Northwest tech giants Amazon and Microsoft have joined a coalition of companies, nonprofit groups, and individuals to work against a proposed settlement by Google regarding its thousands of scanned books according to an article in yesterday’s New York Times. The group, which includes new Microsoft ally Yahoo, will work to derail the settlement between Google and groups like the Authors Guild and the Association of American Publishers about Google’s right to digitize and publish books from libraries online. Google was first sued over its book scanning in 2005. The settlement reached sets up a way for Google to display and sell books online but is of concern to antitrust lawyers including some in the Department of Justice. The coalition against the settlement is tentatively being called the Open Book Alliance.

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I came across a nice Isaac Asimov quote this week: “No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”

The copyright dispute that went public this week between the UK’s National Portrait Gallery and the Wikimedia Commons is lodged firmly in the world as it is. Under UK law, it seems pretty clear that the 3,000-plus high-resolution images that a Wikimedia administrator copied from the museum’s website and uploaded to the Commons are copyrighted by the museum and are not, as the Wikimedia Foundation argues, in the public domain.

But the case is making waves in the blogosphere because it’s also about the world as it will be. Digital technology is making it possible to share near-perfect copies of priceless paintings and other cultural artifacts with anyone, anywhere, instantly. And because the cost of this sharing is now practically zero, many people now believe the information itself should also be free.

And perhaps it should. But unless we figure out a reasonable way to support the institutions that spend lots of money to make these images—namely, museums—very little of this material may actually be available for sharing in the future.

Free-culture activists are applauding Wikimedia for refusing to delete the disputed images, but this isn’t a simple Robin Hood story. If the Wikimedia Foundation prevails and gets to keep the images, it could lead to an overall reduction in sharing. Don’t get me wrong—I’m a public domain maniac. I’d love to see as much of the world’s heritage digitized and freely shared as institutions can manage. But what I fear is that the episode will prompt the National Portrait Gallery and other museums to either slow digitization efforts or place greater restrictions on access to their digital collections in the future—or both.

Let me back up and explain the Wikimedia case. The Wikimedia Commons is a public file repository maintained by Wikimedia Foundation, the same non-profit organization that runs Wikipedia. (Most of the images you see alongside Wikipedia articles are stored in the Wikimedia Commons.) In March, a volunteer Wikimedia administrator named Derrick Coetzee copied 3,300 high-resolution images from the National Portrait Gallery’s online database, some of them as as large as 2400 x 3200 pixels, or about 8 megapixels. He then uploaded all of the images to the Wikimedia Commons, where, for the moment, you can view them at your leisure—just be ready for lots of lace and powdered wigs.

Coetzee, a U.S. citizen, hasn’t spoken out about the case, so it isn’t clear whether he was merely trying to make it easier for others to see the portraits, or whether he was also hoping to goad the National Portrait Gallery into a confrontation. But that was certainly the effect. In April, the gallery’s solicitors asked the Wikimedia Foundation to remove the images. It refused, for reasons I’ll get into momentarily. On July 10, the solicitors, Farrer & Co. of London, turned to Coetzee himself, sending him a letter (which he promptly posted on the Wikimedia Commons) threatening to seek injunctions and damages unless Coatzee agrees to remove the images, delete all of his copies, and generally keep off the Gallery’s digital lawn.

The letter gave Coetzee until July 20 to comply. As of this writing, the images are still online, so it’s safe to assume Coetzee and the Wikimedia Foundation are digging in their heels. He posted an update saying he’s being represented in the case by Fred von Lohmann, an intellectual property attorney for the Electronic Frontier Foundation (EFF).

The main question in the dispute is not about the portraits themselves, most of which were painted more than 100 years ago and are indisputably in the public domain. Rather, it’s about who owns the digital images. Are they copyrighted by the National Portrait Gallery, which went to the expense of hiring professional photographers to document the original paintings, and should therefore (the solicitors argue) have the right to control their distribution and collect licensing fees from anyone who reproduces them? Or are they in the public domain and therefore …Next Page »

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Digital rights management took another hit today. MOD Systems, a Seattle, WA-based creator of digital delivery systems for media, announced it has signed deals with Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Music, along with several groups of independent labels, to sell more than 5.2 million music tracks and 4,000 movies to customers via retail stores, DRM-free.

