Daily Archives: July 4, 2006

IFPI to File Suit Against Yahoo China

Yahoo China will be sued within “a few weeks” by the International Federation of the Phonographic Industry (IFPI), a global industry group that represents and defends the interests of recording companies. EMI Group Plc and Universal Music Group are among the major labels that belong to the IFPI.

The problem, according to the IFPI, is that Yahoo China — operated by Alibaba.com Corp. and only 40 percent owned by Yahoo! Inc. — provides links on its Web site to illegally copied music on sites run by rogue outfits that clearly do not appreciate the finer points of copyright law or the principles of intellectual property.

IFPI estimates that about 90 percent of recordings in China are illegal, with pirated music in the country generating sales of approximately $400 million annually. Last year seven record labels filed a civil suit against Baidu.com Inc., China’s market-leading search engine, for similarly providing links to sites offering purloined digital recordings. No settlement has been reached in that case, and it does not appear that one is attainable in the near term.

Despite the recent passage of new law in China that assesses fines of as much as 100,000 yuan ($12,500) — not much of a prohibition, all things considered — to Internet distributors of illegally copied music, movies, and other intellectual content, there is no indication that China is about the crack down imminently on its domestic orgy of piracy. China’s authorities favor lax intellectual-property laws because it allows “technology transfer” to occur more readily from Western technological concerns.

Yahoo’s entanglements in China demonstrate the double-edged sword of doing business in that country. First, Yahoo was involved in allowing the Chinese authorities to keep tabs on the communications of dissidents — leading to arrests and interrogations of some of those put under surveillance — and now Yahoo is accused, through its involvement with Alibaba.com, of facilitating the transfer of pirated recordings over the Internet.

If you look at the board composition of Yahoo China, you can see that Yahoo is stuck between a rock and a hard place. The four-person board comprises Alibaba’s CEO Jack Ma, Alibaba’s CFO, Yahoo’s Jerry Yang Yahoo, and a representative from Japan’s Softbank. Even though the Chinese entity carries Yahoo’s brand, Yahoo effectively does not control it. As Yahoo is finding out, such an arrangement entails risks as well as opportunities.