(This story was updated at 2:15 p.m. EST Friday with YouTube’s response)

Universal Music acknowledged late Thursday that it was responsible for taking down from YouTube the infamous Megaupload video in which pop stars — from Mary J. Blige to Kanye West and others — sing the praises of the notorious file-sharing service.

But the record label said there’s nothing Megaupload can do about Universal Music taking down the video, even if Universal doesn’t own the rights to it.

Megaupload sued Universal Music on Monday, saying that the record label had no right to take the video down, since the file-sharing service had signed contracts from the performers, including Black Eyed Peas front man will.i.am. The suit sought an injunction and unspecified damages, saying the label had violated a provision in copyright law that forbids bogus copyright claims.

Universal admits it utilized YouTube’s content filters, known as the Content Management System, to have the video removed shortly after Megaupload had uploaded its $3 million production to YouTube. “On December 9, UMG utilized YouTube’s CMS system to effect the removal of a posting of the video on YouTube,” Universal attorney Kelly Klaus wrote (.pdf) in a federal court filing.

But Universal Music argues that even if it gamed Google’s system, that doesn’t count as an abuse of the Digital Millennium Copyright Act — so Megaupload has no grounds to sue the record label.

To assuage copyright concerns, Google-owned YouTube has engineered a filtering system enabling rights holders to upload music and videos they own to a “fingerprinting” database. When YouTube account holders upload their videos, the system scans future and existing uploads against the copyright database for matches. If a full or partial match is found, the alleged rights holder can have the video automatically removed, or it can place advertising on the video and make money every time somebody clicks on the video.

Universal, however, did not disclose in a filing in Oakland, California, federal court Thursday why it had utilized YouTube’s filters to remove a video Universal does not own. YouTube, however, said in a statement that it had reinstated the video because Universal abused the system.

“Our partners do not have the right to take down videos from YT unless they own the rights to them or they are live performances controlled through exclusive agreements with their artists, which is why we reinstated it,” YouTube said in a statement Friday.

But Universal said it did not matter because Google’s private system doesn’t count as an official takedown notice under the DMCA and thus it was immune from legal liability. But that may be legal hair-splitting, as Google warns copyright holders who sign up to be a part of that system that “a person who knowingly materially represents that material or activity is infringing may be subject to liability and damages.”

Megaupload’s attorney said Universal’s position was preposterous.

“UMG did not have a good faith belief that this video was infringing any of their copyrights,” said Ira Rothken, Megaupload’s attorney. “What they are basically arguing, they can go ahead and suppress any speech they want without any consequences. That’s not a workable paradigm.”

Hong Kong-based Megaupload has been a thorn in the side of the recording industry, which has accused it of being a vehicle for facilitating rampant infringement by its 50 million daily users.

Universal’s court filing was in response to Monday’s lawsuit in which Rothken was demanding that U.S. District Judge Claudia Wilken order YouTube to restore the video based on what Rothken called a “sham” takedown notice. Wilken won’t have to rule on that request because the video is back up..

Rothken is also seeking unspecified damages from Universal.

Universal said copyright law does not permit “the relief that” Rothken is seeking — arguing that YouTube’s filtering system does not constitute a takedown under the DMCA, and hence it is not liable for any damages.

“Megaupload’s failure to show that the DMCA even applies to UMG’s dealings with YouTube means that Megaupload has failed to show a likelihood of success on the merits,” Kraus wrote.

Universal’s argument should not be surprising. It also maintains that it does not have to consider fair use when issuing a takedown notice under the DMCA.

Rothken responded in a telephone interview that “their technical arguments will fail. That’s the only argument that they have.”

Under the DMCA, online service providers like YouTube lose legal immunity for their users’ actions if they don’t remove allegedly infringing content if asked to by rights holders. If the content is not removed, companies such as YouTube, Flickr and others could be held liable for damages under the Copyright Act, which carries penalties of up to $150,000 per violation.