The 2nd Circuit Court of Appeals kept the lawsuit going by sending it back to a federal district court to resolve the question of whether or not YouTube, owned by Google, knew that participants were posting clips of its copyrighted programs, The Los Angeles Times reported Thursday.
Both Viacom and YouTube called the ruling a victory.
"The court delivered a definitive, common sense message -- intentionally ignoring theft is not protected by the law," Viacom said in a statement.
YouTube said the lawsuit, which started out seeking $1 billion in damages, had been whittled down to address just the clippings it was aware were copyright infringements.
"All that is left of the Viacom lawsuit that began as a wholesale attack on YouTube is a dispute over a tiny percentage of videos long ago removed from YouTube," the company said in a statement.
"Nothing in this decision impacts the way YouTube is operating. YouTube will continue to be a vibrant forum for free expression around the world." the company said.