EMI sues Vimeo for encouraging copyright infringement with their lip-dubs

Three EMI Music labels, Capitol, Caroline, and Virgin Records, have filed a suit against Vimeo since many of their videos have music in them, unlicensed music. EMI argue that Vimeo has encouraged users to create channels and groups dedicated to showcasing "music videos" (lip dubs), and moreover Vimeo has lip-dubs prominently featured (sometimes referred to "channels we like" or "Vimeo obsessions") proving that staff actively moderate and visit these channels. The suit even suggests that staffers have uploaded their own lip-dubs.

arstechnica:

"Our website is about original videos, not original music," said one Vimeo staffer quoted in the lawsuit.

To make matters stickier, as Vimeo proudly states, lip dub was even a term coined on Vimeo "by Jakob Lodwick, founder of Vimeo."

Watching plenty of lip-dubs, it's clear to me that they are derivative works, the question is are they transformative? (The full suit is available after the jump, inside)
mediapost:

But Electronic Frontier Foundation lawyer Corynne McSherry says that a use can be transformative even when it incorporates the entire work. "If you can argue persuasively that your purpose requires the whole thing, that's okay," she says. "I've seen plenty of lip dubs that struck me as extremely creative and transformative and that put things in an entirely new perspective."

Lip Dub - Need You Tonight by INXS from sarahlane on Vimeo.

Complaint Capitol v Vimeo