A Beijing appeals court on Thursday upheld a ruling against Yahoo China over its search engine's links to outside Web sites that carried illegally copied music, the International Federation of Phonographic Industries said.
Court officials would not confirm the report. A spokesman for Alibaba Group, the local partner that manages Yahoo's China arm, said he had not seen the ruling and could not comment on it.
But the spokesman, Porter Erisman, said Yahoo China hoped to reach an agreement with music companies to create a licensed download service.
China is a leading source of pirated copies of music, movies and other goods. Operators of pirate Web sites offer music, games and other services to attract users and make money from advertising or online commerce.
Industry groups have won a series of lawsuits against companies accused of profiting from piracy but say violations are growing despite increased Chinese government enforcement.
In the latest case, the IFPI - representing companies including Warner Music Group, (WMG) Sony BMG and Universal Vivendi - accused Yahoo China of violating copyrights because of links between its search engine and Web sites with 229 illegally copied songs.
The Beijing No. 2 Intermediate People's Court ruled in April that Yahoo China facilitated the infringement of copyrights and awarded $27,000 in damages.
Yahoo China appealed, arguing that search engines should not be liable for content on outside Web sites. The IFPI said that appeal was rejected by the Beijing Higher People's Court.
Music companies lost a similar lawsuit earlier against Chinese search engine Baidu.com (BIDU) But China changed its laws on enforcement of copyrights and other intellectual property after that, and Yahoo China was sued under the new system.
Yahoo, based in Sunnyvale, Calif., owns 40 percent of Alibaba.http://money.cnn.com