Basically Gema stated that YouTube hasn't done enough to stop copyrighted clips from being posted and wanted YouTube to install filters to protect its 60,000 members. The case was only over 12 videos, but the ramifications are severe in that YouTube may be forced to pay a huge royalty bill on every video that contains copyrighted music as a result.
What YouTube is really afraid of is that this one ruling can snowball into different areas other than Germany. As if that wasn't bad enough, if the film and television industries also took up the cause, it could really mean that the service could not survive. Read those last words again - in its most severe form, YouTube could be taken completely off the air. Gone.
In the US, YouTube still enjoys the protection of a ruling that basically says "we're not responsible because we didn't post it." The problem is that once a precedent is set in one territory, you never know what might happen elsewhere.
There's some interesting gamesmanship that's going on in relation to this case. Gema's been asking for royalties for some time, so in 2009 YouTube basically blocked all the videos from all German record labels for a brief time in retaliation. Gema also obtained a ruling against the file sharing site Rapidshare where the judgement required it to be more proactive when in hunting for pirated content. Then Grooveshark pulled out of Germany because the licensing rates made it impossible for them to be profitable.
This could end up being a big problem not only for YouTube, but for all video sites. Watch this one closely as it unfolds.
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