Veoh won a major legal victory on January 5, 2009 when the court concluded that it fully complied with the Digital Millenium Copyright Act (DMCA), and was protected from the copyright violations of its users.

U.S. District Judge Howard Matz, citing the DMCA's language, ruled (.pdf) that copyright law precludes monetary liability on a service provider "for infringement of copyright by reason of the storage at the discretion of a user of material that resides on a system or network controlled or operated by or for the service provider."

The larger issue, other than the standard compliance of the DMCA, was whether the DMCA safe harbor for hosting companies only covers the actual act of storing bits on a server, or whether it also covers related activities, whcih could be interpreted as the Web service contributing to the infringement.  The further activities are:

1. automatically transcoding video files uploaded by users into Flash format;
2. automatically creating copies of uploaded video files that are comprised of smaller "chunks" of the original file;
3. allowing users to access uploaded videos via streaming;
4. allowing users to access uploaded videos by downloading whole video files.

Fred von Lohman has commented at the EFF....be sure to check it out.

You can also find the order from UMG v. Veoh at the EFF here.