The lawsuit filed in April this year with the help of the World Organization for Human Rights said Yahoo shared the information about its users with the Chinese government and it has released data that enabled the Chinese government to identify two activists.

Also the lawsuit claims Yahoo had reason to know that if it provided China with identification information the individuals would be arrested.

The World Organization for Human Rights brought the case on behalf of several plaintiffs, including the journalists Wang Xiaoning, 57 and Shi Tao, 39.

Wang Xiaoning was sentenced in 2003 to 10 years in prison after being convicted of charges of inciting subversion with online treatises criticizing the government. His wife said he is kept in a labor camp where he has been subjected to beatings.

Shi Tao was arrested in 2004 and convicted of sending word of a media crackdown to the New York website Democracy Forum. Under the Chinese law he was convicted to a 10-year sentence.

In the lawsuit filed against Yahoo, Wang Xiaoning and Shi Tao are seeking unspecified monetary damages and an injunction preventing Yahoo from complying with China's future requests for similar private information.

In response, Yahoo claims in its 40-page defense filed Monday in Oakland that it had obeyed the Chinese law and provided the information following a legal request from the Chinese government.

"Free speech rights as we understand them in the United States are not the law in China," it said.

"Every sovereign nation has a right to regulate speech within its borders. It is a political case challenging the laws and actions of the Chinese government."

Also Yahoo implies that the plaintiffs were aware about violating Chinese laws. "They assumed the risk of harm when they chose to use Yahoo! China email and group list services to engage in activity they knew violated Chinese law," it said in the filing.

Yahoo asked for dismissal because "free speech rights as we understand them in the United States are not the law in China". Also the Internet giant warned that the lawsuit could affect relationships between US and China.

In response to Yahoo’s request, Morton Sklar of the World Organization for Human Rights said the company had failed to meet its ethical responsibilities.

"Even if it was lawful in China, that does not take away from Yahoo's obligation to follow not just Chinese law, but US law and international legal standards as well, when they do business abroad," he said for BBC News.

Earlier this month, Reporters Without Borders reported that Yahoo and MSN China, together with other 20 blogging services, have signed a so-called "self-discipline pact", according to which the companies are encouraged to store the real names and contact details of Chinese bloggers.  

Also a research conducted last year by Reporters Without Broders  has reported that an investigation conducted on different search engines has proven that Yahoo.cn is the most compliant with the local communist regulations concerning censored content.

China is a country with a great potential for Internet providers. It boasts with more than 130 million people online (almost a tenth of 1.3 billion population) and it is expected to surpass the US in the future at this chapter.

But the Chinese government, as a condition of allowing foreign internet companies to access its market by hosting internet servers in China, requires that foreign companies agree to turn over identifying information of internet users, block access to certain websites, and prevent internet users from being able to search certain words, like “freedom.”