Not only will there be more outlets for consumers to get music, but they will be able to play and transfer the music without the restrictions that are often a part of DRM-protected media. This allows people who dislike getting media directly from the Internet to buy music and movies from traditional retail outlets but still have the convenience of digital media. Customers will be able to put the media they buy onto portable devices as well as USB and SD card systems. “The market has not yet taken advantage of digital delivery in retail,” said Anthony Bay, chairman and CEO of MOD Systems, in a press release.

Making music and movies without DRM fits the current trend of media producers stepping back from the heavy-handed prosecution and protection of copyright that has led to many embarrassing situations—memorably, the suing of dead people for copyright infringement, as well as creating CDs and DVDs that stop working after a certain number of plays and that cannot be copied, even legitimately, onto different media players.

Using retailers as middlemen means MOD, and the companies it signed deals with, will reach consumers who might otherwise never use its system. And removing DRM from the media improves accessibility and appeal to those still adapting to the Internet age of media acquisition.

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The Associated Press did some saber-rattling in San Diego yesterday at the annual convention of the Newspaper Association of America, and today Google CEO Eric Schmidt delivered his riposte.

In a keynote speech, AP chairman William Dean Singleton had vowed to more aggressively enforce the AP’s intellectual property rights. He said the wire service will “work with portals and other partners who legally license our content” but will take “legal and legislative remedies against those who don’t.” Singleton added, “We can no longer stand by and watch others walk off with our work under misguided legal theories.”

Schmidt, who has described journalism as a central tenet of democracy, suggested in a keynote address of his own today that the solution to the massive problems that news organizations now face lies in innovation, and in studying the way people are accessing and using information “in the cloud.”

While it’s difficult to plan for innovation, Schmidt says it’s possible to “architect a structure where innovation is welcome, and we’re starting to see that now with a new form of computing, called cloud computing.”

In cloud computing, Schmidt says, the computer servers in the network do most of the data storage and computer processing. “In this new model,” Schmidt says, “the network is always there, always reliable. All you have to do is pick up a phone, a netbook, a PC, what have you.”

The Internet has created a quandary for news organizations around the world. On the one hand, moving the news online has made it vastly more accessible. But in the process,  newspaper advertising and classified revenues have plunged, exposing …Next Page »

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Discovery Communications (NASDAQ: DISCA), the owner of Discovery Channel and other TV networks and websites, has filed a lawsuit against Amazon (NASDAQ: AMZN), alleging that the Kindle and Kindle 2 infringe on a Discovery patent issued in 2007 for e-book security and copyright protection. Discovery is seeking an unspecified amount of compensation.

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When I first wrote about Black Duck Software about five years ago (pre-Xconomy), the company was pitching its open-source code tracking system as a protective measure. Many software companies wanted to incorporate open-source code into their products—why reinvent an e-commerce module for taking credit card numbers, for instance, if there’s already a perfectly good open-source one?—but they were scared of exposing themselves to the licensing and copyright hassles that sometimes came along with using open source.

Black Duck tried to put companies at ease by developing a system that let software engineers compare their works-in-progress to a large database of open-source programs. If a match was found, that could be a sign that the developers would have to comply with the specific license governing the reused code—or it could mean that complying wasn’t worth the hassle, and that it would be easier to develop the component from scratch.

These days, things are a bit different. Companies can’t afford not to use open-source components in new business or consumer applications, given that it’s so much more economical than starting over. So now it’s more a question of figuring out which components are best—and then making sure they’re safely reusable. As a result, Waltham, MA-based Black Duck has had to recast and expand its business.

