Four record labels have agreed to settle a music-piracy lawsuit against two Chinese Internet companies and will begin offering free downloads in China, another milestone since the labels reached a similar licensing deal with the country's dominant search-engine provider, Baidu Inc, in 2011.
The record companies - global giants Universal Music, Warner Music and Sony Music, along with China's Gold Typhoon Entertainment - sued Sohu Inc and its search engine company Sogou for illegally providing downloads of 105 songs owned by the labels under copyright and asked for a compensation of 54 million yuan ($8.67 million).
The Beijing High People's Court accepted the case in August 2010 but ordered the parties to mediation in hope of reaching a resolution not only regarding the 105 songs, but the labels' huge music catalogs.
After 19 months of mediation, an agreement was reached on Friday under which the six companies pledged to cooperate in promoting the legal use of music online and combating piracy. Sogou also agreed to donate an undisclosed sum to the anti-piracy fund of the International Federation of the Phonographic Industry, according to the court's website on Monday.
Sohu also agreed to pay royalties and licensing fees to the labels for the right to upload their entire catalogs plus forthcoming songs, which will then be available for free downloads or streaming by Sogou users in China.
"This marked the successful conclusion of this yearlong dispute and allowed Chinese users to have access to legal music on the website," the court said on its website.
This was the latest high-profile settlement that record companies have reached with Chinese websites over illegal downloads.
In 2005, Universal Music, Warner Music and Sony BMG sued Beijing-based Baidu for providing copyright-infringing downloads of their music. The labels lost that case, however, with the court ruling that they had provided "insufficient evidence". Another suit against Baidu, in 2008, also ended in defeat for the labels.
Finally, in July 2011, Beijing No 1 Intermediate Court ruled in favor of the music companies. That result was similar to the one in the Sohu-Sogou suit: Baidu agreed to pay royalties to get legal access to the copyrighted songs and was allowed to provide them to users in China. The search engine company also pledged to work with the labels to fight piracy.
Experts said the latest case provides Chinese digital companies a chance to learn from the US market, where copyright protection is well-established.
"Certainly any punishment including a well-publicized settlement can serve as a deterrent to future offenses," said Ann Lee, a senior fellow at the public-policy think tank Demos and a finance professor at New York University. "Chinese companies should follow the iTunes model, which plays only a small part of a song as a teaser to get people to buy it."