The Seventh Circuit held that the district court erred by applying the wrong preliminary injunction standard. While the district court applied a presumption of irreparable harm after finding Flava was likely to prevail on its copyright infringement claim, the Seventh Circuit held that likelihood of success is only one factor for a district court to consider in deciding whether to grant a preliminary injunction.

In applying this standard, the Seventh Circuit extended the Supreme Court's decision in eBay Inc. v. MercExchange LLC to the copyright context. In eBay, the Supreme Court held that there is no presumption of irreparable injury for permanent injunctions when there is a likelihood of success on the merits of a patent infringement case. The Second and Ninth Circuits have similarly applied the eBay standard to preliminary injunctions in copyright cases in Salinger v. Colting and Flexible Lifeline Systems, Inc. v. Precision Lift, Inc.

The Seventh Circuit found that myVidster is not likely to be liable for contributory infringement of Flava's exclusive right to make copies of its videos because myVidster neither:

The Seventh Circuit relied on the Second Circuit's definition of contributory infringement in Matthew Bender & Co. v West Publishing Co. as "personal conduct that encourages or assists the infringement".

The Seventh Circuit reasoned that the facilitator of conduct that does not infringe copyright is not a contributory infringer. myVidster only provides a connection between the servers that host the videos and the computers of myVidster's users. The court compared myVidster to a magazine that lists plays and gives the name and address of the theaters where they are being performed or to a telephone exchange connecting two telephones. If myVidster users do not make copies of the bookmarked videos, they are not violating the copyright owner's exclusive right under the Copyright Act to reproduce the copyrighted work. Because there was no evidence that the users were infringing Flava's copyrighted works by making copies, myVidster cannot be held liable for contributory infringement. This is the case even though myVidster is aware that certain videos accessed from its site infringe copyrighted works.

The Seventh Circuit accepted Flava's argument that by providing a connection to websites that contain unauthorized copies of its videos, myVidster is encouraging its subscribers to circumvent Flava's pay-wall, reducing Flava's income. However, it also reasoned that unless those visitors actually copy the videos they are viewing on the infringers' websites, myVidster is not increasing the amount of infringement. The Seventh Circuit compared myVidster's users' actions to a person who sneaks into a movie without paying. While that person may reduce the movie producer's income by not paying, the viewer has not violated the producer's copyright unless the viewer makes a copy of the free movie.

The Seventh Circuit reasoned that the direct infringers are Flava's customers who copy Flava's copyrighted videos by uploading them to the internet. However, there was no evidence that myVidster was encouraging these customers to infringe Flava's works. If there were, myVidster would then be liable for inducement liability under Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd.

The Seventh Circuit also analyzed whether myVidster may be liable for contributory infringement of Flava's exclusive public performance right. It found that myVidster was not facilitating public performance of myVidster's videos by providing links between the person who uploaded the video and the myVidster users. The Seventh Circuit described two theories of public performance:

The Seventh Circuit found the first interpretation does not apply as there was no evidence that myVidster contributed to the uploading of unauthorized videos.

It then focused on the second interpretation, which is more favorable to Flava. However, because the act of viewing videos on myVidster is noninfringing, it found that myVidster cannot be liable for contributory infringement even on this theory. The court compared this case to Fonovisa, Inc. v. Cherry Auction, Inc. and In re Aimster Copyright Litigation.

In Fonovisa, the defendant operated a flea market where pirated recordings of copyrighted music were sold in such bulk that the later performance by the buyers when they played the recordings may have satisfied the broad definition of public performance in the Copyright Act. Unlike the defendant in Fonovisa, the Seven Circuit reasoned myVidster is not providing a market for pirated works because infringers who transmit copyrighted works to myVidster's visitors are not selling them. Flava's pirated videos are not sold through myVidster and there was no admissible evidence that they were actually being accessed via myVidster.

In Aimster, users exchanged copyrighted music over the internet using Aimster's file-sharing software. Aimster created the online equivalent of a swap meet where anyone who had Aimster's software could easily obtain copies of copyrighted songs in AOL chat rooms. Unlike Aimster, however, the Seventh Circuit found myVidster did not encourage the swapping or copying of copyrighted works.