The claim is the tip of the iceberg in a copyright infringement test-case that could expose the Chinese internet giant to a multi-billion dollar liability, according to an International Federation for the Phonographic Industry analysis of the situation.

Baidu’s music delivery services, which are quite separate from its general search engine, “deep link” users directly to hundreds of thousands of copyright infringing music tracks. They generate substantial advertising revenue for Baidu while causing massive damage to the music industry, the IFPI explained.

In April 2007, a precedent-setting ruling found Yahoo China guilty of facilitating mass copyright infringement for operating a music delivery service very similar to Baidu’s. That ruling was confirmed in December 2007 by the Beijing Higher People’s Court, the final appeals court.

The record companies’ infringement claims against Baidu are based on 127 of their own music tracks, which are just a small representative sample of the wider infringement. They are seeking the maximum statutory compensation under Chinese law of RMB500,000 (USD71,000) per track.

This creates total claims of RMB63,500,000 (USD9mn) but the ultimate exposure could be much greater. Baidu allegedly participates in the infringement of more than a quarter of a million tracks, which could leave the internet company faced with multi-billion dollar damages claims when further action is taken to secure maximum statutory damages on all these tracks.

The three record companies in question, Universal Music Ltd, Sony BMG Music Entertainment Hong Kong Ltd and Warner Music Hong Kong Ltd, have filed their claims with the Beijing No.1 Intermediate People’s Court, asking the court to order Baidu to remove all links to copyright infringing tracks to which they hold the rights.

Four record companies have also announced they will be bringing legal action against Sogou, the Chinese music delivery service operated by Sohu Inc, which also participates in mass copyright infringement.

The companies bringing this action are Sony BMG Music Entertainment Hong Kong Ltd, Warner Music Hong Kong Ltd, Gold Label Entertainment Ltd and Universal Music Ltd. They are claiming maximum statutory damages of RMB500,000 for 105 tracks, bringing the total claim to USD7.5mn. These claims will also be heard by the Beijing court.

John Kennedy, Chairman and Chief Executive of IFPI, observed that:

“Baidu is China’s largest violator of music copyrights, generating huge revenue by deliberately providing access to illegal content. 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."

He concluded: “The record industry wants partnership with China’s internet companies, but one that is based on respect of copyright and the law. It is totally wrong that internet giants like Baidu should build a fortune by abusing the rights of artists, songwriters and record producers.”