In January 2001, executives at Universal Pictures pinned their hopes on The Hulk. The Hollywood studio had for years been mulling a big-screen adaptation of the Marvel Comics superhero. In spite of a parade of well-known writers and directors, the project had struggled to get off the ground

That month, however, Universal hired director Ang Lee, fresh from the triumph of Crouching Tiger, Hidden Dragon, handed him a $120m budget and at last gave The Hulk the go-ahead. The film was being counted on not only as Universal’s big blockbuster for the summer of 2003, but also as a prelude to money-spinning sequels and an engine to sell millions of Hulk toys and merchandise.

The shoot was not an easy one. To create a computer-generated version of the 15ft-tall Hulk, Lee laboured with 300 engineers from Industrial Light & Magic, George Lucas’s special effects company. At one point he recruited two participants from the Ultimate Fighting Championship, the martial arts tournament, to a studio in San Francisco so that he could record their sparring with motion-capture technology.

As the premiere approached, Universal executives were brimming with optimism. The final print was in the can, and they had the weekend of June 20 all to themselves for an opening on more than 3,600 screens. They had even arranged a green carpet for the premiere.

But nobody had counted on Kerry Gonzalez, then a 24-year-old insurance adjuster and film buff from Hamilton Township, New Jersey. Through a friend who worked at an advertising agency in Manhattan that was creating a campaign for The Hulk, Gonzalez received an advance copy of the film. He deliberated for a few days. Then, two weeks before The Hulk’s premiere, he posted the film to a file-sharing service in the Netherlands, making it available to anyone with a computer and a broadband connection who wanted to download it from the internet.

“We freaked out,” a former Universal executive said.

The Hulk had not yet made it to the big screen, and already it was being panned on film websites and in chat rooms. It did not seem to matter that the reviews were based on an unfinished copy.

Within a few weeks, the Federal Bureau of Investigation tracked down Gonzalez through a serial code that Universal had imprinted on the film. He was arrested and sentenced to home detention.

For the studio, that was little consolation. Although the film took $62m during its opening weekend, it faded quickly from there. It is impossible to know how much of the damage was done by Gonzalez, or whether the Hulk himself was to blame. But based on estimates of lost ticket sales and other revenues compiled by one consultancy, Deloitte & Touche, the hacker may have cost Universal between $60m and $90m.

Seeing Jonathan Friend in the conference room of a midtown Manhattan law firm, you might easily imagine that he is one of the partners’ school-age children who has strayed into the wrong office. Friend looks younger than his 23 years, and a starched white shirt and tie make him look even more fresh-faced.

Yet on a recent afternoon in one such conference room, Friend was the star attraction in a very adult show. With media executives and entertainment lawyers gathered around him, he was showing off the culmination of six years’ toil: a new computer program designed to help the media industry in its fight against piracy.

In a soft and unfailingly polite voice, Friend began to discuss hashing, search algorithms and other maths and computer terms that underpin the software. When he is nervous he tends to squint, and his speech can have a sort of canned tone, as if memorised for a school examination.

But then came the grand finale. With a laptop computer hooked up to a large screen at one end of the conference room, Friend logged on to a peer-to-peer file-sharing network like the one Gonzalez had used to post The Hulk. From the library of films and television shows on offer, he selected a music video and, with a few mouse clicks, began to download it.

Looking up at the screen, the assembled guests watched a Hollywood nightmare play out in miniature as the blue status bar began to extend from left to right across the monitor, indicating the computer’s progress at digesting the file. Then Friend moved to a separate computer armed with his software. With a few mouse clicks, he activated a blocking measure to interrupt the download. Almost instantly, the bar’s steady progress was interrupted. A task that would have taken a matter of minutes had suddenly been extended to a day or more.

“There is no way of actually stopping the person from ever getting the film,” Friend explained to a room of raised eyebrows. “What we’re doing is making it incredibly frustrating.”

