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From a Slate article on the Online Copyright Liability Limitation Act, which became Title II of the Digital Millennium Copyright Act of 1998 (§512 of the Copyright Code):
[A]ll these companies are now protected by a "notice and take down" system when they host user content. That means that if Jon Stewart notices an infringing copy of The Daily Show on YouTube, Comedy Central can write a letter to YouTube and demand it be taken down. Then, so long as YouTube acts "expeditiously" and so long as YouTube wasn't already aware that the material was there, YouTube is in the clear.This gives advantages to the providers, obviously, and also to users. But it also gives advantages to ... the entertainment industry.
[T]he content industry actually likes §512 more than anyone will admit. The notice-and-takedown system gives content owners the twin advantages of exposure and control. When stuff is on YouTube, the owners have an option. They can leave it posted there, if they want people to see it, and build buzz. But they can also snap their fingers and bring it all down. And for someone who is juggling her desire for publicity against her need for control, that's ultimately a nice arrangement.The article also points out that this compromise is a result of a clash between the entertainment industry's lobbyists and ... lobbyists for the Bell companies, aka, internet providers :)
Stated otherwise, much of the copyrighted material on YouTube is in a legal category that is new to our age. It's not "fair use," the famous right to use works despite technical infringement, for reasons of public policy. Instead, it's in the growing category of "tolerated use"—use that is technically illegal, but tolerated by the owner because he wants the publicity.