A few weeks ago, shortly after the company announced the closing of a $9.5 million Series D venture round, I spoke with Black Duck’s new CEO, Tim Yeaton, who says the company’s new identity is about “driving the acceleration of software development in general by enabling companies to fully exploit the economics and the capabilities of open source.” That means not just ensuring licensing compliance, but actually helping developers find components that could speed up their projects—something that’s easier to do when you own a database of more than 200,000 open-source software projects totaling tens of billions of lines of code.

The first time I spoke with Yeaton, back in November 2007, he was still chief marketing officer at EqualLogic, the Nashua, NH, network storage device maker that had just been purchased by Dell for a stunning $1.4 billion in cash. I don’t know whether Black Duck’s board was hoping for a similarly spectacular exit when they named Yeaton CEO back on February 10—but he does have a bullish outlook on the future of open source components in software development.

“The open, collaborative model and the things it’s created have fundamentally and irreversibly changed how software gets built,” says Yeaton. “Individual developers have already figured this out—they are far more productive when there are technologies out there that they can use and not reinvent the wheel. The opportunity for Black Duck is that when you are a company trying to take advantage of the wealth of open source and intermix it with your internally developed code, that introduces a lot of complexity that most companies haven’t found a way to manage.”

Black Duck’s core product, Code Center, is all about managing that complexity. Introduced in January 2008, the software includes a catalog of open source code pre-approved for reuse, along with search tools for finding just the right bit of code for the problem at hand. Code Center can also …Next Page »

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Yesterday, I gave a few highlights from a lunchtime discussion with Intellectual Ventures’ global head of technology, Patrick Ennis. The Bellevue, WA-based firm, founded by Nathan Myhrvold and Edward Jung, is sometimes called an “invention company.” It has gotten a lot of attention—and stirred controversy—for buying up large numbers of technology patents worldwide. So I wanted to hear Ennis’s thoughts on intellectual property, patent reform, and venture capital, among other things. (He’s a physicist by training, and a former VC from Arch Venture Partners.)

But first, Ennis gave me a little taste of how invention sessions work at the firm. He was fiddling with the Saran Wrap on his sandwich, wondering about its material properties and how they might relate to thin-film coatings for medical stents, say. “Inventors see inventions everywhere,” he says. “Invention is not taught, except for kids. When you’re a little kid on the playground, you’re allowed to do this. But as an adult, this would be viewed as weird—’this person is not focused.’ But that’s what inventors do.”

He ran through a hypothetical thought process with his sandwich. “Before we go to bed, we’d know if there are opportunities to invent a better film for food. I suspect we’d find the only opportunities are to reduce a little bit of cost, and maybe to change the marketing of it. A lot of the times at IV [Intellectual Ventures], we look at things like this and it turns out—because it was boring, or viewed as pedantic or mundane—people missed something obvious,” Ennis says. “You want to do a realistic market study. If it turns out there’s only 5 million a year of this sold around the world, it’s not worth your time to invent it. We’d quickly get a number for how much Saran Wrap is sold around the world….Then, someone will raise a hand. ‘You’re just talking about food preparation. These thin films are used for insulation to cover houses.’ Hmm, that’s 100 times bigger than a hamburger…That’s how invention sessions go.”

OK, on to the other highlights from Ennis:

—On patent rights and reform: “Everyone’s whining about there’s too many patent lawsuits, which isn’t true if you look at the numbers,” he says. “You can make a case that stealing someone’s intellectual property is a really bad thing. A lot of patents, people didn’t know they were infringing. Part of the reason they don’t know they were infringing is they’re told not to look. When I was at AT&T in the old days, you were taught as an engineer not to look. Because if you looked, and then it turned out you were …Next Page »

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The biggest development in the digital media world this week, by far, was the settlement of a pair of class-action copyright-infringement lawsuits brought against Google in 2005 by the Authors Guild, the Association of American Publishers, and several publishing houses. The compromise agreement, which was announced October 28 and now awaits approval by the federal courts, could eventually result in improved access to books, especially the millions of books that are no longer in print but are still covered by U.S. copyrights. It promises to free Google to move forward with its ambitious library digitization effort, which will put a vast collection of literature at the fingertips of students, researchers, and at least a few public library patrons. It should also placate the Chicken Littles in the publishing industry, who have spent years using every available means, including the Google lawsuit itself, to obstruct the sharing of knowledge enabled by the digital revolution.

