Last week, the Seventh Circuit Court of Appeals issued an opinion in Flava Works v. myVidster, a case that raises questions about embedded videos and copyright infringement. Judge Richard Posner, who wrote the opinion, has a reputation for producing memorable and influential ruling, and this one is no exception. (You might remember that Judge Posner also recently issued an important ruling in a patent case between Apple and Motorola.) In reversing the injunction granted against myVidster, the Seventh Circuit wholly rejected the premise that embedding, linking to, or watching infringing videos constitutes infringement itself.

First, some background: Flava Works, a video company that makes full-length videos available only behind a paywall, sued MyVidster, a social video bookmarking site that allows users to save videos to a profile and share pages containing embedded videos with other users. Last summer, the district court sided with Flava Works and granted an injunction. The district court got it wrong on at least two counts. First, the Court failed to apply the appropriate standard for injunctive relief and second, the Court mistakenly found that myVidster’s users infringed Flava Work’s copyrights.

Fortunately, the Seventh Circuit agreed.

First, though the standard for an injunction may seem like an obscure procedural point of dispute, it’s an important one. When out of balance, it can have a profound chilling effect on free speech and innovation. In fact, we made this very argument in an amicus brief we filed along with Public Knowledge:

Many of these nascent entities cannot survive an extended interruption of operations pending lengthy litigation. An unbalanced standard for preliminary injunctions in copyright litigation therefore can easily chill innovation, as services are effectively put out of business long before a court can ever reach a determination on the merits of the infringement claim.

As to the substantive issue of infringement, the Court held that embedding videos does not constitute infringement. Simply put, people who download Flava Works videos and then re-upload them to another server (thereby making a copy of the video) may be infringers, but neither myVidster nor the users who watch videos embedded on its site are engaging in or contributing to infringement. From the decision:

myVidster is not an infringer, at least in the form of copying or distributing copies of copyrighted work. The infringers are the uploaders of copyrighted work.

In the ruling, Judge Posner also draws the meaningful distinction between copyright infringement, theft, and other actions that may reduce a company's income. Rhetoric from the copyright lobby often conflates these disparate concepts. An op-ed in the New York Times made the point earlier this year: “We should stop trying to shoehorn the 21st-century problem of illegal downloading into a moral and legal regime that was developed with a pre- or mid-20th-century economy in mind.”

For example, as Judge Posner wrote, a Flava Works employee embezzling corporate funds may be stealing and reducing the company’s income, but he is not infringing copyright. A person who sneaks into a movie theater to watch a copyrighted movie — like one who bypasses the Flava Works paywall by watching embedded videos on myVidster — isn’t infringing, either. Stealing a book from a bookstore and reading it “is a bad thing to do,” says Judge Posner, but again it is not copyright infringement. Considering how companies have abused copyright law for years to squelch competition and silence unflattering speech, this recognition is a major one.

A final remarkable fact about this myVidster decision is how it compares to another decision Judge Posner wrote nearly a decade ago. The Aimster decision found that an injunction could be granted against a file-sharing service even when its operators had no knowledge of specific infringements. Of course many factors contribute to the difference between these cases, but the ruling in myVidster seems to reflect a growing recognition of a long imbalance in copyright law that needs to be fixed. Even more so, this ruling reflects an understanding by the Court of the way we actually use the Internet. It's not just about swapping files, but using the cloud, streaming, and linking. And it’s not just college students sharing data — it’s the way people do business everyday. There’s no way to know whether this cultural shift really changed Judge Posner’s mind, but we can’t help but speculate that increased use of and understanding of how technology actually works will lead to more rulings like this one.

This case is far from over — last week’s decision just overturns the preliminary injunction before the actual arguments begin — we hope to see more rulings like this one that protect young, innovative companies from abusive claims of copyright infringement.