But for a few moments, as the executives watched the demonstration, they could dream about the possibility of a clean and simple solution to one of the most vexing problems confronting their industry.

The piracy epidemic is in some ways the flipside of the internet revolution. The same digital technology that has liberated music from the physical bounds of compact discs and brought the miracle of the iPod has also made it easier than ever to trade content illegally.

Against those forces, Friend’s mission seems hopelessly naive. He is, after all, a young man from Birmingham, England, who has only just moved out of his parents’ home. But then again, by the youth-leaning laws of the digital age, maybe he is just the person. After all, Shawn Fanning was a 19-year-old university dropout when he launched Napster seven years ago.

Fanning’s peer-to-peer software revolutionised the course of the media industry by making it easy for people to share songs over the internet. As consumers - particularly university students - gorged from a buffet of free music, the record industry was blindsided. Although the big companies’ revenues have begun to recover, they still lose an estimated $4.2bn each year to piracy, according to the Recording Industry Association of America, as 20 billion songs are illegally downloaded each year.

In Hollywood, studio executives watched this destruction with particular wariness. They realised that the only thing sparing them from a similar fate was the greater amount of time and bandwidth required to download a film. “Thank God for bandwidth,” Barry Meyer, chief executive of Warner Bros, said last year.

But high-speed internet connections have proliferated and a recent study by the Motion Picture Association of America estimated that its members lose $6.1bn to piracy each year. That amounts to about $1bn for each of the major studios, and is not far off the $8.9bn that Hollywood generated at the North American box office last year, leading Dan Glickman, the chairman of the MPAA, to call piracy “a dagger poised at the heart of the motion picture industry”.

There is wide debate in the industry about the accuracy of those numbers, and some speculation that Hollywood might be using it to cover up other problems with its business. “It’s much easier for Dan Glickman to say we have a huge piracy problem rather than ‘We’re not making movies people want to see,’” said one studio executive.

Even so, it is now a given that any film released in theatres will also be available free online or as a pirated disc - often many days before. Adrian Sexton, a founder of TAG Strategic, the digital media consultancy, and former vice-president of digital media at Lionsgate, recalls going to see Star Wars: Revenge of the Sith, last year at a cinema in Los Angeles. It was opening night, and in the capital of the film industry, pirated copies - some already dubbed into foreign languages - were being sold around the corner. “I was like: ‘I can’t believe how fast this is,’” Sexton said, still marvelling that the iconic opening scroll of the Star Wars legend had been rendered in Cyrillic.

Broadly speaking, there are two leading categories of piracy that the industry is confronting. The first are the for-profit pirates, often tied to organised crime. If they cannot swipe a pre-release copy of a film, as Gonzalez did, then the favoured method is to smuggle a camcorder into a movie theatre. One practitioner, Johnny Ray Gasca, was so successful at the technique that he earned the sobriquet “the prince of pirates”.

Gasca, an aspiring screenwriter, would attend pre-release screenings in Hollywood, posing as a studio executive. Then, when the lights went down, he would activate a camera hidden under a sweater. By plugging the camera’s microphone into the sound jacks supplied for hearing-impaired customers, he was able to produce near-flawless audio. Selling copies over the internet, he claimed to have earned more than $4,000 a week before he was arrested last year by the FBI.

In other cases, pirate groups have simply bribed theatre workers to sneak into the projection room to scan copies of the studio print. These are then transmitted electronically to factories in Russia and Asia, where they are stamped on to DVDs and then sold on sidewalks from New York to Shanghai. To dress up their packaging, the pirates simply go to film websites, where the studios have helpfully supplied promotional artwork. One such gang in New York, Chinatown’s Yi Ging, pirated CDs and DVDs alongside their business in drug trafficking and loan sharking, according to police.

For-profit pirates, however, are being overtaken by another variety whose motive is not money, but sport. These are people who try to steal films as a match of wits against the film industry. When members of this anarchist subculture bag a trophy, they rush to be first to post it on a website.

