Yesterday morning, the pair of Stanford University graduate students who made the hot news-reading iPad app, Pulse News Reader, were ecstatic to be mentioned first–for being among the most promising developers for the new tablet device–by Apple CEO Steve Jobs in his keynote speech at the Worldwide Developers Conference in San Francisco.

But by the afternoon, that flush of entrepreneurial success had turned sour, after Apple (AAPL) informed the two that Pulse was being pulled from the App Store after it received a written notice from the New York Times Company (NYT) declaring that “The New York Times Company believes your application named ‘Pulse News Reader’ infringes The New York Times Company’s rights.”

In an unusual coincidence, the Times Web site was on prominent display on a huge screenshot of the iPad during Jobs’s speech.

Ironically, the Times wrote a big wet kiss about Pulse last week in a blog post titled “The iPad Pulse Reader Scales the Charts,” by tech writer Brad Stone.

“Pulse is a stylish and easy-to-use news aggregator,” wrote Stone. “News organizations still puzzling over their iPad strategies can perhaps derive some hope from Pulse’s success–or at least its price tag.”

No longer. Pulse was down completely by 6:30 pm PT last night.

Reads a notice on iTunes now: “Your request could not be completed. The item you’ve requested is not currently available in the U.S. store.”

“I don’t blame Apple, because they have to respond when contacted by lawyers from the Times,” said Akshay Kothari, a 23-year-old student of well-known Silicon Valley investor Michael Dearing’s Launch Pad class at Stanford, of the letter the media giant sent to Apple (which is below, along with the take-down notice).

“But it was definitely a roller coaster of a day.”

In fact, it has been all up for the past four weeks, since Kothari and 22-year-old Ankit Gupta released the Pulse iPad app, creating it for the class, which requires students to develop and put out a product.

Both are at Stanford’s Institute of Design and created a company called Alphonso Labs.

The app was quickly approved after about four weeks of development. Since then, it has taken off strongly, downloaded 35,000 times at a $4 price tag, even rising to No. 1 in paid apps several times, as noted prominently in the lead of the Times story.

Kothari said that the pair plan to contact Apple in the morning and take steps to remove Times material from the feeds.

It is not immediately clear why they need to, since Pulse draws from publicly available Times RSS feeds, as do many other apps, and does no scraping.

In fact, Pulse is little more than a really well-designed RSS reader, which is what the Times said it was in its write-up. You add feeds to it and it visualizes them in a way that’s easy to get through.

The Times story did have one ominous-in-retrospect note about Pulse: “It also lets people easily share articles through Twitter and Facebook–bypassing the individual sharing tools presented by each news site.”

But Pulse is pretty basic and is similar to many others readers.

In the New York Times case, as with others, one view is plain text and only shows whatever the Times puts in its RSS feed, which isn’t much. And its Web view seems to be just an in-app browser that takes you straight to the page that is in the link with the RSS feed.

You can see both here below:

The Times lawyer, Richard Samson, sees it differently, apparently, since it is a paid app rather than a free one, noting in the Times June 3 notice to Apple, which came two days after the newspaper’s article about Pulse:

“The Pulse News Reader app, makes commercial use of the NYTimes.com and Boston.com RSS feeds, in violation of their Terms of Use*. Thus, the use of our content is unlicensed. The app also frames the NYTimes.com and Boston.com websites in violation of their respective Terms of Use.”

Samson also complained about how Pulse was marketed in the App Store, a screenshot of which you can see below:

BoomTown sent an email to Samson, as well as to Apple, for comment.

Until I hear back, here is the email from the App store to Pulse, including the letter from the Times lawyer–I removed personal email addresses and phone numbers, along with the number of the Pulse case Apple gave it–as well as a lovely video of Pulse in action:

From: App Store Notices
Date: Mon, Jun 7, 2010 at 3:09 PM
Subject: Apple Inc. (our ref# APPXXXX)
To: Akshay Kothari

Dear Sir or Madam,

**Please include APPXXXX in the subject line of any future correspondence on this matter.**

We received a written notice from The New York Times Company that The New York Times Company believes your application named “Pulse News Reader” infringes The New York Times Company’s rights. A copy of the notice is attached.

