On Friday, Capitol Records and other big record labels asked a judge for a summary judgment win in a lawsuit against the popular user-generated video website Vimeo, owned by Barry Diller’s IAC/Interactive Corp.

The lawsuit was filed in New York federal court three years ago. The plaintiffs allege that Vimeo has copied, performed, and distributed seminal sound recordings by artists including The Beatles, Coldplay, Norah Jones, Nat King Cole and the Beach Boys. When the lawsuit was first filed, “lipdubs” on Vimeo’s network were hot, and the record companies alleged that Vimeo needed license to the sound recordings when users posted their lip-synching.

The dispute was delayed because there was a pertinent piece of litigation about to go before appeals judges that considered the copyright liability of UGC sites — Viacom v. YouTube.

Now that the 2nd Appellate Circuit has weighed in on what is required before ISPs like YouTube and Vimeo gain safe harbor from copyright liability — that an ISP had to have actual knowledge of specific infringements through takedown notices or something else before being required to remove copyright material expeditiously — the Vimeo case proceeds. Today’s motion filed by attorney Russell Frackman indicates how copyright owners are adjusting themselves to an appeals court’s direction.

What’s particularly noteworthy is how the plaintiffs present Vimeo as being worse than other UGC sites out there. The 2nd Circuit might have revived Viacom’s lawsuit against YouTube, but the plaintiffs want to make clear that they have evidence of Vimeo’s actual knowledge that passes legal muster.

According to the motion:

“Vimeo’s business model and service intentionally differs from, and Vimeo controls the content on its website far more pervasively than, other ‘user-generated content’ websites. YouTube, Veoh, and other websites do not create and consistently upload their own infringing videos; do not expressly tell users it is permissible to use infringing music in their videos and instruct their users how to do so; do not have a team of employees monitoring to ‘curate’ their content and a set of technological tools to accomplish that task; do not actively participate in the website ‘community’ to define and delimit the content on their website; do not at their sole discretion delete and ‘bury’ content that they believe does not reflect the image or brand they want to establish; and do not refuse to obtain licenses from music copyright owners or to deploy available technologies to filter copyrighted music. As described below, Vimeo does all of these things and more.”

If a judge is convinced on this argument, it would either lead ISPs in two direction — either be more hands-on in monitoring infringements on the site or be more hands-off in acting in an intermediary, curative role. There might be liability to having a website employee designate a Daft Punk music video as a “Staff Pick” if that stamp of approval becomes evidence of knowledge of exactly what is on the site.

Then again, turning a cheek might not provide safety from claims. The record labels also make arguments on the “red flag” knowledge and “willfull blindness” fronts as well, saying, “Vimeo cultivated an environment where it encourage infringement of music by its employees and its users and then looked away from the same infringing conduct.”

In its own summary judgment motion, Vimeo denied taking such an active role, arguing that “given the sheer volume of video content uploaded every day, Vimeo does not — and cannot — view every video uploaded by its users to attempt to determine whether it infringes a copyright or otherwise violates Vimeo’s terms of service. Instead, Vimeo relies upon copyright holders to inform it if a user has uploaded an infringing video.”

The record labels have chosen to dispute this in a 56-page motion. Among the examples given about how Vimeo allegedly knew its culpability is that when it provided a popular video to CBS for possible inclusion in a 60 Minutes pieces about Barry Diller, Vimeo is said to have questioned whether it should use the video because the music wasn’t licensed and that an employee suggested, “If you want me to make a version that does not have copyrighted music in it, I will do that for you.” [Billboard.biz]