Google withholds shares from YouTube for copyright war chest

Out-Law News | 15 Nov 2006 | 2:02 pm | 1 min. read

Google is holding back $200 million from YouTube to pay for copyright law suits, according to reports. It is believed that the sum withheld will be used to cover payouts and legal bills from any cases brought against the site for copyright infringement.

Google has just completed the acquisition of YouTube which it announced in October. Google agreed to pay $1.65 billion in shares for the company, but has now announced that it will withhold 12.5% of those shares for a copyright suit war chest.

Those shares will be held in an escrow account for a year, said Google, "to secure certain indemnification obligations". The company recently said in a quarterly report that copyright suits could cause the company "substantial harm".

The 3.66 million shares which Google used to buy YouTube were worth $1.65 billion at the time of the announcement, but are now worth $1.79 billon. At current stock prices, the 457,000 shares held back are worth $224 million.

Many of the videos posted to YouTube are posted without the permission of copyright owners. YouTube has always argued that it is not guilty of copyright infringement as long as it takes the videos down when notified of their existence.

The 'safe harbour' provision of the Digital Millennium Copyright Act is what protects YouTube from suits arising from content posted by third parties.

YouTube and Google have signed up a number of major copyright owners in recent weeks to agreements permitting usage of their material on the YouTube site. YouTube has signed usage deals with record labels Warner, Universal and Sony/BMG, as well as promotional deals with television network NBC.

The putting aside of substantial resources reflects fears that suits may be more common against Google, whose stock market value is almost $149 billion, than against an independent YouTube with little in the way of assets.

A rumour swept the internet in recent weeks that Google had set aside $500 million of the purchase price to pay copyright settlements, but CEO Eric Schmidt said that that was not true last week, according to news agency AP.