Accordingly, we have pulled your application from the App Store. Please contact The New York Times Company directly regarding any questions or concerns you may have.

For any technical questions, please contact iTunes Connect: www.apple.com/itunes/go/itunesconnect/contactus.

Thank you for your immediate attention.

Sincerely,

? iTunes Music Marketing & IP Legal | Apple | 1 Infinite Loop | Cupertino | CA | 95014 | AppStoreNotices@apple.com

Begin forwarded message:

From: “Samson, Richard S”
Date: June 3, 2010 10:51:23 AM PDT
To:”‘appstorenotices@apple.com’”
Cc: “Samuels, Robert”, “Manning, Michael”
Subject: infringing “Pulse News Reader” iPad app

Hello-

I am writing again, on behalf of The Boston Globe, Boston.com and The New York Times Company, about the infringing iPad app, “Pulse News Reader” produced by Alphonso Labs Inc. (please see pertinent details, link and screenshots below).

The infringing app is available on the iTunes store here: http://itunes.apple.com/us/app/pulse-news-reader/id371088673?mt=8

The Pulse News Reader app, makes commercial use of the NYTimes.com and Boston.com RSS feeds, in violation of their Terms of Use*. Thus, the use of our content is unlicensed. The app also frames the NYTimes.com and Boston.com websites in violation of their respective Terms of Use.

I note that the app is delivered with the NYTimes.com RSS feed preloaded, which is prominently featured in the screen shots used to sell the app on iTunes.

I hereby declare, under penalty of perjury, that the information contained in this notification is accurate to the best of our knowledge and that I am authorized to act on behalf of the owner of the copyrights and trademarks of The Boston Globe, Boston.com and The New York Times Company. We hereby demand that you immediately and permanently remove this app from the iTunes site.

Please let me know if you need any further information or have any questions. I can be reached directly at this Email or at the phone number below.

Thank you.

Sincerely,

Richard Samson

Richard Samson
Senior Counsel
The New York Times Company
620 Eighth Avenue
New York, New York 10018

* NYTimes.com Terms of Service, paragraph 2.2: “The Service and its Contents are protected by copyright pursuant to U.S. and international copyright laws. You may not modify, publish, transmit, participate in the transfer or sale of, reproduce (except as provided in Section 2.3 of these Terms of Service), create new works from, distribute, perform, display, or in any way exploit, any of the Content or the Service (including software) in whole or in part.”

* Boston.com Terms of Service, paragraph 2.2: “The Service and its Contents are protected by copyright pursuant to U.S.and international copyright laws. You may not modify, publish, transmit, participate in the transfer or sale of, reproduce (except as provided in Section 2.3 of this Agreement), create new works from, distribute, perform, display, or in any way exploit, any of the Content or the Service (including software) in whole or in part.”

[All Things Digital intern Drake Martinet contributed to this report.]

Daily Finance’s Jeff Bercovici floats the scenario by pointing to some eye-popping statistics. A new study says the Times is one of the four news sites bloggers link to most often. The Wall Street Journal, meanwhile, doesn’t warrant a mention.

Bercovici connects the dots: The Times is free. But The Wall Street Journal–which like this Web site, is owned by News Corp. (NWS)–has a pay wall. So if the Times puts up a wall, it could see its links dwindle, because bloggers don’t want to point to paid sites.

Right?

Probably not. Because that theory requires New York Times (NYT) management to work hard to scare away bloggers and other linkers (from Twitter, Facebook, etc.). But the Times says it’s going to make the commonsense move of encouraging links to the site.

