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Link blackmail

I recently received this threatening email:

Hello James,

I do hope you know that I could have your web site banned
from the search engines for placing my copy writed material
on your site. If you want to use it and provide a link to my
site that is fine.

The writer then provided a link to an article I wrote a while abck where I quoted his site (just 3 sentences) and then went on to elaborate on his point in some detail.

Now as a content provider myself, I know the frustration of seeing someone steal content. But as a published linguist I also know that quoting a source is the premise of secondary research.

Now I could remove his quote and replace it with someone else (it's not like the guy had anything new to say) or I could do nothing. Or I could paraphrase it a bit (of course I'd still give him credit).