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Music Piracy in China
Music piracy in China is widely regarded as one of the highest in the world. Some reports from the International Federation of the Phonographic Industry say about 95 percent or higher of music sales in China are pirated, most coming from downloads of copyrighted music on the Internet. There are 225 million Internet users in China and no real legitimate online music service, such as iTunes, that sells copyright music.

Some record stores sell pirated copies of artists’ music in the stores for low prices such as $4. This has been hard on international and Chinese record industries such as the Music Copyright Society of China, with revenues dropping 90 percent and new release sales falling about 50 percent since 2005. There are also Chinese-based peer-to-peer services assisting in large-scale illegal file-sharing, according to the IFPI. In 2005, the IFPI reported more than 350 million pirated disks were sold and the physical piracy value totaled about $410 million. . Most of these illegal sites or services offer songs for free, generating income from advertising and other services.

Changing Chinese Copyright Law
Intellectual property in the People's Republic of China have been in place since 1979 with varying levels of success. With a large amount of copyright infringement online during the past decade, China's supreme governing body, the State Council of the People's Republic of China, has introduced streamlined regulations, effective July 1, 2007 that clarifies China's copyright lawregarding the liability of content and service providers involved in the distribution of unauthorized content.

However, industry observers note that in many Asian territories, enforcing bodies are understaffed, under funded and have little experience tackling piracy. Another problem is the amount of illegal Web sites with links to MP3 files, which makes it harder to track and shut down compared to peer-to-peer file sharing sites.

In the 21st Century, the Chinese government has tried to crackdown online piracy. In 2006, a memorandum of understanding with a number of media industry associations to help fight piracy and protect online copyright was signed. This was after the piracy rate of software in China reached 86 percent and legitimate industries lost some $50 billion to online theft.

In April of 2007, the United States government filed action against China with the World Trade Organization for violating intellectual property rights. The suit was brought because it was believed the Chinese government was not acting against piracy as a criminal offense. The Chinese government said it was making an effort to curb intellectual property and copyright theft.

Current Lawsuits
On April 7, 2007, Beijing's No. 1 Intermediate People’s Court made the decision to allow suits to be brought against two of China’s leading search engines, Baidu and Sogou. Sogou is the music service of the Web portal Sohu. The International Federation of the Phonographic Industry will represent Universal Music, Sony BMG Music Entertainment (Hong Kong) and Warner Music Hong Kong in a suit against Baidu. Gold Label Entertainment Ltd., backed by EMI Group Ltd., is also bringing a suit against Sogou as well.

The music-industry lawsuits claim $9 million in damages against Baidu and $7.5 million against Sogou. The lawsuit against Baidu is based on 127 copyright music tracks, which are just a small representative sample of the wider infringement. They seek the maximum statutory compensation under Chinese law of $71,000 per track, or about $9 million total .A victory for the plaintiffs could set a precedent in not only China but worldwide when it comes to "deep-linking" files online.

“Baidu is China’s largest violator of music copyrights, generating huge revenue by deliberately providing access to illegal content,” John Kennedy, Chairman and Chief Executive of IFPI, said in a statement in April. “The scale of what it is doing can be summed up by the fact that if the courts were to rule that Baidu should pay maximum statutory damages for all the infringing tracks available through its service it would have to pay many billions of dollars in compensation. That would be an enormous but appropriate price to pay for a company that is failing to take what are quite simple steps to respect the rights of artists and record companies and protect the content of IFPI’s members.”

Baidu and Sohu deny any involvement in the process of obtaining copyright music, as they do no host the illegal files, and their searches only provide lists of other Web sites with links

IFPI blames the search engines because of “deep-linking” that occurs with the Web sites’ music searches, which gives Web users access to illegal music downloads.

As record industry numbers have fallen, Baidu’s revenue doubled in 2007 to $239 million, which comes mostly from online advertising.

Recent Lawsuits
Despite a culture where theft of intellectual property is not a problem, trademarks, patents, and lawsuits involving intellectual property are growing in China. The IFPI has filed about 300 lawsuits in Chinese courts and have been victorious in about 90 percent of them. In April 2007, a court ruled that Yahoo! China's MP3 search service enabled allowed piracy of music, which still hasn't been thorougly enforced and may be in the process of more litgation. .

The IFPI lost a similar case months earlier against Baidu when a Beijing court accepted the company's argument that it's simply providing a link to third-party content.

Competition lost due to Baidu strength
Internet heavyweight Google falls behind Baidu in the Chinese search engine market. Reports show that 70-75 percent of search engine traffic is through Baidu, and many see the ability to pirate music through Baidu as a reason. Google has recently partnered with the Yao Ming-founded online music provider Top100.cn to make some headway in the Chinese market.