Music firms hope Yahoo China ruling will apply to Baidu
12 February 2008
Published by South China Morning Post
At the end of last year, the world's major record labels lost their lawsuits against Baidu for copyright infringement by its MP3 search services. They filed legal proceedings again on February 4 and, this time, they are expected to win.
Record companies are pinning their hopes on a new interpretation of the mainland's piracy law. Although they lost the case against Baidu, the country's dominant search engine, they were able to win their suits filed later last year on similar grounds against Yahoo China.
"We reviewed the court documents. Both cases have the same factual situations," said Leong May-seey, the Asian regional director of the International Federation of the Phonographic Industry (IFPI).
The federation, based in London, is representing EMI, Sony BMG, Universal Music Group, Warner Music Group and their local subsidiaries in the court cases.
Baidu was able to convince the Beijing court that it was not guilty by claiming it was only an electronic platform - a search engine that picks up music files automatically over the internet.
"But how would it know which songs are movie-related, which belong to individual singers and which belong to bands? Someone must be deliberately sorting out the songs," said Ms Leong. Songs are sorted according to different categories in Baidu's MP3 search service, which allows music downloads by providing links to the unlicensed files.
The same argument did not work for Yahoo China, partly owned by one of the world's biggest internet companies, Yahoo, through its mainland subsidiary, Alibaba Group.
By the time that case went to court, a new set of anti-piracy laws had been passed on the mainland stating it was not only illegal to be the source of pirated music files but also to be an assistant to piracy.
Baidu's case was filed in 2005, while the new laws were passed in 2006. Yahoo China's case was filed in January last year.
Yahoo China has subsequently stopped its MP3 search services.
"My understanding is that the Baidu and Yahoo China cases were brought at different periods when the laws were slightly different, which is why we believe there are two different outcomes," said Porter Erisman, Alibaba's vice-president for corporate affairs.
"We hope and assume that, with the recent clarification of the law, the new standards will be applied uniformly so that there is a level playing field for all search engines in China."
John Kennedy, IFPI's chairman and chief executive, said earlier that Baidu should prepare to have its actions judged under the new law.
"We are confident a court would hold Baidu liable as it has Yahoo China," Mr Kennedy said.
On February 4, the music companies brought legal proceedings against Baidu and mainland portal Sohu and its search-engine unit Sogou for their MP3 search services.
Baidu had approached the record firms for an out-of-court settlement, an industry source said. The record labels' determination to fight Baidu in court might not be in proportion to the amount of compensation they seek. The music companies were asking for 1.67 million yuan when they sued Baidu in the summer of 2005. But the legal battle has dragged on for 2½ years.
"If a major company such as Baidu can openly violate copyright, other parties and individuals will think it is all right for them to do the same," said Ms Leong.
The IFPI estimates that more than 99 per cent of all music downloading on the mainland infringes copyright, and search engines such as Yahoo China and Baidu account for the bulk of the problem.
Baidu's actions were affecting music sales not only on the mainland but in Hong Kong, Taiwan, Singapore and other areas where Chinese songs have a market, said Ms Leong. Users worldwide can use Baidu's MP3 search.
While Baidu is reluctant to stop its popular MP3 search right away, it is trying to offer some legal music services as well.
Shen Haoyu, Baidu's vice-president of business operations, said: "Baidu believes in copyright protection and we have already announced partnerships with companies such as EMI and Rock Music Group that provide users with high-quality, fully licensed music through an advertising-supported free music streaming model."
Yahoo China also insists its ultimate goal is legal music services.
"Our ultimate goal remains to partner the leading record labels to develop a licensed music service for the China market," said Mr Erisman.
But Mr Kennedy has a somewhat different viewpoint.
"The music industry in China wants a partnership with the technology companies, but you cannot build partnership on the basis of systemic theft of copyrighted music," he said. "And that is why we have been forced to take further action."
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.
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.
One country, two online models
- Eachnet and Taobao are going head to head to control the budding auction sector, but with very different business strategies
5 October 2004
Published by South China Morning Post
Eachnet and Taobao.com are squaring off in a battle of the business models, with each laying claim to the potentially lucrative internet auction market in China.
Eachnet, backed by eBay, the world's biggest online auction house, believes that what works elsewhere in the world will also work on the mainland. It charges a fee for listings and takes a cut on the final sale.
Taobao, however, has not come up with a cash-generating model - its listings are free. Nevertheless, the company steadfastly believes mainland consumers will not take to the eBay way of doing business.
"We think Eachnet is weaker than it looks. It uses the American model but we think the China market has its own characteristics," said Porter Erisman, a vice-president at Alibaba.com, which founded Taobao last year.
"People in China don't like middlemen collecting transaction fees. The online markets should make money by other means."
At stake are the hearts and minds of a rapidly growing number of Chinese online shoppers. According to the China Internet Network Information Centre, 37.8 per cent of the nation's 87 million internet users - or about 32.8 million - have shopped online. That should nearly triple by next year.
Even before eBay acquired Eachnet last year, the mainland company mimicked its American counterpart by charging listing fees and commissions.
Last year, US$124 million in merchandise was traded over the company's website and the figure is forecast to climb to $241 million this year. EBay recently integrated Eachnet into its global operations, giving mainland sellers access to bidders worldwide.
Eachnet commands 60 to 70 per cent of the mainland market, although just 6.6 per cent of Chinese internet users are registered Eachnet customers. In the United States, 29.6 per cent of the internet population is registered with eBay.
Taobao claims it is too early to charge transaction fees because mainland internet users are not familiar with internet auctions.
Alibaba vice-president Jin Jianhang said: "It discourages people from participating in online trading. It hurts the growth of the industry in the long run." He would not disclose how Taobao planned to eventually collect revenue, but said the chosen method would be acceptable to users.
For a clue, look to the operating history of Alibaba, a business-to-business e-commerce site.
The company did not charge fees for three years after its 1999 launch, but now generates revenue from valued-added services such as verifying the legal registration of a company.
Eachnet chief executive Shao Yibo said charging listing fees had improved the auction experience by forcing sellers to be more selective about what items they put up for bid.
In the second quarter of 2001, the last quarter before Eachnet began charging fees, just 12 per cent of listed items found a buyer.
This compared with 45 per cent in the second quarter of this year.
Taobao would not reveal what percentage of its listings resulted in a sale.
Mr Shao said there were differences between China and the US. For example, payment systems were not as developed on the mainland, with buyers and sellers often meeting in person to exchange cash and goods.
But this did not mean Eachnet had to significantly alter its paid listings model.
"There is no difference between people in China and those in the US," he said.
Eachnet also expected mainland shoppers to warm to conveniences such as PayPal, an eBay-owned service which allowed consumers to send online payments to each other.
No firm can survive on a business model that excludes the ability to collect fees from customers.
"Competitors come and go. One of our key advantages is that we are able to charge," Mr Shao said.
Taobao has been reliant on Alibaba to stay afloat, taking US$54 million from its parent.
Mithras Group consultant T.R. Harrington said Eachnet had an advantage because it was already collecting fees, while others still faced the challenge of charging fees for a product consumers were accustomed to receiving free.
According to Mr Shao, Eachnet is still losing money after five years of operations due to continuous investment in technology platforms and marketing efforts.
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