Caught between the court room and ‘the intelligent mob’

Front page of the LA Times yesterday, the Digg website is facing a revolution because it tried to ban its users from recommending an illegal code that helps people pirate copies of online movies.

Lawyers for a consortium of entertainment companies warned that posting the code violated their intellectual property rights. So Digg, which generates revenue by selling ads, began removing any mention of the code and deleting the accounts of members who posted it.

“In order for Digg to survive, it must abide by the law,” Digg Chief Executive Jay Adelson wrote on the site Tuesday afternoon, adding, “We all need to work together to protect Digg from exposure to lawsuits that could very quickly shut us down.”

That didn’t sit well with Digg’s libertarian-leaning users, who fill the site each day with commentary and links to stories about new technology, politics and a wide range of other topics. One particularly hot topic on the site has been the media industry’s practice of wrapping movies, TV shows and songs in anti-piracy software.

Members accused Digg of kowtowing to Hollywood.

It backed down on Tuesday, and let the postings continue, but:

Bernoff, the analyst, said that the 25-person company might be appeasing its members in the short run by capitulating, but that it risked a larger legal battle that could financially wipe out the company down the road.