Remember that the Times is building a “metered model” whereby visitors to the site can read a certain number of articles per month for free. That’s designed to keep attracting the casual, drive-by readers who make a up a large chunk of traffic at most sites. Even better: Bloggy links to the site won’t count against readers’ limits.

So says Times spokeswoman Stacy Green, in response to an email query I sent her yesterday:

Once the pay model is implemented next year, the majority of our readers will be unaffected when using the site and will continue to have the same experience they have always had. Readers will only be prompted to pay after reaching a certain reading limit. The pay model will be designed so readers that are referred from third party sites such as blogs will be able to access that content without hitting their limit, enabling NYTimes.com to continue being a part of the open web. We have not yet set the reading limit and we will communicate that once we have made the decision.

UPDATE: Green adds a bit of nuance in a comment below: Visits to the site via a link will count toward your limit. But if you’re over your limit, an outside link will still allow you to read that story. So the notion of a “limit” is hazy.

The Times seems intent on making this distinction, but for most readers it won’t matter: All they’ll know is that if a blogger, or a pal on Facebook or Twitter, gives them a link to a Times story, they’ll be able to read it.

So that one’s settled, yes? If so, we can move on to the more interesting question: How many Times readers will be willing to pay for access when the wall goes up? But we’re not going get an answer to that one for many months. Patience!

In an interview Wednesday to discuss plans to charge readers for full access to nytimes.com, Mr. Sulzberger was cagey in his responses to questions about Apple. Times Co. executives said subscriptions to the Times online likely would include access to the paper on e-readers.

Read the rest of this post on the original site

Just ask the New York Times (NYT), which says Twitter is about to become one of the top 10 referral sources to the paper’s site.

Impressive. But what exactly does this mean?

There was a flurry of excitement this afternoon on Twitter–of course–when Simulmedia CEO Dave Morgan threw out a much more exciting data point: Reporting/Tweeting from an industry conference, Morgan said Times digital boss Martin Nisenholtz had announced that “Twitter now drives 10% of NYT digital distribution, up from 0 a year ago.”

Other attendees report hearing the same thing. But whether they were participating in a mass hallucination or Nisenholtz misspoke, here’s the Times’s official line, via spokeswoman Diane McNulty: “At its current growth rate, Twitter is, or will soon move into, the top 10 in terms of referrals to NYTimes.com.”

If that’s the case, then Twitter likely accounts for much less than 10 percent of the Times’s traffic. If you assume that Google (GOOG) is the paper’s largest external referral source and that it likely accounts for a third of the site’s traffic (these are semi-educated guesses, but I’m happy to adjust), then Twitter and other sources at the bottom of the top 10 are going to be in the low single digits.

Still! It is a lot of traffic, and a year ago it either didn’t exist or someone else was directing it to the Times. Now the trick for Twitter (and its investors) is to figure out a way to capitalize on this phenomenon.

That’s the unsettling story that comes out of the Times’s explanation of the incident, in which an untold number of the sites’ visitors were served up with an ad promoting malware.

The attack, which the Times says was also directed at other, unnamed news organizations, is worrisome enough. But the fact that the culprits behind it essentially walked right into the front door of the New York Times (NYT) and conned the paper into distributing the fraudulent ads is really scary.

The short version: The Times says that someone who “masqueraded as a national advertiser” bought ad space on the site, which is visited by some 45 million people a month from the U.S. alone. The unnamed buyer “provided seemingly legitimate product advertising for a week.”

UPDATE: The Times says the fake ads were for Internet phone service Vonage.

Then, over the weekend, the culprits started churning out the malware. The Times has issued a statement explaining some of what happened, which I’m reprinting at the bottom of this post (the paper also has a consumer guide to help you protect yourself from malware, viruses and other Web unpleasantness).

But the statement is a bit confusing and seems to indicate that the paper was compromised by an ad network it used to sell remnant space on the site. That’s what I thought might have happened at first, and that’s what the paper’s tech staff thought as well–note the reference to “suspending all third-party advertisements on the site.”

