SAN FRANCISCO – A federal judge ruled Wednesday that music companies and other copyright holders must consider “fair use” of their materials before demanding YouTube and other video-sharing Web sites remove content.

The ruling came in the case of a Pennsylvania woman who sued Universal Music Corp. because it forced YouTube to take down a video clip she posted of her toddler dancing to Prince's “Let's Go Crazy.”

In her lawsuit, Stephanie Lenz of Gallitzin, Pa., alleged that Prince – an aggressive anti-piracy protector of his work – pressured Universal to take action against Lenz and YouTube over the 29-second home video of her child. The musician was not named in the lawsuit.

“She had her free speech squelched,” said Corynne McSherry, an Electronic Foundation Frontier lawyer representing Lenz.

U.S. District Court Judge Jeremy Fogel refused to dismiss the lawsuit Wednesday, saying Universal needed to first consider whether the clip was “fair use” before demanding its removal. It's the first such legal ruling requiring copyright owners to consider fair use of their material before demanding that Internet sites such as YouTube take down material.

Fair use provisions of the U.S. copyright act allow segments of copyrighted works to be used for purposes of parody or satire or in reviews and other limited circumstances.

The judge said he would determine later whether the clip did constitute fair use, but he did knock down Universal's contention that the company was within its rights to demand the takedown regardless. The company argued that considering whether material is fair use could slow its response to stamping out pirated versions of its work appearing on video-sharing sites.

“Undoubtedly, some evaluations of fair use will be more complicated than others,” Fogel wrote in a 10-page decision. “But in the majority of cases, a consideration of fair use prior to issuing a takedown notice will not be so complicated as to jeopardize a copyright owner's ability to respond rapidly to potential infringements.”

Still, the judge said he had “considerable doubt” that the lawsuit would ultimately prevail because he believes Lenz's lawyers will have a hard time proving that Universal acted in bad faith.

The clip was reposted after a six-week hiatus last summer and has received nearly 600,000 hits since it was first posted in February 2008.

“While the court merely declined to throw the case out at this early pleadings stage, we remain confident that we will prevail in this matter,” Universal spokesman Peter Lofrumento said.