Hey Jim, good topic as many people consider getting into video and posting it online through various video sharing services like YouTube, Vimeo and others. I haven't posted any videos yet, but did post an animated slide show awhile back through my WordPress blog's video option, and noted that it was being embedded in one or two places.
It's great of your past customer to contact you this way and let you know what he's doing, and offer not to use your material if you're not okay with it. If only more people were thoughtful like this we'd have a lot easier time maintaining the understanding of the value of quality imagery and content.

Here's my take. First, obviously basic web links are legal. That's the nature of the web -- people post things on sites, and other people post links to those things in other places. In the olden days of the Internet and the web, content was consumed by users by running web browsers on computers and clicking links to things. But now with 3G / 4G smartphones, WiFi tablets, networked apps, Internet-enabled televisions & home appliances and lord knows what else, the concept of a customer consuming net-hosted content has gotten very broad. Still, this doesn't change the underlying mechanism -- web links -- or the legality of it. If you post content on the internet, people can link to it. That's the bottom line, and normally that's what we want.
The situation of videos hosted on a video sharing service goes further. That's because other people can not only link to a video, they can embed it, and this is what you're talking about with the iPhone app. With an embedded video, the viewer doesn't have to click like with a normal link -- the video would show up on the other site (or in this case iPhone app) that hosts the embed link. The video playback is still done via the YouTube video player, and the video content is still served up by the YouTube servers, but otherwise it appears to the viewer as if the video is hosted on some other site (or app). You're doing this yourself to put your videos on your own personal site.
At first glance it may seem like this could be a copyright infringement, but it isn't necessarily. It's another form of link, one in which the content appears not within the context of the site originally hosting the content, but within the context of the site hosting the
link to the content. (An analogy that got lots of people hot a few years back was the hotlinking of static images within other web sites -- making your own site's gallery postings for example appear on other sites as if they were directly hosted there, but with the bandwidth to serve the images [and any potential associated bandwidth charges] coming from your own site.) Hotlinking static images isn't illegal, as I read the accounts of various legal cases; likewise I don't believe embedding videos would be illegal, for similar reasons. But that's my reading, Carolyn would have a more accurate interpretation of some of the results of court decisions.

