Yesterday’s summary judgment in favor of YouTube in the ongoing lawsuit against it by Viacom has ramifications for the music industry far beyond its relationship with YouTube.

Despite music industry organizations like ASCAP, BMI and SESAC filing briefs in the case supporting Viacom’s $1 billion copyright infringement claim, the music industry has largely made peace with YouTube and works with it as close partner, as the company’s involvement in the Vevo music video service illustrates.

But it’s judge Louis Stanton’s reasoning behind granting YouTube victory in the case that, if upheld, could affect the music industry’s efforts to reign in less friendly online services that use the same defense.

It all comes down how the law defines the Safe Harbor clause of the Digital Millennium Copyright Act, which states that content hosting services can’t be sued for infringement so long as they comply with any takedown requests from rights holders. Rightsholders for years have complained that this protection places all the onus on them to constantly send in takedown notices to services that they feel should be doing more to more proactively police their networks. Yesterday’s ruling upholds that burden, even in the case of services that host as high a volume of potentially infringing content as YouTube.

Here’s a key excerpt from the ruling:

If a service provider knows of specific instances of infringement, the provider must promptly remove the infringing material. If not, the burden is on the owner to identify the infringement. General knowledge that infringement is 'ubiquitous' does not impose a duty on the service provider to monitor or search its service for infringements.

The music industry has taken a leadership role in establishing a template for how other content industries can best work with YouTube. Early on, labels established a blanket licensing deal that covered the use of music in videos submitted by YouTube users. It also provided information to a filtering mechanism YouTube put in place that was designed to identify music included in uploaded videos, and deal with it accordingly.

Viacom and other video-focused rightsholders have not availed themselves of a similar arrangement, arguing that YouTube should bear the full burden of policing its network.

“Each party has a part to do,” says once source with knowledge of the case. “Content owners have direct knowledge of infringement and request take downs, online services create tools to prevent infringement and address take down requests in a timely manner… I hope today’s decision is a wake-up call for big media to cooperate with online services and to talk about a solution.”

The RIAA in a statement the day after the ruling agreed maintains that the balance of responsibility remains too heavily weighted on the part of rightsholders, arguing for an appeal that will more evenly distribute the load.

“The district court’s dangerously expansive reading of the liability immunity provisions of the DMCA upsets the careful balance struck within the law and is bad public policy,” said RIAA president Cary Sherman. “It will actually discourage service providers from taking steps to minimize the illegal exchange of copyrighted works on their sites. As the White House recently noted in its strategic plan to combat intellectual property theft, it is essential for service providers and intermediaries generally to work collaboratively with content owners to seek practical and efficient solutions to address infringement. We need businesses to be more proactive in addressing infringement, not less. We expect the Court of Appeals will better understand the balance Congress struck when it enacted the DMCA.”

Critics of the ruling say such collaboration works only for larger labels and rights organizations that are well staffed and better equipped to engage with YouTube and other services at a high level. Smaller labels and independent artists may have a tougher time.

"This is a terrible result for independent artists,” says attorney Chris Castle. “Google's interpretation of the DMCA creates three classes of artists: those who have the money and time to pursue notice and takedown 24 hours a day, 7 days a week, those who have some resources to send notices some of the time, and those who give up in despair.”

While the ruling grants YouTube a victory for now, the issue is hardly resolved. Viacom has already vowed to appeal the “fundamentally flawed” ruling to the U.S. Court of Appeals for the Second Circuit. Universal Music Group, which found itself on the losing side of a summary judgment in its similar lawsuit against video-sharing service Veoh, also is pursing an appeal.

Until these cases reach a final resolution, it’s unlikely that yesterday’s ruling will have any affect on existing digital music business models. Online services who show interest in licensing music will continue to strike deals with the labels, while those that don’t will continue to be sued. Other services have tried to use the DMCA Safe Harbor defense as a shield against label lawsuits—such as music search engine SeeqPod and video sharing service Veoh—but typically run out of money before they can fight in court and simply shut down.

And history shows how fate can quickly turn in these matters as the cases move their way up the courts. Remember, MGM lost its case against Grokster in two lower courts before finally winning the case in the Supreme Court. Given the resources of both Viacom and Google, and the stakes involved, it’s not hard to see this case following a similar path.

“Just like Grokster, I'd say that those who want to free ride on the creative community should not dance on anyone's grave just yet," says Castle.

Related Stories:
- Veoh Closing Down, UMG Lawsuit Blamed
- 2009's Top Five Cases That Will Shape the Future of Music
- Labels Probe DMCA for Weakness