If it were limited to this small group of thieves, the impact would be financially negligible for the studios. The problem is that once the files are on the internet, millions of internet surfers can use peer-to-peer file-sharing networks to download and distribute them to friends.

The studios have worked doggedly to protect their products, limiting their supply of advance-screening copies, encoding them with watermarks and even distributing night-vision goggles to theatres to spy for camcorders. They have even taken such simple, low-tech steps as labelling DVDs with false titles when they send them through courier services. But, in the era of peer-to-peer networks, the inherent disadvantage they face is that it only takes one copy to slip out before it is replicated in the millions.

“If we locked everything up tighter than a drum, there would still be a way for these guys to get it,” confessed one anti-piracy executive at a major studio. “This whole area of peer-to-peer is very bad for us.”

The hope among many in the industry is that the threat of lawsuits and technological obstacles will frustrate the casual consumer into abandoning illegal file-sharing for one of Hollywood’s emerging online film services. After years of talks, the studios are finally beginning to make their best products available on internet services such as MovieLink and CinemaNow. Online distribution could get an even bigger boost with leading retailers such as Amazon.com, Wal-Mart and Apple expected to launch new video services soon - and at more competitive prices.

But the fear is that the problem will grow worse, for two reasons. High-speed internet access is spreading fast, giving millions of new consumers in eastern Europe and Asia the ability to download films, television programmes and other content. Also, the barrier between the personal computer and the television screen is disintegrating. This means that it will soon be convenient to download films online and watch them not on a laptop, but on a screen in the living room.

“I think we’re slowly slipping,” the anti-piracy executive confessed when asked about the industry’s progress against the pirates.

As a twentysomething male and technology maven, Friend fits the profile of the sort of person that the entertainment industry should fear most. But he claims to have never illegally downloaded anything, and shows little inclination ever to do so. “To be honest, I have to say that I didn’t really have a great interest in music,” Friend said of his school days. “I probably only had two or three CDs.”

What did interest him, though, was computers. When Friend was seven or eight years old, his parents brought home an Amstrad. “It was a pretty basic computer,” he recalls. “But one of the things that came with it was a manual on how to write software.” So he began to create geometric shapes and figures and then - as his skills evolved - he started to author his own games.

He is recounting the story from the new offices of Friend Media Technology Systems in a glass skyscraper in Birmingham that looks over the mills and warehouses of the city’s industrial past. Friend and 10 engineers - all but one of whom are older than their boss - moved into the office in May. It still had that new-carpet smell when I visited a few weeks later, as if nervously awaiting its first coffee spill.

The office’s beating heart is a windowless, air-conditioned server room. There, under the hum of fans, racks of computers were anonymously trawling the world’s various file-sharing networks. There were 30 of them in two cabinets, with boxes piled against the wall containing dozens more waiting to be installed.

Their task is something akin to missile defence. They must patrol a vast amount of territory, waiting for that brief moment when a threat is launched among a crush of legitimate traffic and then scramble to identify and intercept it. Meanwhile, the missiles and the people who fire them are implementing their own counter-measures.

If one were to extend that metaphor, then the greatest selling point of the Friend system, according to its inventor, would be its radar. At the moment many competing systems on the market supply data that are imprecise and often based on extrapolation. “A lot of the industry data are complete rubbish,” Friend said. “They can’t see half of what’s going on.”

But Friend claims he can - and then some. As a demonstration, he typed the name of a popular television programme into his software, and soon a column of numbers and flags popped up on the screen, indicating how many illegal copies of the material were available for download in each country at that moment. The US led the field, in this case, with 126, followed by Canada, the Czech Republic and Israel. With a bit more digging, Friend was able to sift the data by city, and then to list specific internet protocol addresses (the unique number identifying a specific computer).

