In a unanimous decision, the 7th Federal Circuit Court of Appeals has ruled that linking or embedding videos hosted on other sites is in no way copyright infringement, and neither is viewing such videos. The ruling overrides a lower court decision against a site called MyVidster. A pornography company called Flava Works sued MyVidster for bookmarking and linking videos downloaded from the Flava Works commercial site and hosted on various servers not under MyVidster’s control. The MPAA backed Flava Works in this suit.
Judge Posner, who wrote the unanimous decision, goes to great lengths to show that this type of embedding does not violate copyright, nor is it even contributory infringement.
Additionally, viewing such video is not a violation of the public performance section of copyright, though hosting a video without permission of the copyright owner almost certainly is. Judge Posner does find some incongruities in current copyright law however, and calls on Congress to make some clarifications.
The decision and the reasoning behind it are major setbacks for the MPAA, and victories for Google and Facebook who submitted an amicus brief in support of MyVidster last year.
You can read a great deal more detail on the story at TechDirt.