What's going on legally?

On February 8, 2007, Stephanie Lenz uploaded a video of her dancing children to YouTube titled "Let's Go Crazy #1". In the video, you can hear a short, but poor quality, 20 second clip of Prince's song "Let's Go Crazy" playing in the background. By June 4, Universal (who owns the copyright to this song) tells YouTube to take it down because it violates the DMCA (In "Fair use gets a fair shake: YouTube tot to get day in court", Timothy B. Lee -- note: not Timothy Berners-Lee -- defines the Digital Millennium Copyright Act as a mechanism for copyright holders to demand the removal of infringing material on the web, but it also allows lawsuits against those who abuse that authority). Lenz, however, did not think that her video infringed Universal's copyright because of fair use according to the Copyright Act (The four factors used to determine fair use are listed below in Rali's post). As a result, Lenz re-uploads the video back onto YouTube and is now in court fighting Universal because she believes that Universal took down her video without a "good-faith belief" that it actually infringed a copyright. The Electronic Frontier Foundation is currently aiding Lenz in trial.

According to the law, in order to file a DMCA takedown notice, a copyright owner must provide 6 things:
1) A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.
2) Identification of the copyrighted work claimed to have been infringed
3) Identification of the material that is infringing the copyrighted work
4) An address, telephone number, email address, or other method of contact so that the service provider can reach the complaining party
5) A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.
6) A statement that the information on the notification is accurate and that the complaining party is authorized to act on behalf of the owner of the copyrighted work

So according to this case, the matter being argued is whether or not Universal had a "good faith belief" that the use of Prince's material is not authorized by the law. Universal claims that they shouldn't even have to consider whether or not the "infringing" material is safe under the fair use doctrine until after they receive a counternotice from someone like Lenz. So the question now is whether or not Universal will be punished for a misrepresentation claim. Were they wrong to send a take-down notice for a video (that is obviously an example of fair use) before evaluating it? ie - did Universal Music file an improper takedown notice under the DMCA? So far, the Judge in this case has denied Universal's motion to dismiss. So we will have to wait and see if Lenz can prove that Universal acted with "bad faith".

Also, the legal ramifications for this case may involve Universal paying for financial and possibly even emotional losses (they say Lenz was too intimidated by Universal's notice that she hasn't posted a video on YouTube since this incident because she's afraid of losing her posting privileges) that Lenz acquired throughout this ordeal.