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Google completes YouTube purchase

The Internet giant sets aside $200-million to cover possible copyright suits against YouTube.

By ASSOCIATED PRESS
Published November 15, 2006

SAN FRANCISCO - Google Inc. has set aside more than $200-million in its just-completed takeover of YouTube Inc. to cover possible losses on the deal, creating a financial cushion that might protect the Internet search leader if it's hit with legal bills for the frequent copyright violations on YouTube's video-sharing site.

Without elaborating in a late Monday statement, Google said it is withholding 12.5 percent of the stock owed to YouTube for one year "to secure certain indemnification obligations."

Google of Mountain View, Calif., disclosed the escrow account in an announcement commemorating the completion of its much-anticipated YouTube acquisition. Buying YouTube of San Bruno, Calif., cost Google 3.66-million shares of its prized stock, including a convertible warrant. As of Tuesday, those shares were worth $1.79-billion - above the targeted purchase price of $1.65-billion announced last month.

But the escrow account's existence means YouTube's former owners - a small group led by co-founders Chad Hurley, Steve Chen, Jawed Karim and Sequoia Capital - may never receive a substantial portion of the Google stock if YouTube runs into legal trouble or incurs other losses.

Although YouTube has promptly removed pirated videos whenever copyright owners complained about violations, questions have continued to linger about the site's vulnerability to legal claims for distributing content owned by other media.

YouTube may become a more tantalizing target for copyright owners and their lawyers now that it's owned by Google, a moneymaking machine that had accumulated $10.4-billion in cash through September.

The much-smaller YouTube never turned a profit, and even required a $15-million infusion from Google to help pay its bills until the deal closed, according to disclosures made Monday.

Although copyright suits are probable, Google should be on solid legal ground as long as YouTube continues to respond to complaints promptly, said Larry Iser, a Santa Monica, Calif., lawyer specializing in intellectual property rights. Google executives also have repeatedly vowed to protect the rights of copyright holders.

[Last modified November 14, 2006, 23:58:54]