• by Wendy Davis  @wendyndavis, February 9, 2009

A court has dismissed Universal Music Group's copyright lawsuit against Michael Eisner's The Tornante Company and other investors in the video-sharing site Veoh.

U.S. District Court Judge Howard Matz in Los Angeles ruled that Universal did not allege enough facts to show that the investors exerted control over the company. Universal had argued that some investors sat on the board or were able to appoint board members, but Matz ruled that those activities were not sufficient to trigger liability.

He ruled that allowing lawsuits against people who merely sit on the board of a video-sharing site "could invite expansion of potential shareholder liability for corporate conduct, without meaningful limitation."

Matz also wrote that Veoh's investors have no obligation to remove copyrighted material in light of the Digital Millennium Copyright Act, which sets out specific procedures for content owners to complain about copyright violations.

The dismissal was "without prejudice," meaning that Universal can file an amended complaint. But Matz warned Universal to "reflect carefully" before doing so. "The court's existing scheduling requirements and the near-certain additional costs and complications that will flow from attempting to go after deep pockets whose potential liability could entail vexing issues of corporate governance caution that 'less may be more,'" he wrote.

Universal sued Veoh for copyright infringement in 2007, alleging that the site "built its business on the back of others' intellectual property" by enabling users to view and share pirated clips. Last August, Universal also sued Veoh's investors, including Tornante, Shelter Capital and Spark Capital.

Like other video-sharing sites, Veoh allows users to upload clips and does not pre-screen them to make sure they are legitimate. When content owners complain that particular clips infringe copyright, Veoh removes them. The company argues that the Digital Millennium Copyright Act's safe harbor provisions immunize it from liability as long as it takes down clips upon owners' complaints.

Veoh recently won a big victory in the case when Matz ruled that the site is eligible for safe harbor protection. Matz has not decided whether Veoh will win under the safe harbor provisions, but the recent ruling removed a roadblock in the company's path.

Last year, Veoh prevailed in a comparable lawsuit brought by adult entertainment company Io Group.

Similar arguments are playing out in other cases--including, famously, Viacom's $1 billion copyright case against YouTube.