Digital Millennium Copyright Act (DMCA), which protects Internet service providers from the consequences of their users’ actions.

Of course, should YouTube be found to qualify for safe harbor protection, Viacom and NBCU may see the legs kicked out from under their own suits. Which is the way Google sees things playing out. “These suits simply misunderstand the Digital Millennium Copyright Act,” said general counsel Kent Walker. “Most content owners understand that we respect copyrights, we work every day to help them manage their content, and we are developing state-of-the-art tools to let them do that even better.”