The International Federation of the Phonographic Industry (IFPI) hailed a recent Chinese court ruling that held Yahoo China responsible for acts of copyright infringement in the most populous country in the world.

Yahoo China, a business in which Yahoo Inc. USA has a 40% stake, was accused earlier this year by music industry behemoths (among them being Warner Music) of copyright infringement, because it allowed some of its users to illegally download 229 songs.

The IFPI said that Yahoo runs an operation enabling users to search for, play and download pirate music without ever leaving its website. Yahoo China was first held responsible for copyright infringement back in April 2007. The accusations were made under a new Chinese law passed in 2006.

The interesting thing is that the locally-developed search engine Baidu, accused of similar illegal practices, didn’t receive the same treatment from Chinese authorities. Since the new copyright law had been passed in only in 2006, the court decided not to pursue legal actions against Baidu because at the time of the felony there was an old law in place. The ruling did confirm though that Baidu participated with and assisted third party sites in transmitting infringing music.

Although China is potentially the largest music market in the world, sales there are below 1% of the total music sales, with 99% of the downloaded music in the Asian country being pirated. By comparison, the legally bought music in China was worth US$76 million in 2006, while in the US the sum reaches $130 billion (from live music to retail).

John Kennedy, Chairman and CEO of IFPI, said: “The ruling against Yahoo China is extremely significant in clarifying copyright rules for internet music services in China.

“By confirming that Yahoo China’s service violates copyright under new Chinese laws, the Beijing Court has effectively set the standard for internet companies throughout the country.

“We are disappointed that the court did not find Baidu liable, but that judgment was about Baidu’s actions in the past under an old law that is no longer in force. The judgment is irrelevant since it has effectively been superseded by the Yahoo China ruling. Baidu should now prepare to have its actions judged under the new law. We are confident a court would hold Baidu liable as it has Yahoo China.

“China could be a fantastic digital music market if internet companies like Yahoo China, and their owners, commit themselves to respecting copyright and protecting creators and producers.

The Chinese court order stipulates that Yahoo must erase more than 200,000 links to Web-sites offering free music downloads, and to pay a fine of 200,000 yuan.

Despite the fact that IFPI’s estimates indicate that 86% of the music listened in China is pirated, Liu Guoxiong, director of China Audio and Video Association, is confident that the local music market will reach 12.7 billion by 2010.

According to CAVA authorities will this year draft, formulate and revise 14 laws, regulations, rules and administrative measures on trademark, copyright, patent and customs protection as well as 7 judicial interpretations and guidelines.