YouTube is very close to implementing a filter for copyrighted material, Google CEO Eric Schmidt told the NAB conference on Monday.

The new system, called Claim Your Content, will automatically identify copyright material so that it can be removed.

"We are very close to turning this on," Schmidt said.

Well that's a good thing for business going forward. And it's sure to generate a sizeable amount of good will among media companies (if it works, we'll get to that in a minute). If, as Schmidt usually contends, lawsuits are simply business negotiations played out in courtrooms, then the good will Google garners will help the company avoid those courtrooms. Everybody wins, right?

Wrong. A YouTube filter won't prevent Google from being sued. And it won't help in their current lawsuit with Viacom. In fact, if it works, a filter could actually demonstrate that infringing content acts as a customer draw. And that, in itself, presents some very big legal problems.

Below, two big reasons the filter will cause more problems.

1. The filter will help demonstrate how much infringing content is on YouTube
If the filter works -- a big if, of course -- then traffic will go down. Not total traffic, mind you, that could still go up. But traffic to certain areas of the site and certain types of content. A litigant against YouTube could request that data, much like Titan media requested -- and received (yesterday!) -- that data from vid share site Veoh.

According to some interpretations of A&M Records v. Napster, it's illegal for copyrighted content to act as a draw when the host of that content receives financial benefit. Veoh argued that they never benefited financially from porn, but according to court documents, "at least one district court has concluded that..."a broad definition of ‘direct financial benefit’ would encompass even a ‘future hope to monetize.’” That court was deciding Perfect 10 v. Google.

2. The filter won't work, and thus will make YouTube liable
There's a danger that YouTube could make itself legally vulnerable by implementing a filter that doesn't work like the media companies want it to. After all, if YouTube is aware of the infringing activity then, under the DMCA, they're liable. 

This was exactly the issue a few months prior in MGM v. Grokster, which is still kicking around in LA district court, where the only defendant left is Streamcast. Streamcast, beaten and about to implement a filter, is worried that any filter it does provide will be imperfect, and thus open them to liability. From the court docs:

it seems that StreamCast could be found in contempt of Court even if it employs a filter licensed by SNOCAP, Inc. or Audible Magic.  For example, if there is a shortcoming in these companies'  filtering technology, and direct infringement by end-users ensues, StreamCast could be held liable under the proposed permanent injunction because the third-party filtering system did not ''exhaustively" stop the  infringement of "any" copyrighted works - in effect, it was not a "perfect" filter. 

Thus, the Court ORDERS Plaintiffs to explain whether they would agree to an injunctive remedy that held StreamCast harmless for another's direct infringement resulting from an "effective" third-party filter's technological shortcomings -  assuming of course that StreamCast has not engaged in any obstruction or otherwise caused the filtering tool to fail. And if StreamCast implements a homemade filter matching Plaintiffs' proposed specifications, it appears that StreamCast should be similarly free from liability if the technology is not "perfect."

That's why, I assume, Schmidt is calling this new program "Claim Your Content." (emphasis mine.) I'm willing to bet that any filtering mechanism on the site won't really be a proactive filter, it'll be a post facto filter that allows content owners to expeditiously search and remove content. That removes Google from the liability of having foreknowledge of infringing content, and allows them to provide the filter without input from the media companies.

YouTube is doing a little dance. They know there's infringing content, but they can't admit it. Implementing a post facto filter will be little more than public relations.