But for readers—the group whose interests are closest to my own heart, and the only major class of stakeholders in the lawsuit whose interests weren’t being protected by a team of well-paid attorneys—the Book Search settlement contains some major disappointments. I should emphasize that I am not a lawyer, and I have only spent a few hours studying the settlement agreement. (It’s 323 pages long, which may explain why it took the parties more than two years to negotiate a solution.) But I’m saddened by the gap between the level of open access to literature that was considered possible when Google first launched its project to digitize millions of library books and what we’re probably going to get as a result of this agreement.

Specifically, the settlement seems to put an end to hopes that the Google Library Project would result in widespread free or low-cost electronic access to books that are out of print but have not yet passed into the public domain. These books—and there are millions of them—are in a painful state of limbo. They’re deemed commercially non-viable by their original publishers, so you can’t find them in most bookstores. Yet no one else can republish them without getting permission from the original copyright holders or their heirs or assignees—and for many so-called “orphan works,” these rightsholders can’t even be identified or located. So the only way to read one of these books is to find a copy at a used bookseller, or figure out which public or academic library owns a copy, and then physically travel there.

The hope was that Google—consistent with its stated mission to “organize the world’s information and make it universally accessible and useful”—would simplify access to these out-of-print but still-presumptively-copyrighted books by sharing their full text over the Internet at little or no cost to readers, the same way it does with the public-domain books it has digitized. (Under U.S. law, the copyright on all works published before January 1, 1923, has irrevocably expired, and Google lets readers peruse and download these books for free. If you click here, for example, you can read my favorite novel of all time, E.M. Forster’s 1910 masterpiece Howards End.)

If Google had chosen to take the lawsuit to trial and prevailed, it might have been at liberty to do this, monetizing the practice (just as it monetizes all of its other services) through keyword-based advertising. Such a service would have been a great boon to readers everywhere. Indeed, when I interviewed a bunch of librarians about the Google initiative back in 2005, before the lawsuit, most of them were ecstatic: they’d been waiting for years for someone to come along and help them put their collections online. I bet Google could even have charged a little something for the service—after all, nobody else is trying to scan so many library books (7 million of them so far).

Alas, the nation’s authors and publishers organized a campaign to stop Google. Letting avarice run roughshod over common sense and the common good, the plaintiffs in Authors Guild et al. v. Google and McGraw Hill et al. v. Google argued that the very act of scanning an in-copyright book without the rightsholder’s permission is an egregious copyright violation. Even the short snippets of text that Google Book Search serves up among its search results were too much for these groups to stomach. (This despite the fact that the courts long ago ratified the inclusion of snippets in general Web search results as an example of “fair use” under copyright law.)

It quickly became clear that the plaintiffs in the lawsuits would sooner see out-of-print books remain in limbo forever than sacrifice one penny of potential profit to Google. No matter that these authors and publishers weren’t even marketing the books Google was scanning: if the rightsholders themselves couldn’t figure out how to make money on their out-of-print titles, no upstart search-gizmo company was going to, either.

It may surprise you that, as a writer, I’m on Google’s side in this dispute. But my point of view is that decent writers can always find ways to get paid for their work. They shouldn’t have to leech off the people who …Next Page »

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[Addendum, 10/6/08: RealDVD has been offline as of this weekend---the result of a restraining order requested by the Hollywood studios and granted by a federal judge. The RealDVD site says, "Due to recent legal action taken by the Hollywood movie studios against us, RealDVD is temporarily unavailable. Rest assured, we will continue to work diligently to provide you with software that allows you to make a legal copy of your DVDs for your own use."]

