When he was 18 months old, Holden Lenz decided to toddle through a Pennsylvania kitchen gripping his baby walker. While some funky music blared away in the background, his mother filmed his wobbly 30-second journey and uploaded it to YouTube for his grandmother to watch.

Today, Holden Lenz is nine years old, and in the intervening years that unremarkable video has become one of the most viewed clips of a perambulating toddler on the internet. Why? Because the distorted background music was by Prince, Prince didn't want it on the internet, and so his record label had it removed. When Stephanie Lenz decided to fight that decision, the clip became notorious. And this week, a federal appeals court in San Francisco has found in the baby's favour. Kind of.

Back in 2007, Prince was taking a particularly close interest in the use of his music online. "He's really intense about this stuff," said a source at the time. Every day, an employee of Universal Music would manually trawl the site for clips that featured Prince's tunes and make sure that takedown notices were issued. If Stephanie Lenz hadn't named her clip "Let's Go Crazy", the alleged infringement probably wouldn't even have been noticed; as her lawyer points out, the video clip had 273 views before the suit was filed, "and I'm pretty sure that they were all from Ms Lenz's mom."

That lawyer, Corynne McSherry, is the legal director of the Electronic Frontier Foundation, the digital rights group who immediately agreed to represent Lenz on a pro bono basis. They were looking for a test case of a video being wrongly flagged for removal, and this was the perfect example: the music was completely incidental to the clip and it couldn't possibly impinge on the market for the original recording. In other words, it seemed to be "fair use".

The video was reinstated by YouTube when that "fair use" argument was first made, but Universal chose to fight for its right to "remove all user-generated content involving Prince as a matter of principle". And it's been fighting ever since.

Today, the fact that this particular clip has prompted such lengthy legal argument seems slightly absurd, especially when it's viewed alongside the millions of high-quality versions of tracks that YouTube serves up as a kind of digital jukebox.

Indeed, the quantity of high-quality material being uploaded to the internet without permission has given birth to automated takedown procedures, where software crawls the web on behalf of copyright holders, searching for infringements before getting the necessary notices served.

This week's federal court judgement in the Lenz case, however, says that copyright holders "must consider fair use before issuing takedown notices" – ie they can't simply order the blanket removal of clips without regard for context.

That would seem like a win for the little guy, both literally and figuratively. But it's not that simple. Questions surrounding the interpretation of "fair use" and how deeply it needs to be considered by copyright holders in each case still remain unanswered.

So, while Holden Lenz continues to have a strange kind of notoriety, Universal Music will face another trial over whether it misrepresented its belief that the video of Holden's waddle infringed Prince's artistic rights. One general lesson from this: if you're going to film your child and upload the footage to YouTube, make sure that the radio isn't playing something from Prince's back catalogue before you start.