BEIJING - More than 50 companies are reportedly gearing up to launch a mass-litigation suit against Chinese search engine Baidu for violating anti-trust, fraud and infringement laws.
According to reports from China, the charge is led by a group of lawyers who are undergoing a search for companies with grievances against Baidu and its business practices. The lawyers are said to have found 50 companies willing to file suit and they will officially launch the case once they find 100 companies.
If a mass-claim is filed, Baidu is poised to face charges that include the violation of advertising and anti-trust laws and class-action suits from shareholders.
The announcement comes after Baidu had been intensely scrutinised for accepting money from fraudulent medical companies to include their websites in Baidu's top search positions.
Although Baidu had issued a public apology for its action and launched a new service that separates its list of paid links from its general search listings one week ago, the company can still be sued by users who bought products from unlicensed companies.
According to industry observers, the blows to Baidu may damage its revenues as advertisers begin to distance themselves from the engine. It may also drive users away from the site if its searches are deemed fraudulent, leaving Baidu's 64 per cent search-market share open for competitors to gain ground.
"Although Baidu's stock price has fallen greatly in the past few weeks, the price may continue to decline if Baidu loses the suit. Investors are very sensitive on regulatory and legal risks in China," said Ning Liu, a senior analyst at BDA China, noting that China's anti-trust law was implemented on 1 August. With the law in its infancy, "it is hard to determine how it will be implemented for internet companies like Baidu," but the engine may not necessarily benefit from this, Liu added.
Yet Boaz Rottenberg, an analyst at Maverick China Research, points out that Baidu has successfully weathered past scandals and lawsuits
Among these past suits was a Rmb 1 million (US$146,550) charge by the Music Copyright Society of China, claiming the search engine had violated music labels' copyright. This was settled out of court last month. In 2007, a Beijing court also cleared Baidu of copyright infringement following suits issued in 2005 by seven international record labels, including EMI and Warner Music.
"Baidu has faced legal lawsuits before but managed to come out relatively unscathed," Rottenberg said. "These allegations will be difficult to prove, and in any case, Baidu's main challenge in the long run will not be in the courtroom but rather with China's netizens."
A representative for Baidu could not be reached for comment.
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