In February 2007, Stephanie Lenz, a mother in Gallitzin, Pa., went on YouTube and uploaded a 29-second video of her toddler dancing while Prince’s song “Let’s Go Crazy” played in the background.

Prince’s publishers objected, Ms. Lenz filed a lawsuit, and for more than eight years the case has been symbolic of the clashes over copyright online.

On Monday, the United States Court of Appeals for the Ninth Circuit, in San Francisco, cleared the way for the case to go to trial, and set a guideline that may change the way media companies police their holdings online. In its decision, the three-judge panel ruled that copyright holders must consider fair use before asking services like YouTube to remove videos that include material they control.

The suit, known as the “dancing baby” case, has become famous for its focus on the kind of Internet activity that millions of ordinary people engage in, posting candid videos of family and friends that may only incidentally include copyrighted media like songs. The Electronic Frontier Foundation, an advocacy group that represented Ms. Lenz in her lawsuit against Universal, called the judges’ decision a victory for Internet users.