It is really not at all normal for an 11-year-old to act out this kind of behavior on other children, and eleven is a bit on the young side for this kind of sexual curiousity to be starting. This needs to be handled by a professional as soon as possible.

Also, his mom needs to be made aware of what is going on. He needs absolutely NO internet access except when completely supervised until he's had some therapy and things seem better under control. I would personally ask his mom to limit access to his grandfather without being supervised by his mother. It is quite possible that he has become exposed to this while around his grandfather, probably from a lack of supervision.

Please get both boys to a therapist as soon as possible. If he had done this to someone not in the family, it could have been reported to child services and much greater consequences could have come into play. Also, please closely supervise his contact with your other children and any friends. This needs to be closely watched until changes are seen through therapy.