But I double-checked with Times spokeswoman Diane McNulty, who confirmed that that paper’s own staff had sold the fake ad.

How could this happen? I don’t know–anyone with Web buying experience want to weigh in? But I do know that it’s not the first time bogus ad buyers have bought space directly from publishers.

Earlier this year, I wrote about an incident in which someone pretended to buy ads on behalf of Hyundai. And that story elicited a response from an ad exec at a very big, very well-known Web publisher, who told me that in 2008, his employer had received a large order on behalf of a different auto company, and ran some of the ads before figuring out they were fakes.

Here’s the Times’s explanation:

As you know, over the weekend, nytimes.com was the victim of a malware attack that targeted several news organizations. The culprit masqueraded as a national advertiser and provided seemingly legitimate product advertising for a week. Over the weekend, the ad being served up was switched so that an intrusive message, claiming to be a virus warning from the reader’s computer, appeared.

As soon as we were made aware of the situation, we took aggressive steps, suspending all third-party advertisements on the site. We posted information about the attack on our home page and directed readers on what to do if they encountered the malicious code. There is additional information posted today on our homepage and our Gadgetwise personal technology blog.

We now know how it occurred and have taken steps to prevent a similar situation from happening.

Yesterday, the publisher said that overall ad revenue had dropped 30 percent in the last quarter, which wasn’t surprising. But Internet ad revenue dropped 15.5 percent, which was a surprise, since it’s an acceleration from the previous quarter’s loss. What gives?

Times officials have multiple explanations:

1. A lot of the loss comes from our classified ads, which have been vaporized.
2. This year’s numbers don’t look good because last year’s numbers were so great.
3. At least we’re not Yahoo (YHOO)!

Check out this exchange from yesterday’s earnings call between analyst John Janedis, New York Times (NYT) digital boss Martin Nisenholtz and ad boss Denise Warren. Seeking Alpha:

John Janedis–Wells Fargo Securities: Martin, can you just talk a bit more about where you’re seeing on the display side with the news media, did any major customers pull out? And do you think you’re losing share relative to the total industry?

Martin A. Nisenholtz: No, I mean I’ll ask Denise to comment on this specific to The New York Times, but I don’t think we can point to any major losses. I think that her comments about overall volume on the side, on the businesses, is true of the digital side as well. I would point out that, to point to Janet’s [Robinson, NYT CEO] comment about most of the hit, a disproportion of the hit coming in the classifieds area.

Denise Warren: Can I just jump in and remind you again that we had a really, really, really robust quarter overall for nytimes.com last year, but really in the display area? So we are up against really significant comps. That’s just some context that I think is important that you have.

And just based upon what we’ve been seeing in the marketplace comparing to other sites there, we do believe we are taking share in the display marketplace, and we do believe we are performing better than most of our competitors in the display marketplace.

Martin A. Nisenholtz: I mean Yahoo just announced a 14% decline in display. I think, while we’re not breaking out the numbers, I think our display performance overall at nytimes.com and across the News Media Groups was better than that.

All of this sounds right to me (for the record, last year the Times’s Web ads grew 18.3 percent in Q2). But if the Times wants to keep investors optimistic about the company’s prospects, it’s going to need a better pitch than “we’re doing better than Yahoo.”

UPDATE: For a pretty good roadmap of where the Times is headed–more dollars from customers, fewer from advertisers–check out this smart piece from the Columbia Journalism Review. It notes, for instance, that the Times is now making nearly as much from subscribers as from advertisers.

Our session covered how mainstream media looks at the explosion of social media, but really was about the woes of the traditional news business and what to do about them.

The panelists included: Vivian Schiller, who runs NYTimes.com; Topix.net CEO Rich Skrenta; NPR CEO Ken Stern; and me–all moderated by Reed Business CEO Tad Smith.

It’s a decent panel, with a lot of good questions from the audience. A text report of the event is here.

It’s a little long, but here you go: