I don't find the lawsuit itself particularly interesting. From the sound of it, I believe Capitol will win on at least one count of copyright infringement. The video itself obviously infringes, though I don't see how it does any damage to Capitol's property. Still, their hook is compelling from a legal point of view. Check out this excerpt from NewTeeVee:
The difference, according to Capitol, is that not only has Vimeo not tried very hard to protect copyright owners, but it actively encourages infringement. Capitol alleges that Vimeo’s use of copyrighted material is “not an accident,” claiming that the web site contains “a massive amount of content that features, and draws most (if not all) of its appeal from, the use of copyrighted works.” As a result, according to the complaint, Vimeo is not only aware of copyright infringement happening on its system, but “actively promotes and induces that infringement.”
What's interesting about this is that Vimeo's appeal is the high quality of its unique, user generated content. Just like in the video, the compelling element is not the song but they way in which their employees are lip syncing. I would go so far as to say that it's more interesting than the original video, though I haven't seen that in a decade. Vimeo is one of the user generated content sites that is relatively free from blatant copying. Perhaps copyrighted works are used as background music for these videos, but they are rarely, if ever, the central focus.
That's why Vimeo is being sued. Not because their site is rife with copyright infringement. Not because their site encourages infringement over unique content. Specifically because the community at their site has flourished into one that consistently puts out unique user generated content of high quality. Vimeo is like YouTube with the noise turned down. This scares the pants off the content industry.
As the trend towards Internet Television strengthens the monopolies of the content industry weaken. Quality user generated content is a direct competitor to professionally generated content. The content industry has a long history of using the legal system to ensure that they squash the competition. That's what they're doing here.
I feel bad for Vimeo. They made an innocent video to show what a fun-loving bunch of wacky kids they are at their little Web 2.0 start up. They probably thought that like other various mashups and non-malicious infringements that their video would either fly under the radar or become a success such that the content owner would appreciate the attention drawn to their work and see the positive aspects of it. What they didn't realize is that they've become the nemesis of big business. Big business does not treat its adversaries well.