A running joke in China is that the CD market is so bad, that you can't even give your music away to the CD pirates. This is why organizations like the International Intellectual Property Alliance (IIPA), a coalition of seven trade associations representing over 1,900 US-based copyright companies, have been determined to avoid the same situation with respect to the online market:
"Sadly, all current signs suggest that the online market is replicating the same kind of problems that have affected the physical environment -- poor enforcement, government toleration of open and notorious theft, and a myriad of discriminatory market access barriers that undermine the ability to provide legitimate materials to the Chinese public."
One of the biggest thorns for US copyright owners is Baidu, which serves as the poster-boy for "deeplinking" search engines that provide an estimated 50% of pirate music files in China. 
Baidu has been operating a very popular MP3 search platform since 2006 that allows users to search and download music in a variety of formats. Despite what would appear clear and blatant infringement in the West, a Beijing court last January ruled against the IFPI (International Federation of the Phonographic Industry), finding that simply providing search results does not breach Chinese copyright law (though many observers blamed the IFPI for not mounting a very good case).
While 2010 might have opened with a disaster, the year appears to be closing with real progress. The 21st session of the US-China Joint Commission on Commerce and Trade (JCCT) held this month reached "a series of intellectual property rights commitments... build[ing] on China's recently announced Special Campaign against counterfeiting and piracy." The plan announced in November represents the most comprehensive and coordinated strategy thus far.
Chinese trade representatives, led by Chinese Vice Premier Wang Qishan, also confirmed their commitment to support the early completion of a new Supreme People's Court (SPC) Judicial Interpretation clarifying that those who facilitate online infringement will incur liability. In addition, a joint Chinese-U.S. sponsored seminar would be held on April 21, 2011 to specifically address the liability of intermediaries.
"IIPA welcomes China's commitment on online infringements by libraries and on SPC clarification on issues of secondary liability for online infringements. A new Judicial Interpretation is sorely needed and we look forward to its issuance as soon as feasible in the new year followed by adequately resourced actions by Chinese authorities to enforce it."
One might take these commitments of course with a grain of salt. Prior bilateral negotiations between China and the US have yielded similar (though not as specific) assurances of change with little to show for it. Why would this be different? For several reasons, foremost of which China realizes that it must assume its role as the world's second largest economy. As Chinese Premier Wen Jiabao noted in a recent videoconference on IP protection and enforcement in Beijing, protecting intellectual property rights is essential to constructing an innovation-based country, a key focus for the Chinese government. As if to underscore this, a recent report by Thomson Reuters estimated that by 2011 China's annual patent registration number would surpass those of Japan and the US.
Does this mean that Baidu's MP3 search engine faces a real threat? Not likely, at least for now. Issues like protecting patents, software and trademarks, the latter of which accounts for nearly 70% of all IPR infringement cases in China. These are the priorities for both the US and China. And the Chinese government is not likely to hobble one of its internet superstars when there are many small fish to fry in the meantime. But at least we're moving in the right direction.
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