IP addresses are like unlisted phone numbers, and they change regularly throughout the day. Friend claims that he can dig up the history of downloads from particular addresses over time, creating a record of file-sharing behaviour for specific users. He can determine whether a pirate was working from a company or university - two file-sharing hotbeds because of their fast internet connections - and list their name and location. Using route-tracing technology that tracks data in its journey across the trunks and elbows of the internet, he can even pinpoint the latitude and longitude of a downloader to within 10 miles.

To illustrate this, Friend gathered the co-ordinates of an IP address that was sharing the television programme and entered them into Google Earth, a downloadable program that maps the world with satellite imagery and aerial photography. Soon a satellite picture appeared on the screen, and after a few enlargements, a patch of land along a road in Kentucky was visible. “My jaw dropped,” said one executive from a music industry trade group who had seen a similar demonstration. “With Jonathan’s technology, you can drill right down into the building.”

Aydin Caginalp, a partner at Alston & Bird, the law firm that represents Friend, claims that his client’s technology has value that extends well beyond piracy. The data could be used as marketing intelligence for entertainment companies, who are just learning to sell products online. Or it could be applied to a whole host of customers in need of internet security, such as banks or even the military. “Could you imagine being like that at 23?” Caginalp marvels.

Even in his own family, Friend is something of an anomaly. His parents, Denise and Malcolm, are accountants who met at the London School of Economics and have their own practice in Birmingham. His sister reads modern languages and classics at Oxford. His younger brother, who is to enter University College London, is a cross-country runner and recently trained with the Israeli army. In addition to their high achievement, one thing that binds the family is religion. They are observant Jews, and the bookshelf in their dining room is stacked with texts on Jewish history and Talmudic interpretation.

While Jonathan’s precocity with computers made him something of an in-house help desk for the Friends’ accounting practice, it was not uniformly appreciated. “We had a secretary walk out because she wouldn’t take directions from a nine-year-old,” Denise Friend recalls. “How can you blame her?”

His ease at the keyboard did not necessarily translate to academic success. Friend was terrible when it came to foreign languages. “Basically, I had no interest in anything you couldn’t put numbers and logic to,” he said.

His skills as a computer programmer flourished. When he was 16, he spent a summer creating an inventory tracking system for one of his parents’ clients, a logistics business that warehoused everything from car wax to computer equipment. Then, as he neared the end of school, he became interested in the emergence of MP3 technology, which allowed people to compress songs into small computer files so that they could be more easily transferred over the internet. He developed software to sell music online, and the program took first place in a Midlands science fair sponsored by Intel, the computer chip maker. It then was awarded honours in a national competition and subsequently won a global final in San Jose, California.

Friend enrolled at the University of Birmingham, just down the street from his parents, to study electrical engineering. But he soon became interested in another science project. “There was this problem at the time with Napster, with people downloading stuff for free, and I thought: ‘How can I stop this?’”

As he poured hours of work into his own system, Friend lost interest in his studies and eventually decided to abandon them. His parents were not thrilled at first. But, eventually, they relented. “If Jonathan says he’s going to do something, then he does it,” his mother explained with a certain resignation.

While Friend was toiling away in his bedroom, the entertainment industry was scrambling for its own response to piracy. One problem, according to David Israelite, who chaired the US Department of Justice’s first task force on intellectual property, was that many consumers did not believe that trading songs and films on the internet was actually a crime. Another difficulty was that the entertainment industry did not enjoy close relations with the administration of President George W. Bush. “You had a Republican President and Congress and most of Hollywood is liberal,” one media executive said.

After a slow start, the industry has persuaded Congress to pass legislation that makes it illegal to camcord films in cinemas, and stiffened the penalties for piracy. It has also racked up some headline-grabbing legal victories. Most notably, the Supreme Court ruled last year that Grokster, one of the most popular peer-to-peer networks for music, could be held responsible for copyright infringement committed by its users. The decision in effect shut the service down, and paved the way for legal settlements with a number of well-known file-sharing networks. In July, Sharman Networks, owner of Kazaa, agreed to pay $115m to the entertainment industry and to work on new technologies to try to prevent illegal file-sharing. (The company was founded by the same technologists who later sold Skype to eBay for $2.6bn.)

