Obviously, things worked out fine with them. We cut a deal where we actually became a paid licensee of their content and let them use some of our technology to tag their stories. We ended up doing similar deals with Reuters, CBS and a bunch of newspapers. We figured that if we wanted to make our bones in the world as a news site, it would require us to actually host some news stories.
Even at that time though, I remember thinking that the AP was in for a long road. They're in this weird position where they produce an extraordinary amount of great content, but host pretty much none of it. This puts them directly at odds with their licensees (like Topix, Yahoo, Google, AOL, etc.). The people who host the content LOVE when bloggers (or anyone) links to a story on their site. Links = traffic = revenue. But the AP doesn't see any of this traffic or revenue from this activity (ignoring any revenue sharing deals they may have with licensees). So its viewed as a lost licensing fee opportunity and that they don't like. So they end up suing the very folks their customers love. Weird.
The answer of course is obvious. The newspapers who own the AP should decide on one site (AP.com, Topix, whomever) to host the full content of all the AP stories, eliminate all of the AP's third party licensing deals and let (in fact encourage!) everyone to link to their stories to this single site. Bloggers continue to link, AP benefits from the links via revenue on the site and no one gets sued. Sounds easy right?
And it is. Provided you can talk an organization owned by a bunch of newspaper companies to take swift and decisive action in a manner which may pinch their bottom line short term. In other words, in this case suing a bunch of bloggers is probably the path of least resistance for the AP.