SAN FRANCISCO -- Two activist groups Monday dismissed a lawsuit they filed in federal court in San Francisco last month against Viacom International Inc. for demanding removal of a parody of the Colbert Report from YouTube.

MoveOn.org Civic Action and Brave New Films said they dropped the case because Viacom admitted its action was an error and took steps to protect Internet users' free speech rights.

Fred Von Lohmann, an Electronic Frontier Foundation lawyer who represented MoveOn.org, said the media conglomerate had taken important steps "to respect newsworthy and transformative uses of their material."

The attorney said, "We hope other media companies will follow Viacom's lead."

The humorous video, entitled "Stop the Falsiness," was made by Berkeley-based MoveOn.org and Brave New Films of Culver City and posted on YouTube's Internet site last August.

It was a take-off on comedian Stephen Colbert and his television series "The Colbert Report" on the Comedy Central cable network, which is owned by New York-based Viacom. The title was a play on Colbert's use of the word "truthiness" and the short film used excerpts of his programs as well as comments by a MoveOn speaker.

The parody was aimed at both Colbert, who himself parodies conservative political pundits, and MoveOn's earnest political activism, according to the Electronic Frontier Foundation.

In March, Viacom demanded that YouTube remove the video on the ground that it violated Viacom's copyrights. A few days later, the two groups sued Viacom, saying the video was protected by the doctrine of fair use, which allows the use of excerpts of copyrighted material for purposes of social commentary.

In letters to Electronic Frontier Foundation lawyers on March 27 and April 11, Viacom General Counsel Michael Fricklas said the removal demand was "an error" and outlined the company's steps for protecting fair use of copyrighted material.

The steps include a public recognition of the fair use doctrine and a procedure for quick response to complaints of improper removal demands, known as "takedown" notices.

MoveOn.org Civic Action executive director Eli Pariser said, "This new endorsement of Internet users' rights is a victory for the little guy.

Pariser said, "Online sites like YouTube have revolutionized political expression and can give the little guy an audience of millions for a political point of view. A corporate powerhouse like Viacom must not be allowed to erase political content or muzzle political expression."

MoveOn was represented in the case by the San Francisco-based Electronic Frontier Foundation and Brave New Films was represented by the Stanford Law School Center for Internet and Society.

Viacom spokesman Jeremy Zweig said, "We are pleased that MoveOn and EFF are recognizing the effective processes we have consistently applied since we began taking down our unauthorized content from YouTube.

"We appreciate that they dropped their suit after learning about our efforts to ensure that our takedowns are appropriately targeted at piracy," Zweig said.

Viacom has a separate lawsuit pending in federal court in New York against YouTube and its owner, Google Inc., seeking more than $1 billion in damages for alleged "massive copyright infringement" in nearly 160,000 unauthorized clips of Viacom programming posted on YouTube. That lawsuit was filed on March 13.