IFPI welcomes judgment regarding appeal court ruling under new law, saying it acts as a warning to unlicensed music search services in China.

The international recording industry hailed a recent landmark Beijing court ruling confirming that Yahoo! China’s music delivery service violates Chinese law by facilitating mass copyright infringement.

Yahoo! China, part-owned by one of the world’s biggest internet companies, Yahoo Inc., was alleged to have infringed IFPI member companies’ rights on a major scale by making available copyrighted songs for download through its service without any permission from the record companies. Through its mp3 search page, it offered a music delivery service that enabled users to search for individual mp3 music tracks, and then download and/or play them for free without ever leaving Yahoo! China's website.

The International Federation for the Phonographic Industry (IFPI) had filed 11 separate claims for an injunction and damages against Yahoo! China on behalf of local and international record companies in January 2007, after the service walked away from talks regarding its alleged infringement of the record companies’ rights.

The cases were brought on behalf of EMI Group Hong Kong Limited, EMI Records Limited, EMI Taiwan Limited, Go East Limited, Mercury Records Limited, Sony BMG Music Entertainment (Taiwan) Limited, Sony BMG Music Entertainment , Universal International Music B.V, Universal Music Limited, Warner Music Hong Kong Limited and WEA International Inc.

The internet company was found liable for facilitating mass copyright infringement in April 2007 by the Beijing No. 2 Intermediate People’s Court, but appealed the verdict to the Beijing Higher People’s Court, which recently upheld the earlier ruling. The decision was based on new Chinese copyright laws which entered into force in 2006.

The Court separately ruled on a similar case against internet company, Baidu (a Chinese search engine and the first Chinese company to enter NASDAQ-100), which had been brought under the previous Chinese copyright laws. The suit, regarding a total of 195 sound recordings, was filed by IFPI on behalf of Gold Label, Go East, Cinepoly, EMI, Warner, Universal and Sony BMG. It claimed infringement of the record companies’ rights by Baidu for providing sound recordings to the public by means of streaming or download via the mp3.baidu.com site. The ruling confirmed that Baidu participated with and assisted third party sites in transmitting infringing music, but under the old laws Baidu was not liable for copyright infringement. IFPI appealed on behalf of Go East, Cinepoly, Warner, Universal and Sony BMG to the Beijing Higher People’s Court who now upheld that earlier ruling.

Music search services such as Yahoo! China’s and Baidu’s, which “deep link” users to hundreds of thousands of pirate tracks, are a huge drain on efforts to develop a legitimate music market in China. Despite enormous market potential, music sales in China totaled US$76 million in 2006, less than one per cent of the global recorded music market.

It is estimated that over 99 per cent of all music downloading in China infringes copyright, and services such as Yahoo China and Baidu account for the bulk of the problem.

According to John Kennedy, Chairman and CEO of IFPI, “The ruling against Yahoo! China is extremely significant in clarifying copyright rules for internet music services in China. By confirming that Yahoo! China’s service violates copyright under new Chinese laws, the Beijing Court has effectively set the standard for internet companies throughout the country.

“We are disappointed that the court did not find Baidu liable, but that judgment was about Baidu’s actions in the past under an old law that is no longer in force. The judgment is irrelevant since it has effectively been superseded by the Yahoo China ruling. Baidu should now prepare to have its actions judged under the new law. We are confident a court would hold Baidu liable as it has Yahoo China," continued Kennedy.

Kennedy added, “China could be a fantastic digital music market if internet companies like Yahoo China, and their owners, commit themselves to respecting copyright and protecting creators and producers. Our member companies seek partnership, not conflict, with China’s internet companies – but that partnership has to be based on proper respect for intellectual property rights. What is deeply regrettable is that Yahoo China repeatedly walked away from the chance to pioneer a legitimate music service in partnership with record companies and instead chose to engage in lengthy and needless litigation.”

The question IP bloggers and followers of the case are now asking is…why the difference in the rulings between Yahoo! China (obviously the loser) and Baidu (apparently the winner).

An article in music2dot0.com examines the basis of the rulings. While the IFPI has claimed that its loss to Baidu is due to changes in copyright law, this claim has been debunked by a few lawyers in China, among them prominent lawyer Yu Guo Fu. He pointed out that, “Even though the Provisions of Copyright Protection regarding Transmissions through Digital Networks was introduced in July 2006, it is not the underlying reason for the different results in both the Yahoo and Baidu cases. Fundamentally, the higher level Copyright Law and also the General Principles of the Civil Law were unchanged throughout both cases and that has been the basis for both rulings.”

Moreover, according to the article's author, these Provisions were only introduced by the State Council to make existing laws clearer and easier to enforce, making John Kennedy’s claims of an “old law that is no longer in force” an act of misinformation. The Provisions which are promulgated by the State Council cannot supersede the existing higher level General Principles of the Civil Law and the Copyright Law which are enacted by the People’s Congress.

Under current Copyright Laws, copyrights to online transmissions (i.e., music downloads and streaming) are already protected, and any online distribution of music by any party without proper license clearance is considered a direct infringement. Even if a party does not engage in infringement directly, but helps others to commit it, they will be jointly liable for the damages suffered by the victim. But before liability can be proven, the infringers must have had prior knowledge that their actions have contributed either directly or indirectly to the infringement act.

So has the IFPI been using the introduction of the new law as an excuse for their embarrassing Baidu loss? Was IFPI unfamiliar with Chinese laws and did not even realize that there were existing Chinese laws in place that would have resulted in a more viable case against Baidu? Did IFPI accuse Baidu of wholesale direct infringement without undertaking the necessary burden of proof to establish a more watertight case?

While IFPI claims victory, opponents of strict infringement laws may think that failure to punish Baidu (which was more than just an innocent bystander) could encourage the company to continue with its illegal activities.