OK, now that we have a permanent link to the actual subject matter, I will move the thread into cryptography and steganography.

The case I was referring to was probably around 1999/2000. As I recall the issue in the technical media wasn't on the technology itself, but on whether an application developer could be held responsible for the abuse of his product by third parties over whom he had no control.

Around that time there was a similar discussion about publishing malware code.

Now, as far as I am aware, that application was not intentionally designed for use in pr0n distribution, and that was more or less what the legal battle was about. That is probably why it did not come to your attention?

Incidentally, there was a bit on BBC TV last night about an ongoing terrorist trial in the UK. They showed some still photographs and had obviously used the software that I linked to, as a tool to obscure the people's faces

For those interested in steganography, here is an interesting site with a free detection tool:

http://www.outguess.org/detection.php