Nobody likes to see their dirty linen paraded in public, but most of us like to rubberneck every now and then. That’s why there was so much prurient interest when the details of Viacom’s court battle against YouTube became public last week.

For three years the two sides have been beating up on each other behind closed doors, locked in a billion dollar lawsuit over whether the video sharing web site deliberately encouraged people to infringe copyright and upload pirate videos. Suddenly every sordid detail is out in the open.

A lot of what came to light was simply courtroom bluster — the jabs traded between legal teams as they try and position their opponent in the worst possible light.

As part of this scrapping, both sides have made arguments that strip the evidence from its context: single lines lifted from email messages or slides from company presentations aimed at creating the image of rabid corporate profiteers or radicalized copyright criminals.

In between these soft blows, however, some serious punches were landed. YouTube founder Steve Chen’s message to the troops to prioritize growth “through whatever tactics, however evil” will come back to haunt him. Meanwhile Viacom’s marketing campaigns — which led them to upload thousands of videos through proxy accounts before later demanding they be taken down — seem barely credible as the foundation for a claim of $1 billion in damages.

With all this going on, it’s easy to get caught up in the salacious details. But there’s something else far more important going on here that should make every web entrepreneur sit up and take notice. Depending on how New York District Judge Louis Stanton rules, some of the fundamental basics of Internet law could get rewritten. Cases like Viacom’s put principles such as safe harbor under threat – something that could alter the relationship between web sites and their users:  Who owns a tweet? Who can say what on Facebook? Where does the line fall between virality and piracy? When does a service become responsible for what its users do?

In a world where real-time, social web services are pushing the boundaries, a win for Viacom could endanger all sorts of innovation.

It’s only five years since the last major shift in this area, when the Supreme Court ruled that Grokster had thrown away its claim to safe harbor by enticing users to break the law. Judge Stanton’s decision — which rests on less evidence and more interpretation — is more difficult to make and could create a trickier precedent.

It’s not only in the United States that fundamental Internet laws face a big test, too. In Britain, the Digital Economy Bill — a radical attempt to rewrite the rulebook on high-tech legislation in a way that goes further than the DMCA – could become law without ever being fully debated by Parliament. These are vital moments for web businesses — and the people behind them — all over the world.

We live in a world where the law is set by courts, judges and politicians. We know that technological change is challenging to the status quo, and that progress often pushes the envelope for legislators. But in their hasty attempt to keep pace with change, the danger is that they may end up going too far. I’m not a lawyer. I don’t know which way the judge’s decision will fall in New York, or whether British politicians will vote the Digital Economy Bill into law. But anyone who is simply enjoying the jeers and cat calls coming from the gallery isn’t thinking hard enough about what’s happening.

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