But MySpace disputes the music group's charges, saying it has been working to protect artists.
Universal, owned by French media conglomerate Vivendi, claims that Myspace has looked the other way as users unlawfully uploaded copyright music videos.
In a copy of court documents filed Friday in U.S. District Court in Los Angeles, Universal also accuses MySpace of aiding copyright infringement by reformatting clips so users can transfer them to friends or post them to other sites.
"Defendants have made infringement free and easy," Universal's attorneys wrote in the filing, a copy of which was obtained by CNET News.com. "(MySpace) has turned MySpace Videos into a vast virtual warehouse for pirated copies of music videos and songs."
Universal's announcement came hours after MySpace had launched a new copyright protection tool. The companies have also negotiated for weeks over the issue of copyright, according to Peter Lofrumento, a Universal spokesman.
"MySpace provides an extraordinary promotion platform for artists--from major labels to independent acts--while respecting their copyrights," a MySpace spokesperson said in a statement. "We have been keeping UMG closely apprised of our industry-leading efforts to protect creators' rights, and it's unfortunate they decided to file this unnecessary...litigation."
MySpace, which is owned by News Corp., has moved in recent months to guard against copyright violations. Last month, it licensed "fingerprinting technology" from to help prevent unauthorized music from landing on the site. The filtering system, which launched on Friday, is designed to automate the removal of unauthorized works from the site once they have been flagged by copyright holders.
Apparently, this wasn't enough to satisfy Universal.
"We didn't try to sue (MySpace) right off the cuff," Lofrumento said. "We've been trying to negotiate a deal like the one we have with YouTube. Filing is always a last resort."
Negotiations between Universal and MySpace ground to a halt a week ago, according to a source close to the talks, who added that prior to that time, Universal executives became outraged when they found an unreleased video from rapper Jay-Z on the social-networking site.
Universal notified News Corp. lawyers on Thursday that the lawsuit was coming, said the source, adding that News Corp. tried one last time to persuade Universal to hold off on filing the suit, but Universal's representatives refused.
A preemptive strike?
Universal executives, said the source, think MySpace tried to preempt news of the lawsuit by announcing the release of technology to prevent copyright infringement.
"Do you think it was a coincidence that MySpace launched that filtering technology, one that hasn't been released yet, on the same day Universal filed their suit?" the source asked. "I don't think so."
This is a crucial time for some of the Web's most heralded companies. Sites such as MySpace and YouTube have attracted massive audiences by allowing them to post homemade videos to their sites and share them online.
But allowing them to post clips unchecked has let some users lift clips from TV shows, movies and music videos without permission from the copyright holder.
Last July, Los Angeles-based newsman Bob Tur sued YouTube after seeing his footage of the 1992 Los Angeles riots on the site. Universal has also taken video-sharing companies Bolt.com and Grouper to court over copyright.
Google, which recently acquired YouTube for $1.65 billion, has set aside $200 million in stock to cover possible legal fights over copyright, according to a report this week by the Associated Press.
At the same time, social-networking and video-sharing companies are scurrying to either devise new technologies to weed out copyright works or cut content-sharing deals with entertainment companies.
In October, YouTube announced that Universal agreed to offer access to thousands of videos from the company's archives to YouTube users. The partnership also allowed YouTube users to integrate into their videos songs from Universal's music catalog.
YouTube also struck a similar deal with Warner Music Group.Universal's lawsuit raises obvious questions. If the suit succeeds, will all free services that let users freely post videos be in legal hot water too? What would that mean for other Web 2.0 sites?
The complaint charges that MySpace gives "its members tools to upload copies" of videos, thereby "providing means to viewers to disseminate" videos that infringe someone else's copyright.
But identical charges could be levied against practically every video-sharing site that doesn't prescreen user-generated clip--the list includes YouTube, of course, and Google Video, Grouper, Metacafe and VideoCodeZone.
What a federal court in the central district of California will evaluate is whether MySpace--and, by extension, similar file-sharing companies--can be held legally liable for users' copyright misdeeds.
The answer to that will depend on how judges interpret the U.S. Supreme Court's decision in the Grokster file-swapping case. In that unanimous ruling last year (click for PDF), the justices indicated that copyright violations turn on fine points like whether the service is capable of substantial non-infringing use, and whether the defendant can block infringements and failed to do so.
Grokster and StreamCast could be held liable, the justices said, because there was evidence of "unequivocal indications of unlawful purpose" and because "neither company attempted to develop filtering tools or other mechanisms to diminish the infringing activity using their software."
MySpace, on the other hand, will be able to point to its "fingerprinting technology" and other recent antipiracy measures as legal defenses.
Right now, sites that deal in user-submitted work contend that they aren't liable for their users' actions under the safe harbor provision of the Digital Millennium Copyright Act.
The provision was designed to protect sites that enable the public to communicate or conduct trade, without accepting liability for user misconduct. If they were to accept liability, proponents of the provision say businesses such as eBay and Craigslist would soon be overwhelmed by lawsuits.
Sites such as Google Video and YouTube remove infringing material once notified by a copyright holder. But nobody knows yet whether this is enough to satisfy the courts, says Mark Litvack, an entertainment attorney with Manatt, Phelps & Phillips.
Litvack says the question that the DMCA fails to answer is who has the obligation to protecting copyright materials: the copyright holder or the Web site owner.
"Does the copyright holder have to tell the site owner to take it down? Or does the site owner have to monitor the site?" asked Litvack.
The framers of the DMCA wrote the law before file-sharing or peer-to-peer technology emerged. "Nobody saw it coming," Litvack said. "The law was antiquated very quickly."
CNET News.com's Declan McCullagh contributed to this report.