Judge Howard Matz in Los Angeles ruled that Veoh is entitled to qualify for "safe harbor" protection under the Digital Millennium Copyright Act, even though the site uses software that transcodes videos uploaded by users and enables others to access and stream clips.

The DMCA safe harbors provide that sites that store user-uploaded content are generally immune from copyright liability, provided that they remove infringing material upon request. UMG had argued that Veoh did not qualify for the protections because the site doesn't just "store" clips, but also deployed software that created Flash-formatted files and allowed users to stream clips.

But Matz rejected UMG's contention. "Both the conversion of uploaded files into Flash format and the 'chunking' of uploaded files are undertaken to make it easier for users to view and download movies, and affect only the form and not the content of movies," Matz wrote.

Matz has not decided yet whether Veoh will prevail on its safe harbor claim, but the recent ruling removes at least one roadblock in Veoh's path.

Veoh, backed by former Disney chief Michael Eisner, previously won a similar lawsuit brought by adult entertainment company Io Group.

Viacom's copyright infringement lawsuit in New York against Google's YouTube raises similar issues. While the judge in the YouTube litigation doesn't have to follow Matz's holding, it could still prove influential.

Fred von Lohmann, a lawyer with the digital rights group Electronic Frontier Foundation, said in a blog post that the ruling was "good news not just for Veoh, but also for YouTube and every other site that hosts material uploaded by users."

"Lots of online service providers will greet this ruling with relief," he wrote. "The ruling should also help YouTube in its ongoing battle with Viacom, which also turns on the continuing strength of the DMCA safe harbors."

This news story is important. I recommend that everyone read it.