Google Inc. (GOOG) is paying The Associated Press for stories and photographs, settling a dispute with a major provider of the copyright news that the online search engine finds and displays on its popular Web site.

Both Mountain View-based Google and New York-based AP disclosed the business relationship Wednesday. But neither would divulge financial terms or other details because of a nondisclosure agreement.

Google indicated AP's content will serve as the foundation for a new product that will be introduced in the coming months as a complement to its popular Google News service.

That aspect of the deal could be intended to support Google's long-held stance that it doesn't owe anything for simply pointing out news stories and photographs posted on Web sites — an activity that the company's lawyers maintain is protected under "fair use" protections under copyright law.

That posture prompted another news organization, Agence France-Presse, to sue Google in federal court last year. It is seeking at least $17.5 million in damages for alleged copyright infringement.

Google has denied AFP's allegations, citing its fair use arguments.

"Google News is fully consistent with fair use and always has been," the company reiterated in a statement Wednesday.

Still, AFP is hoping the AP licensing agreement will bolster its argument as the suit winds its way through a Washington, D.C. court, said Joshua Kaufman, a lawyer for the French news agency.

For its part, Google depicted the AP deal as business as usual.

"Google has always believed that content providers and publishers should be fairly compensated for their work so they can continue producing high quality information," the company said in a statement.

Google spokeswoman Sonya Boralv said this isn't the first time the company has paid media for content, noting that the search engine already shares some of its revenue with broadcasters and book publishers to sell some of their copyrighted material on the site.

Google's deal with the AP began several months ago, said Jane Seagrave, the AP's vice president of new media markets.

Both Seagrave and Boralv declined to say if Google is paying AP a flat fee or a commission based on traffic.

Google might be using the AP agreement as a testing ground to share some of its ad revenue with organizations that produce content, just as it does with Web sites that publish the information, said Jonathan Zittrain, professor of Internet governance and regulation at Oxford University.

During the first half of this year, Google distributed $1.5 billion to the thousands of partners participating in the ad network that generates virtually all the search engine's profits.

"I would be shocked if Google is paying for the status quo," Zittrain said.

Google has argued that news providers benefit from their stories being highlighted in its searches since it drives traffic to their Web sites, where they can earn per-click advertising revenue.

The AP does not have a news site of its own, and its stories typically are accessed through the sites of newspapers, broadcasters and other customers.

While AFP sued to protect its rights, the AP chose to negotiate terms with Google, which, after just seven years of existence, is nearly 10 times larger than the 160-year-old news cooperative in terms of revenue.

The AP, a not-for-profit organization owned by U.S. news companies, had revenues of $654 million in 2005.

Google, a publicly owned company, reported $6.1 billion in revenue last year and is on a pace to exceed $9 billion this year.

By agreeing to pay AP for content, Google falls in line with the owners of other popular news sites such as Yahoo Inc. (YHOO), Microsoft Corp. (MSFT) and Time Warner Inc.'s (TWX) AOL, which have been anteing up for years.

"We are happy to be dealing with Google as we are with all the major superpowers on the Internet," Seagrave said. "We are always looking for new ways to innovate."

The AP also has been plumbing new sources of revenue more aggressively in recent years as newspapers and broadcasters — traditionally the cooperative's main source of money — have been squeezed financially by the rise of the Internet.

Seagrave said online sources now account for about 20 percent of the AP's revenue.

The percentage "is growing fast and the increase will hasten in the next few years," Seagrave predicted. "It is clear the Internet is changing the way business is being conducted."