Viacom International is getting a second shot at proving that Google’s YouTube massively infringed its copyrights by hosting clips from shows like “The Daily Show” and “Family Guy” without its permission. And whether Viacom and its lawyers succeed or not, they’ve already managed to shape the developing case law over copyrighted content that users illegally upload to the Internet.

On Thursday the U.S. Court of Appeals for the Second Circuit reversed a 2010 decision granting Google summary judgment in the $1 billion case. The appellate court determined that that “a reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website.” But Viacom’s lawyers are going to have to overcome a high bar to sway a jury that Google isn’t entitled to safe harbor protection under the Digital Millennium Copyright Act for copyrighted content that YouTube agreed to remove.

The Second Circuit remanded the case to determine the extent of YouTube and Google’s “knowledge or awareness” of 63,497 video clips that Viacom identified as infringing, as well as 13,500 clips ID’d by a separate class of copyright holders. And in a first-of-its-kind holding, the appellate panel also held that Viacom and the class could go after Google for being “willfully blind” to specific instances of copyright infringement.

Paul Smith of Jenner & Block, who argued the appeal for Viacom in October, told us that the court’s decision on willfull blindness was a crucial victory. If Viacom and lawyers for the The Football Association Premier League and the class of copyright holders can establish that YouTube and Google executives ignored the infringement taking place on the site, Smith said, the defense will be liable for all 76,997 clips at issue in the case.

“We’re very pleased, because we now have rules for the road for services like YouTube that will be fair and balanced,” Smith said.

Premier League counsel Charles Sims of Proskauer likewise welcomed the decision. “YouTube willfully blinded itself to specific infringement and had ample ability to control infringing activity within the meaning of the copyright law,” he said in a statement.

Willful blindness is a tough standard to apply in cases against Web sites. In 2010, the Second Circuit rejected a willful blindness challenge against eBay in a trademark case brought by Tiffany over counterfeit jewelry that was being sold on the auction site. But Smith said that compared to Tiffany’s case, Viacom has much better facts on its side. For example, while YouTube had a community flagging system encouraging users to alert the company to adult content, it did not have a similar system at the time for copyrighted material, he said.

Google counsel Andrew Schapiro of Quinn, Emanuel, Urquhart & Sullivan declined to comment. (Schapiro took the case with him from Mayer Brown when he decamped to Quinn Emanuel on the eve of the appellate arguments last year.) Google shrugged off the ruling in a statement, saying that “[a]ll 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 decision adds to a limited body of case law interpreting the extent to which Internet sites that allow users to upload content should receive safe harbor protection under the DMCA. In what the Second Circuit deemed the “most important” question in front of it, the two-judge panel held that “actual knowledge or awareness of facts or circumstances that indicate specific and identifiable instances of infringement will disqualify a service provider from the safe harbor.” (The third member of the panel to hear the companies’ oral arguments, Judge Roger Miner, died in February.)

The appellate court affirmed part of Manhattan federal district court judge Louis Stanton’s June 2010 decision, establishing a higher standard for proving infringement for Viacom and the other plaintiffs to meet at trial. The Second Circuit’s holding on the scope of the safe harbor largely tracks the Ninth Circuit’s ruling in December in a similar case in which UMG Recordings accused video hosting company Veoh Networks of copyright infringement.

But while the Second Circuit upheld Judge Stanton’s interpretation of the DMCA’s safe harbor provisions, the panel concluded that it was “premature” to grant for summary judgment for Google. “Upon a review of the record, we are persuaded that the plaintiffs may have raised a material issue of fact regarding YouTube’s knowledge or awareness of specific instances of infringement,” Judge Jose Cabranes wrote.