UPDATE 3-Tiny sex images on Google get okay from U.S. court

(Adds Google reaction)

By Adam Tanner

SAN FRANCISCO, May 16 (Reuters) - A U.S. appeals court lifted a preliminary injunction on Wednesday against Google Inc. (GOOG.O: Quote, Profile, Research) from showing thumbnail-size photos from sexually explicit Internet sites, but said the company might be liable for allowing links to sites displaying pirated photos.

The case is the latest in which courts are seeking to strike a balance between fostering the free flow of information on the Internet and protecting copyrighted content.

A lower court had found that Google's thumbnail images violated the copyright of adult magazine and Web publisher Perfect 10 Inc., but said the Internet search company was probably not responsible for displays of the underlying images from Perfect 10's Web site.

The U.S. 9th Circuit Court of Appeals based in San Francisco reversed those findings on Wednesday.

"We conclude that Perfect 10 is unlikely to be able to overcome Google's fair use defense and, accordingly, we vacate the preliminary injunction regarding Google's use of thumbnail images," Sandra Ikuta wrote for a three-judge panel.

Perfect 10, which boasts of "The World's Most Beautiful Natural Women," first objected to Google about the thumbnail images in 2001, saying Google linked to Web sites that republished images of their nude models without authorization. Perfect 10 charges $25.50 per month for access to its site.

They sued in 2004, alleging copyright infringement and in 2005 filed a similar claim against Amazon.com Inc. (AMZN.O: Quote, Profile, Research) and its A9.com subsidiary, saying they provided links to Google search results. A court granted a partial preliminary injunction in 2006.