Last week, we reported on the lawsuit filed by the big Hollywood studios against Seattle-based RealNetworks—and Real’s countersuit against Viacom and the DVD Copy Control Association. At issue is whether Real’s new DVD-copying software, RealDVD, violates digital copyright law, as the Motion Picture Association of America contends. The software, which has been on sale since last Tuesday, enables users to copy DVDs to their computer’s hard drive and a limited number of other computers.

For some informed local reaction, I reached Seattle-based Cozi’s chief technology officer, Bill Baxter. He knows a thing or two about digital rights management, having been the founder of Snaptune, which some described as “TiVo for the radio.” True to form, Baxter had some compelling thoughts on the impending court case, and on the interpretation of copyright laws for digital media.

“Real has a rich history of pushing ‘fair use’ to the limit,” Baxter writes in an e-mail. “Real Jukebox was the industry’s leading tool for enabling illegal file sharing to reach massive scale. Real Jukebox made ripping CDs very easy and, hence, accelerated the illegal file sharing revolution. But, were there substantial non-infringing uses of it? Yes. Hence, they could not get in trouble. Here, I think they have a similar opportunity. At least in this case, they do not allow ripping to non-DRM’d movie formats. Therefore, it is highly unlikely this could result in a legal way to power illegal file sharing networks.”

Here’s the problem: “I think there are two questionable features of RealDVD,” says Baxter. “First, and this has nothing to do with copyrights, per se, did they violate the DRM protections on DVDs meant to allow copyright holders to control their content? If so, they are in violation of the DMCA [Digital Millenium Copyright Act]. I think it is clear that they have. Second, they seem to be gaining monetary advantage by enabling multiple PCs to view these ripped DVDs, for which they have circumvented copy protections. I think the studios would rather set the rules for how many PCs and for how long can a user watch a DVD. You see this in legal alternatives like iTunes and now, more recently, TiVo. I think this may expose them to liability. Real is going to argue… ‘fair use.’ The MPAA is going to argue that it violates the DMCA. Fair use is not an argument you can use to defend against the DMCA. Real is in trouble.”

But the case strikes at the heart of an even deeper issue: what constitutes “fair use” of digital media? “In my mind the biggest problem is that U.S. copyright laws and the DMCA are so antiquated or are so inflexible in protecting legitimate technologies that the only recourse is to litigate,” says Baxter. “Ignoring the alleged DMCA violation for the moment, it is clearly the case that anyone who uses RealDVD is violating U.S. copyright laws. The question that must be asked is whether the copyright infringement constitutes a ‘fair use’ infringement. There are four tests that were established by the Supreme Court that must be applied in order to determine if the infringement is fair use. These tests are vague at best and require a court to address and, most likely unless there is a negotiated settlement, it will land in the Supreme Court. A company like RealNetworks has deep enough pockets to fight this battle. Because of this cost, small technology companies are squashed because they cannot afford it.”

“If the substantial application of RealDVD is deemed to not fall under the fair use doctrine, then RealNetworks could be found to be a contributory copyright infringer which makes it liable for all the infringements of its users,” Baxter continues. “I hope it goes to the Supreme Court. I hope consumers win by being given more control over their content. If I buy a DVD, I should be able to rip it and watch it anywhere, on any device and any time I want to. I should not be limited to watching that movie on a DVD, which the MPAA hopes will get scratched, lost, etc., which implies I will have to pay for again the content I’ve already purchased.”

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Digital rights management, here we go again. First, it was the music industry. Now Seattle-based RealNetworks and Hollywood’s big movie studios are suing one another in California federal court, after yesterday’s release of RealDVD on RealNetworks’ site. The software, which costs $30, allows DVD users to make copies of their videos on their computer and transfer the copies to no more than five other computers (paying an extra $20 for each). The studios, which include Disney, Paramount, Sony, Twentieth Century Fox, NBC Universal, and Warner Bros., assert in their complaint that RealDVD violates the Digital Millennium Copyright Act, and are asking for a restraining order on its sale.

