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Veoh Networks, the start-up accused recently of letting people download entire videos scraped from other places without the creators’ permission, has raised $12.5 million in a second round of venture capital financing.

The company says it has cleaned up its act, doesn’t host any pirated videos, and hosts only content that users explicitly submit for use. And more, its chief executive confidently says Veoh is better than YouTube.

Michael Eisner, former chairman and chief executive of Disney, who recently left Disney after a shareholder revolt against his prickly management style, has invested through his Tornante company. He will also join Veoh’s board. Todd Dagres, a venture capitalist who recently launched a new firm, Spark Capital, will join the board as part of its investment. Time Warner and previous investor, Shelter Capital Partners, also participated.

Veoh had drawn the ire of video bloggers for what they claim is basically a hijacking of their content without proper credit. The complaints started at the Yahoo VideoBlogging Group, and then spread to We Are The Meda, where bloggers accused Veoh of using RSS (Really Simple Syndication, which lets people subscribe to video content) to rip their content.

We mentioned the ripping-accusations here. There, we took issue with the argument made by some that content from RSS is legally more vulnerable to ripping (see comments). Unlike YouTube, which has instituted a 10-minute limit to streaming videos to protect against allegations that it had been running pirated video, Veoh has no such limit.

Veoh was accused of crawling and copying the video catalogs of rival hosting services including blip.tv, OurMedia, Vidilife and Vimeo (see the extensive reporting and subsequent comments here).

Dmitry Shapiro, Veoh’s chief executive, responded here with what appears to be an earnest pledge to address people’s concerns.

He told us today that he has since gone to even further lengths to address the problem, and says the whole pirating/ripping thing is a misunderstanding. He said Veoh from the beginning had wanted to upload only content from RSS feeds which users had explicitly submitted to Veoh. He said Veoh had required publishers submitting feeds to insert a specific snippet of code verifying they were owners of the feed. However, he said Veoh’s process was “bugged,” and wasn’t identifying which content was owned by the submitters and which wasn’t. As a result, when outsiders submitted copyrighted content, Veoh ended up uploading it when it shouldn’t have. He said he has since “nuked” all content that hasn’t been adequately submitted.

When asked why outsiders would have submitted that other content, he said people do it all the time. “Some people do stuff they’re not supposed to,” he told us. “People submitted copyrighted movies, that’s what you get for having a democratized system.” He said he has contacted the Yahoo VideoBlogging Group and they are satisfied with his response. Others are forgiving Veoh too.

Shapiro said Veoh has an advantage over YouTube because Veoh lets you submit full-sized streaming videos, whereas YouTube limits its users to 100-megabyte files. YouTube requires video to be played back in a little window in browser, he said. “That’s not televison. The problem with 100 megabytes is that you can do very little with videos. Independent movie producers can’t get their content down to 100 megabytes and still make it look good.”

Veoh, he said, has developed peer-to-peer technology that lets it host huge 2 gigabyte files: “You can deliver a full length, full-screen, high-definition video,” he said. He developed the technology while at his previous company, Akonix, which had developed a peer-to-peer security technology over the past six years. There, he raised $34 million in venture capital, and Akonix has since deployed its technology to more than a million users at large companies, he said. He left a year and a half ago to start San Diego-based Veoh, which now has 25 employees.