The U.S. Court of Appeals in New York gave new life to Viacom’s $1B copyright infringement case against YouTube. It overturned a lower court ruling that the Digital Millennium Copyright Act (DMCA) gave YouTube so-called “safe harbor” protection from being held responsible for posted videos that violated Viacom’s intellectual property. A jury “could find that YouTube had actual knowledge or awareness of specific infringing activity on its website,” the court said. Judges told the U.S. District Court to explore that possibility. It also said the lower court should consider whether YouTube was “willfully blind” to copyright violations — and reversed a decision saying that YouTube needed to have “item-specific” knowledge of videos that infringed on Viacom’s rights. The case involves copyright challenges to about 79,000 clips — including segments of The Daily Show and The Colbert Report — that YouTube users posted between 2005 and 2008. Viacom said that YouTube should be held responsible for them — that, in fact, its business was built around illegal posts that attracted lots of viewers. But the Google-owned video service persuaded the lower court that it was a mere middleman and protected by the DMCA, designed to promote Internet innovation and free speech.

The Appeals Court “delivered a definitive, common sense message to YouTube – intentionally ignoring theft is not protected by the law,” Viacom said in a statement. “We are confident we will prevail when the merits of our case are heard.” Public Knowledge, which supported YouTube, says it’s relieved that the court “rejected Viacom’s attempt to create a new duty of those hosting content to monitor actively for infringement in order to qualify for the law’s safe-harbor provisions.” It adds that today’s ruling establishes that “a general awareness of possible infringement is not sufficient” to prove copyright violation. The battle over YouTube’s practices hasn’t prevented Viacom and Google from doing business: Yesterday they announced a deal that enables Google to rent Paramount movies.