Baidu sued over music downloads

16 September 2005
Published by The Standard

The world's biggest music companies are suing Baidu, the mainland search engine that captivated Wall Street investors, for copyright infringement in a move that could force the company to shut down its MP3 search engine, a key to the company's popularity among young Chinese Internet users.

Universal, EMI, Warner, Sony BMG and their local subsidiaries, Cinepoly, Go East and Gold Label, are suing the search company in a Beijing court for infringing the copyright of hundreds of songs.

They allege that the search service makes it easy for users to listen to and download illegal copies of their songs, said a source close to the music companies. In a statement issued Thursday night in response to inquiries by The Standard, Baidu said ``the company acknowledges the litigation in question.''

It added that it does not, as a matter of practice, ``make comments on specific litigation already [in] legal proceedings,'' but insists it ``has always been an advocate of improving copyright protection on the Internet, and has been in discussion with relevant parties.''

Baidu's vice president of marketing Liang Dong met several music company executives Wednesday to discuss copyright issues. According to the Beijing Star Daily, the companies included EMI, TR Music, Huayi Brothers, Beijing Chuangmeng Music and Guangdong Freeland Music. The outcome of the meeting was ``positive,'' said a source at Baidu, adding that the goal is ``to cooperate and make a platform for legal music downloads.''

News of the lawsuits comes amid growing investor concern over the company's prospects. Baidu shares fell 28 percent Wednesday in New York trading after two analysts warned the stock was seriously overvalued.

Baidu's August 8 stock sale was one of the year's hottest initial public offerings, with shares more than quintupling from the US$27 (HK$210.60) offering price to a closing high of US$153.98 just three days later.

Even after Wednesday's US$30 plunge, the shares closed at US$83.21, more than triple the IPO price.

Although Baidu informed its investors in its prospectus about a June 20 lawsuit filed by mainland music company Shanghai Busheng Music Culture Media, alleging unauthorized downloads, it made no mention of the potentially more damaging litigation threatened by the music industry's giants. Yet letters warning about the possibility of suits were sent to the company by the International Federation of the Phonographic Industry and its music company members as early as June, the source said.

Lawsuits were filed by Gold Label on July 21, and EMI and Universal on July 28, before the IPO. Warner Music filed its lawsuit on August 15, with Sony BMG going to court on September 8, the source said.

Executives at EMI and Universal have confirmed the filing of the lawsuit.

What has drawn the industry's ire is the ease with which Internet users can use Baidu's search engine to locate copies of music stored on the Web, even to the point of organizing songs into Top 10 lists by category. When a user clicks on a particular song, the engine provides a direct link to the url where the file is stored.

Since the search process is automatic, Baidu argues that it is simply providing the basic service offered by all search engines, and is not itself involved in any copyright infringement. In addition, it promises to remove the link if a company can prove it owns the right to a song. ``This practice is consistent with legal requirements of PRC law,'' Baidu said last night.

The industry, however, argues that a Chinese court, in an earlier case, ruled MP3 searches were illegal.

ChinaMP3.com was found guilty of offering similar links to illegal copies of copyrighted songs in January, a source familiar with the case said. The company was fined 310,000 yuan (HK$297,445) in four cases involving 70 songs. Under pressure from foreign and some domestic companies, the mainland government has begun cracking down on rampant illegal downloading of everything from songs to mobile phone ringtones and movies.

Under a new legislation, fines are slapped on Web sites that offer content illegally.
Though the music companies are seeking compensation, what they most want is the suspension of services that allow Internet users to gain free access to copyrighted material.
As Internet usage soared in Asia in recent years, the music industry's revenue fell dramatically, thanks in large part to MP3 downloads from unauthorized sources.

In Korea, music sales have plunged more than 55 percent since 2001, according to the IFPI.
``We want all the illegal downloads to be stopped,'' said Caroline Chow, director of new media at EMI Group (Hong Kong).

According to the source familiar with the situation, the songs cited in the lawsuits filed against Baidu represent only a small part of the illegal songs that are available through Baidu's MP3 search. The companies will file additional litigation if copyright infringement persists, the source said.

Recently, Netease, one of the top three Web portals in China, shut down its MP3 search over copyright infringement concerns.

That wasn't a big blow for Netease, which relied on online gambling for 85 percent of its second-quarter revenue.

For Baidu, however, MP3 is a core business. According to Alexa, an Internet market research firm owned by Amazon.com, MP3 search contributes 22 percent of Baidu's online traffic. Others said the figure could be higher.

``Most Baidu users are young people in high schools, and what attracts them to Baidu is the MP3 search,'' said Lu Weigang, a market researcher at China Internet Network Information Center in Beijing.