RealNetworks saw this coming, but went ahead with its release anyway—and fired back with its own lawsuit. In a statement, the company said, “RealNetworks took this legal action to protect consumers’ ability to exercise their fair-use rights for their purchased DVDs…We are disappointed that the movie industry is following in the footsteps of the music industry and trying to shut down advances in technology rather than embracing changes that provide consumers with more value and flexibility for their purchases.”

The reaction in the media so far has been fairly non-committal. The New York Times and others point out that RealNetworks thought its software would be legal, in part because of a recent court case involving Kaleidescape, a maker of media servers, in which the ruling was favorable towards media duplication. The Los Angeles Times says the case may hinge on the exact wording of the license RealNetworks obtained from the DVD Copy Control Association; the article quotes Stanford law professor Mark Lemley as saying, “If Real has a legitimate license to do this under the contract, the circumvention claim goes away, because they’re not cracking the encryption system.”

Meanwhile, the Seattle P-I says the suit is about the money, not the copyright law. Which, of course, it is—movie studios and retailers stand to lose up to $16 billion in annual DVD sales (2007 figure from the Digital Entertainment Group) if people can just borrow or rent the discs and copy them instead of buying them. The impact on DVD rentals, a $7.5 billion market, is less clear.

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Highland Capital Partners of Lexington, MA, said today that it has brought on intellectual-property scholar John Palfrey, Clinical Professor of Law at Harvard Law School and the executive director of the Berkman Center for Internet and Society, as a venture executive. We interviewed Palfrey and business partner Rudy Rouhana in December for our story about RightsAgent, which offers a system of licenses based on the Creative Commons license that allow content creators to give away some rights to their works while charging for others. “There is no one who is more thoughtful about how user-generated content, intellectual property ownership and digital media will play out together,” Dan Nova, General Partner at Highland, said of Palfrey in the firm’s announcement. “He’ll be a great resource for our companies, helping them shape the future of their industries.”

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You know that little “CC” you see here and there on the Web, in the margins of blogs or attached to photos on Flickr? It stands for the Creative Commons license, and until now, it’s basically been a way for content creators to say, “I don’t approve of traditional copyrights, so I’m just going to give my work away, with a few minor restrictions.” But a Cambridge startup being launched this weekend will add a new dimension to content protection. RightsAgent is rolling out a way for creators to still be liberal and open about sharing their work, while at the same time collecting money for certain uses of it.

The idea behind the Creative Commons licensing scheme, when Stanford law professor Lawrence Lessig and some allies got together five years ago to set it up, was to promote a kind of “copyleft”—an alternative to the excesses of traditional copyright law, which was being used at the time to attack MP3 downloaders, rap-song remixers, and other people experimenting with the newfound flexibility of digital media. In effect, the Creative Commons licenses offered writers, photographers, lyricists and other creative folks a new way to explicitly make their content more open—that is, to cede some rights to other users, such as the right to reproduce a work in full or modify it for non-commercial purposes, free of charge.

It was a nice idea that fit well with Lessig’s Free Culture crusade, and it served as an antidote to draconian digital-rights management technologies that threatened (and still threaten) to undermine age-old doctrines about fair use of copyrighted material. But the movement’s feel-good vibe—”Let’s make all content free!”—elided an important point: content creators still need to put dinner on their tables.

RightsAgent’s new online service, which was switched on last night, helps to fill in that missing piece. And appropriately enough, it’s being formally introduced to the public tomorrow at the Creative Commons organization’s fifth birthday celebration in San Francisco.

At the core of the service is a way for users to set up “personal feeds” that include all of the digital content they create, including their blog writings, the photos they put on Flickr, and the videos they post on Revvr. (The service will work with more content sources in the future; RightsAgent’s builders say they wanted to start with the services that already recognize Creative Commons licenses.) RightsAgent users can then choose the type of license under which they’d like to offer that content for various uses—a Creative Commons license, a Rights Agent Commercial license, or traditional “all rights reserved” copyright.

