Section 512 of the Digital Millennium Copyright Act (DMCA) is called “Limitations on liability relating to material online.” It specifically outlines what an online service provider (OSP) can be held responsible for and the times when they are exempt for responsibility. 512 provides copyright holders the right to ask OSPs to remove material that appears on their sites or in their programs if it is an infringement of copyright. However, a service provider is not liable for “monetary relief” or for “injunction or other equitable relief” if “the service provider does not have actual knowledge that the material or an activity using the material on the system or network is infringing” and upon obtaining such knowledge “responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.”
In other words, a service provider is, in many cases, not liable for the content posted by its users, but must act swiftly to remove the infringing material from its site or service once it is notified of the infringement. Basically, if the OSPs comply promptly and effectively with copyright holders’ take down requests then they are protected by a “safe harbor” provision. According to reference.com the definition of a “safe harbor” is “a provision of a statute or a regulation that reduces or eliminates a party's liability under the law, on the condition that the party performed its actions in good faith.”
Therefore, this section of the DMCA is particularly important in determining secondary liability. A safe harbor can only be created if the site or service follows proper protocol and has been cleared of primary liability in the first place. Napster was held liable for the content being uploaded by its users because it provided a centralized server through which all information had to be passed, and thus was not granted a safe harbor.
YouTube is currently being protected by 512 because of its compliance with any and all take down notices it receives. YouTube's safe-harbor status is also helped by the fact that it has partnered itself with big, copyright-holding companies. Of course, if YouTube wasn't also complying with the takedown notices being issued by copyright holders in the first place, these partnerships wouldn't matter - or at least we’d like to think it wouldn't... The business possibilities for YouTube may almost be enough to outweigh the law, if they get the right business partners on their side.
512 is an important provision because it allows sites and services with substantial non-infringing uses to function with the possible existence of infringing material in exchange for removing that infringing material as quickly as possible. A no-tolerance infringement policy seems to be outside the scope of available online practices, therefore 512 allows services to exist with the understanding that there is inherent infringement on the internet.