September 21, 2005

Chinese search engine Baidu has been ordered to halt providing search referrals to all music download sites offering copyright-protected songs.

Legal experts say that courts have not fully clarified the issue of whether search enjoys full protection from copyright laws, that is, whether Baidu or Google bears the responsibility if a user who finds copyright-protected material through their search engines goes on to illegally use that material.

The order from a Chinese court came in conjunction with a case in which Baidu has been found responsible for consumer infringements of music copyrights held by EMI Group.

Baidu said the case stemmed from confusion over Baidu's role on the Internet . The company emphasized that it does not offer download services, but that sites that do appear in its search results.

Baidu said it would "vigorously appeal" the case to a higher court but did not say whether it would comply with the order to stop referring users to sites where songs owned by Shanghai Push, a joint venture between EMI and a Chinese firm, are available for download.

The firm said such a blanket prohibition may deprive some legitimate copyright holders, such as pay-per-download sites, of being included in search results.

"We believe that the district court order was based on a misunderstanding of the search engine technology and therefore is without merit," Baidu lawyer Decheng Li said in a statement.

The court also levied what is considered a token fine of US$8,400. Similar suits are pending from other major record labels, including Vivendi's Universal Music, Sony (NYSE: SNE) BMG and Warner Music Group.

Observers say the case is critical for Baidu, which relies much more heavily on music search than its counterparts in the U.S. It could also signal how tough Chinese courts plan to be with their own companies and outsiders operating in China when it comes to matters of intellectual property.

Baidu, which staged a dramatically successful IPO for its American Depositary Shares (ADS) last month, has seen its fortunes sag in recent days.

Stock analysts have raised concern about inflated valuations and many investors have responded by selling the shares, which traded today at $81.50, up more than 2 percent on the day but well below their all-time high of $153.

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By some estimates, as much as one-fifth of all of Baidu's search traffic is made up of users seeking places to download music, including peer-to-peer sites such as those that have been targeted by record labels for enabling copyright infringement.

Search Engine Watch Editor Danny Sullivan said the music business is not a peripheral one for Baidu, but a central part of its fast-growing popularity among Chinese consumers.

"Music search is a chief driver of Baidu's popularity," Sullivan said. "If it's not even allowed to offer music searching, that's likely to put a major crimp in its growth."

Sullivan has suggested in the past that Baidu may be as popular as it is because it "has served as a type of Napster for the nation."

The bigger issue may be China's emerging hard-line stance on copyright matters, with courts apparently willing to hold those that aid infringement in any way accountable.

Another Chinese Web search firm, NetEase.com, recently said it would voluntarily suspend its own music search service, citing concerns about infringement. The firm said in a statement that though it believes search does not relate directly to copyrights, "it does help those people infringing upon artists' rights."

But NetEase can more easily afford to lose the music search business, since most of its visits and revenue come from users seeking online gaming.

The issues that Baidu is facing echo those that Google has seen, amid its surging growth in the U.S. Google has faced a number of copyright complaints, many based on its paid search result services.

It has also taken plenty of copyright flack for its decision to index major library collections for storage on the Internet.

To date, experts say, courts have not fully clarified the issue of whether search enjoys full protection from copyright laws -- that is, whether Google or Baidu bears responsibility if a user who finds copyright-protected material through their search services goes on to illegally use that material.

"This is a cloudy area for Google and others," said Forrester analyst Charlene Li. "There's no clear lines they have to work when it comes to copyright boundaries.

It's something that's being figured out as the search business grows."

Source: eCommerce Times

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