If they choose the RightsAgent Commercial license, which is modeled after a new type of Creative Commons license called Creative Commons Plus, anyone who wants to buy the rights to re-use that content for commercial purposes can do so directly through RightsAgent, which collects a 10 percent commission. People who want to use the content for non-commercial purposes can still do so under a Creative Commons License. Neither the Creative Commons licenses nor traditional copyright, by themselves, offer this kind of flexibility. As Lessig puts it in the company’s launch announcement, “RightsAgent plugs a big hole in the world of user generated creativity, by making it simple for creators to license rights commercially with their creative work.”

Yesterday I had the opportunity to ask RightsAgent’s two co-founders, John Palfrey and Rudy Rouhana, to explain more about the new company, which has a four-person staff and is operating on a seed-stage investment from Menlo Park, CA-based venture firm Venrock and Lexington, MA-based Highland Capital Partners. Palfrey is a lecturer at Harvard Law School and executive director of the school’s Berkman Center for Internet & Society. Rouhana is a serial entrepreneur and former vice president of Cambridge-based Top Ten Media, which operates new media properties Top 10 Sources and StyleFeeder.

Xconomy: Say more about this hole in the Creative Commons licensing scheme that RightsAgent is filling.

John Palfrey: Creative Commons itself, five years ago when it was founded, filled an extraordinarily important gap in the marketplace. It was very difficult if not impossible for somebody to give away some rights [to their work] and retain other rights. CC became an extremely simple way to do that. Five years later, what’s clear is that there is great value in what some people are generating online, and the gap we think RightsAgent will fill now is that …Next Page »

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When it comes to peer-to-peer (P2P) file-sharing systems such as BitTorrent and Gnutella, the technology world has a like-hate-love relationship. Content owners such as TV networks tentatively like them, since they make it cheaper to get high-bandwidth content like video out to viewers over the Internet. Internet service providers (ISPs) such as Comcast hate them, because P2P content clogs up their broadband networks without bringing in extra revenue. And consumers love them, because they can use the systems to download a host of songs, movies, and TV shows fast and free.

But if two venture-funded startups pairing up to make things easier for the ISPs succeed, the result might just be a like-like-love situation—or at least like-tolerate-love. That could be a big business win.

NY-based Pando Networks runs a commercial P2P network that was originally built to help people swap large e-mail attachments and has now been optimized for delivering high-definition video over the Internet. Newton, MA-based PeerApp makes caching servers that store the most-frequently-requested P2P content inside an ISP’s network, drastically reducing the amount of bandwidth sucked up by content streaming in from far-away peers. The two companies announced yesterday that they are integrating their products.

The result may be a distribution service that ISPs don’t mind hosting because it isn’t such a bandwidth hog, and that content distributors such as NBC (a Pando customer) like even more because they know it won’t rankle the ISPs as much (and because it’s cheaper than using traditional content distribution networks such as Akamai, which I wrote about yesterday).

“In many places in the media world, P2P was long deemed the enemy,” says Eliot Listman, a business development director in PeerApp’s New York office. “It was seen as this rogue methodology for distributing content without paying the content owner for the content and without paying the owners of the pipes for the infrastructure. But what Pando is selling is a P2P-based way of delivering licensed content for the same large media companies that use traditional content distribution networks like Akamai. And bringing in PeerApp couples that with the interests of the ISPs, by helping them to cache and accelerate the content.”

The enemy, in other words, is being rehabilitated. And just in time, too. It’s estimated that P2P content—that is, information that consumers are downloading from each others’ machines, using software such as BitTorrent that breaks media files into chunks and distributes them across a network of peers—accounts for as much as 40 to 70 percent of the data flowing through the ISPs’ pipes. And those pipes are being further strained by …Next Page »

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