July 3 (Bloomberg) -- Yahoo China, the nation's second- largest search engine, will be sued by record labels for infringing copyright laws within ``a few weeks,'' according to a group representing companies including EMI Group Plc.

``We've started the process and as far as we're concerned we're on a track to litigation,'' John Kennedy, chairman of the International Federation for the Phonographic Industry, said in a telephone interview from Beijing. ``If negotiation can prevent that, then so be it.''

Yahoo China, operated by Alibaba.com Corp. which is 40 percent owned by Yahoo! Inc., provides links on its Web site to illegally copied music on non-affiliated sites. About 90 percent of all recordings in China are illegal, with sales of pirated music worth about $400 million annually, according to the federation.

Seven record labels comprising EMI, Universal Music Group, Sony BMG Music Entertainment, Warner Music Group Corp., Go East Entertainment Co., Gold Label Entertainment Ltd. and Cinepoly Records Co. last year filed a civil suit against Baidu.com Inc., China's most-used search engine.

The record companies failed to reach agreement on the case in a June 30 meeting with Baidu, calling the civil settlement offer by Baidu ``unacceptable,'' said Kennedy, without providing further details.

Baidu spokeswoman Cynthia He declined in a phone interview today to comment on the June 30 talks and didn't respond to e- mails requesting further information. Porter Erisman, a spokesman for Alibaba.com, declined to comment.

Kennedy declined to say how much compensation the record companies would be seeking in a civil suit against Yahoo China. For similar cases in the U.S., damages ``would certainly run into tens of millions and perhaps even more than that,'' he said.

New Criminal Law

The federation is also considering using a new Chinese law that came into effect July 1 that fines distributors of illegally copied music, movies and other material over the Internet as much as 100,000 yuan ($12,500). As of today, Chinese search engines operated by Yahoo China and Baidu.com provide links to other Web sites hosting illegally copied songs.

The law says a Web site is jointly liable with the host of the pirated files for infringement ``if it knows or should know that the work, performance or sound or video recording linked to was infringing.''

A criminal case is typically brought by government authorities and can involve penalties including jail time and fines. A civil suit is generally brought by private parties and involves financial damages.

`Be Nervous'

``It's quite strange to see entities quoted on public stock exchanges trading with such blatant infringement that they could get a huge damages award,'' Kennedy said. ``If I was a chief executive, I'd be nervous. If I was a shareholder, I'd be nervous.''

The U.S. has threatened to file a case to the World Trade Organization unless China reduces incidents of intellectual property violation.

The federation, which is affiliated with the Recording Industry Association of America, represents more than 1,450 members in 75 countries and affiliated industry associations in 48 countries, according to its Web site.

To contact the reporter on this story: Tim Culpan in Tokyo at tculpan1@bloomberg.net.

Last Updated: July 3, 2006 07:55 EDT