But despite the general situation, embedding videos on YouTube actually may be explicitly
legal! That's because of the YouTube terms of service that you agreed to when you set up your YouTube account and started posting content there. Here's a link to the TOS:
http://www.youtube.com/t/termsConsider the following sections (emphasis mine):
Quote:
4. General Use of the Service—Permissions and Restrictions
YouTube hereby grants you permission to access and use the Service as set forth in these Terms of Service, provided that:
A. You agree not to distribute in any medium any part of the Service or the Content without YouTube's prior written authorization,
unless YouTube makes available the means for such distribution through functionality offered by the Service (such as the Embeddable Player).
[...]
C. You agree not to access Content through any technology or means
other than the video playback pages of the Service itself, the Embeddable Player, or other explicitly authorized means YouTube may designate.
C. You agree not to use the Service for any of the following commercial uses unless you obtain YouTube's prior written approval:
- the sale of access to the Service;
- the sale of advertising, sponsorships, or promotions placed on or within the Service or Content; or
- the sale of advertising, sponsorships, or promotions on any page of an ad-enabled blog or website containing Content delivered via the Service, unless other material not obtained from YouTube appears on the same page and is of sufficient value to be the basis for such sales.
E. Prohibited commercial uses do not include:
- uploading an original video to YouTube, or maintaining an original channel on YouTube, to promote your business or artistic enterprise;
- showing YouTube videos through the Embeddable Player on an ad-enabled blog or website, subject to the advertising restrictions set forth above in Section 4.D; or
- any use that YouTube expressly authorizes in writing.
(For more information about what constitutes a prohibited commercial use,
see our FAQ.)
[...]
5. Your Use of Content
In addition to the general restrictions above, the following restrictions and conditions apply specifically to your use of Content.
A.
The Content on the Service, and the trademarks, service marks and logos ("Marks") on the Service, are owned by or
licensed to YouTube, subject to copyright and other intellectual property rights under the law.
[...]
B. Content is provided to you AS IS. You may access Content for your information and personal use solely as intended through the provided functionality of the Service and as permitted under these Terms of Service.
You shall not download any Content unless you see a “download” or similar link displayed by YouTube on the Service for that Content. You shall not copy, reproduce, distribute, transmit, broadcast, display, sell, license, or otherwise exploit any Content for any other purposes without the prior written consent of YouTube or the respective licensors of the Content. YouTube and its licensors reserve all rights not expressly granted in and to the Service and the Content.
[...]
6. Your Content and Conduct
A. As a YouTube account holder
you may submit Content to the Service, including videos and user comments. You understand that YouTube does not guarantee any confidentiality with respect to any Content you submit.
B. You shall be solely responsible for your own Content and the consequences of submitting and publishing your Content on the Service. You affirm, represent, and warrant that you own or have the necessary licenses, rights, consents, and permissions to publish Content you submit; and
you license to YouTube all patent, trademark, trade secret, copyright or other proprietary rights in and to such Content for publication on the Service pursuant to these Terms of Service.
C. For clarity,
you retain all of your ownership rights in your Content. However, by submitting Content to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the Content in connection with the Service and YouTube's (and its successors' and affiliates') business, including without limitation for promoting and redistributing part or all of the Service (and derivative works thereof) in any media formats and through any media channels.
You also hereby grant each user of the Service a non-exclusive license to access your Content through the Service, and to use, reproduce, distribute, display and perform such Content as permitted through the functionality of the Service and under these Terms of Service. The above licenses granted by you in video Content you submit to the Service terminate within a commercially reasonable time after you remove or delete your videos from the Service. You understand and agree, however, that YouTube may retain, but not display, distribute, or perform, server copies of your videos that have been removed or deleted. The above licenses granted by you in user comments you submit are perpetual and irrevocable.
Now, YouTube does give you the ability to turn off the downloading & embedding options, which effectively prevents anyone else from obtaining videos except by going to the YouTube site and playing them there. (Though of course this doesn't prevent people from linking to the content on the YouTube site in the normal way.) Here's how to turn off embedding, for example:
http://www.google.com/support/youtube/bin/answer.py?answer=74648Anyone trying to crack the YouTube mechanisms to get access to content that you're trying to disallow through access settings would be violating the YouTube TOS. Such use of the content would not be permitted by the TOS, and therefore definitely would be illegal and an infringement of copyright.
So to sum up:
- Posting videos to YouTube explicitly licenses YouTube and YouTube users to do certain things with your content, subject to access permission you set, the YouTube TOS, and YouTube's inherent functionality like the embeddable video player.
- Part of the TOS explicitly supports the ability of YouTube users to embed your video elsewhere, if you haven't disabled embedding. Embedding control appears to be a global setting, however, so if you disable it then you yourself can't embed your videos on your own blog or elsewhere.
- Even if they can't embed your video, YouTube users can still link to your content, as they can anything else on the web.
- YouTube does prohibit some commercial uses of content, but embedding videos on commercial sites (or apps?) is not necessarily prohibited.
However, as we know from the example of hotlinking static images, what is legal and what is good manners are sometimes different things.

Especially in the case of a commercial app linking to or embedding your content to support its own purposes rather than yours. My personal practice would be always to obtain permission from the creator if I was hotlinking static images or embedding videos, for example in my blog or if I was to do an app like this. If they said no thanks, then I wouldn't do it. Many responsible bloggers follow the same model, because they recognize the value of good content, and that the importance of protecting intellectual property rights can mean more than just following the technical letter of the law. As, apparently, your customer in this case also understands, which is great.
But not everyone is conscientious; many aren't necessarily bad, but just ignorant about the implications of using content that isn't their own. The situation of unexpected or unwanted video embedding in other sites or apps is another new mechanism that we need to watch out for as we try to get our work out there while also reasonably protecting our interests in that work...