But enforcement alone is unlikely to provide the solution. As officials manage to shut down one peer-to-peer network, others pop up to replace it, often in places where the laws are less stringent. The Pirate Bay, one of the most popular file-sharing services, is domiciled in Sweden. Another European network, Ares, draws more visitors each month than MySpace or YouTube, according to security experts, although no one seems to know who actually maintains it, or where it is based. Because these sites rely on open-source software and are not actual businesses, it is hard to know whom to sue.

Technology has also raised hopes of a quick fix - but so far it has demonstrated the ability only to harass pirates, not to stop them. “It’s a little bit like the radar gun and the speed detector,” said Israelite, who is now head of the National Music Publishers’ Association. “Every time you come up with a new technology, then the other guy finds a way to evade it.”

“Will it cure piracy? No,” Friend says of his software. “People will always find a way. What this is about is deterring enough people to where it isn’t worth it.”

To understand the technological challenges, one must consider the ingenuity of the peer-to-peer networks themselves. The original Napster worked like a telephone operator manning a vast switchboard. As people transferred their music collections from compact discs to their personal computers, Napster created a centralised index. It did not distribute the songs themselves, but would direct users to other members on the network who had the material they were looking for.

While the music industry celebrated Napster’s demise, a more formidable successor known as Gnutella was already taking shape. Rather than a hub-and-spoke approach, Gnutella was organised more like a grapevine. When one user sent out a request, it would go to seven others. Each of these machines would then each transfer the request to seven others until the requested material was found. “That was tremendously powerful because it completely decentralised the peer-to-peer architecture,” Friend observed.

A subsequent innovation, FastTrack, improved the speed of material flowing over these networks. By determining which members had high-speed internet connections and then routing traffic over them, FastTrack made the whole system function more efficiently.

But it was not until eDonkey arrived that the film industry found itself squarely in the crosshairs. The genius of the software is that it allowed a computer seeking a file to access separate parts simultaneously from different machines, and then combine them into a finished whole. This division of labour, known as “swarming”, was a vital breakthrough when it came to downloading something as cumbersome as a film.

eDonkey has since been improved on by the current scourge of the film industry, BitTorrent, which has introduced something like a “just-in-time” inventory to file sharing. As soon as a piece of a file is downloaded on to one machine, that computer can then act as a source for others.

Jonathan Friend is not the only computer whizz to take up the pirates’ challenge. Macrovision, the company that handles the encoding of DVDs, has expanded into the file-sharing business, along with start-ups such as the internet security firm BayTSP, which has helped Paramount Pictures track down the so-called “first infringer” on two of its films, and win legal settlements against them.

One of the leaders in the field is MediaDefender, whose offices lie behind the darkened windows of an office park in Marina Del Rey, California. Its desks are staffed by young men, some clad in jeans and hooded sweatshirts, who look as though they might be swiping files if they were not protecting them during their day job.

The company’s founders, Octavio Herrera and Randy Saaf, have impressive credentials. As engineers at Raytheon, they worked on the radar system for the B-2 bomber, an exercise that shaped their thinking about piracy. In aerial combat, the theory is that the winner is often the pilot with the superior radar, who can track his enemy first and then deploy counter-measures. MediaDefender operates in similar fashion. Its software continuously trawls peer-to-peer networks, searching for computers requesting files it has been paid a monthly fee to protect. MediaDefender will then jump in and interrupt the exchange.

One of the most basic methods of interception is known as spoofing, in which the company sends a computer a bogus file. The hope among the studios that employ MediaDefender is that a person will spend hours downloading Pirates of the Caribbean only to discover that they have received a string of random numbers.

