Viacom thought it caught Google with its pants down last week, unveiling a series of damning emails (starting on page 22 of this PDF) that show Google openly flaunting copyright law through its video site YouTube. But the real loser in these unsealed documents is actually Viacom.

The company proved it can’t sort out the good content from the bad, even with three years and hundreds of expensive lawyers.  And while Viacom has been fiddling in court, YouTube has grown into a mature, legally sound business.

The filing subtly reveals this. Viacom isn’t pursuing litigation related to any clips after May 2008. Maybe deciphering which videos infringe copyright is so tough they’ve just given up pursuing new claims. But legal scholars believe it’s more likely that even Viacom is satisfied with YouTube in its current incarnation.

Viacom should quit crying over spilled milk. They’re spending a lot of money to win a judgment against an incarnation of YouTube that no longer exists. The smart move for Viacom, and companies like them, would be to strengthen and expand the partnerships they now have with sites like YouTube to develop software that identifies copyrighted content. The faster this is accomplished, the sooner everyone can get out of court and go back to making money.

Check out my full story over at BNET – http://blogs.bnet.com/business-news/?p=621