The toddler's mom, Stephanie Lenz, sued Universal in 2007 for allegedly sending a meritless "take down" request demanding the video be removed from YouTube.
After years of litigation, Judge Jeremy Fogel issued a ruling Thursday that refused to grant either side "summary judgment" on copyright issues -- meaning the case will likely go before a jury.
Lenz, who's represented by the free speech group the Electronic Frontier Foundation, says the YouTube video constituted "fair use" under federal copyright
"I was really surprised and angry when I learned my video was removed," Lenz said in a statement on EFF's website. "Universal should not be using legal threats to try to prevent people from sharing home videos of their kids with family and friends."
Lenz scored a partial victory in this case in 2009, when Judge Fogel ruled that copyright holders must consider "fair use" before sending takedown notices, according to the Hollywood Reporter.
However, a jury still must decide whether the takedown could be justified through the Digitial Millennium Copyright Act, a 1998 law that gives websites like YouTube some protection from copyright
That law has sparked a lot of controversy over when it's appropriate for a big company to order the removal of certain videos from YouTube.