“They’re very talented programmers. They’re constantly trying to push you off their networks,” Saaf said of the pirates. “It’s a game of spy versus spy.”

In August last year, Herrera and Saaf took a big step forward when a larger media company, Artist Direct, paid $42.5m for their start-up. That capital has allowed them to expand their operations and even to use their software to help media companies market and distribute music and videos on peer-to-peer networks.

But while studios and music labels praise MediaDefender, some still question its effectiveness against BitTorrent. The file-sharing swarms have become so brief and scattered that it is exceedingly difficult to catch them in time. What is more, BitTorrent is constantly evolving to fight itself against hostile invaders such as MediaDefender.

“They don’t protect everything,” said one studio executive. “If Joe Blow can go on LimeWire and get it - that’s the proof of the pudding.” Others said they are eager for new recruits in the technology arms race. “We’re always looking at other vendors,” said one. “We think BayTSP is great, but it may not be where the next great idea comes from.”

If Friend has built a better mousetrap, he has not had an easy time convincing investors. About a year after he began to work on the software, he and his parents started a round of meetings with venture capital firms in London, New York and Los Angeles. It requires massive amounts of computing power to offer the sort of interdiction service that MediaDefender provides, not just for a song or film, but for an entire library of content. The Friends were hoping that outside investors would help to fund that expansion. But, in the end, they could not find any takers.

“It was a chicken-and-egg problem,” Friend explained. “The investors wanted to see customers, and the customers wanted to see a product, which required investors.”

The venture capital community was no doubt hesitant because other internet security start-ups have launched businesses with brash promises about outsmarting the hackers - only to fold. In a similar vein, one studio executive said that promising anti-piracy technologies presented to him often cost too much money to be commercially viable. The commercial risk is even greater when you consider that there are fewer than a dozen major film studios and record labels, and therefore a limited customer base for such a service.

MediaDefender, for one, say it does not view Jonathan Friend as a serious competitor. “He’s nothing,” Saaf said. “I could rattle off 200 companies that have come and gone in the last few years.”

Saaf argued that the peer-to-peer landscape had become so complex that media companies needed a technology company with broad experience and resources - as opposed to a single whizzkid - that they could rely on quickly to catch up with a host of ever-evolving threats. The challenge, he said, had evolved from playing chess against a single brilliant challenger such as Napster to a generation of even savvier offspring, each with different styles.

Without the funding, Friend was forced to rely on his parents for support. Eventually, he was also obliged to alter his commercial strategy. The Friends decided to offer their software primarily as a monitoring and information system and put the interdiction service on hold.

For Friend, who delights in the logic of code, the commercial side of a creative industry has been maddening. “It’s an incredibly difficult industry to work with,” he said. Seemingly immune to Hollywood’s glamour - and sunshine - he regarded repeated trips to Los Angeles as more of a chore than a delight. At one point two years ago, he even considered abandoning the project to take a more conventional engineering job.

Some media executives were similarly mystified by the Friends. Accustomed to slick presentations from marketing types and MBAs, Friend’s custom of attending pitch meetings with his mother was a departure from the norm. “It was sort of amateur hour,” one studio executive recalled.

But not everyone was dismissive. “If what they presented actually works, it would be an improvement on current technology,” a piracy specialist at one of the major record companies said.

Last month, Friend appeared to earn a measure of validation. A major studio and a major record label each signed one-year contracts with Friend Media (he declined to name them because of confidentiality clauses, which are standard in the field). The company is also working with two record industry associations. For one, they are monitoring university and corporate networks for piracy violations. For the other, they are supplying forensic evidence for a legal case against an alleged pirate. They have also been contracted by a British bank to help protect customers from account fraud.

If all goes well, and the software proves as effective as Friend has claimed, he may soon become a villain among his peers. It’s not something that seems to bother him terribly. “Customs agencies aren’t very popular. Neither are governments, I suppose,” Friend said, when asked about the prospect. Besides, he would have plenty of new friends in Hollywood.