Aug. 2 (Bloomberg) -- Baidu.com Inc., China's biggest Internet search engine and part-owned by Google Inc., is being sued by two local companies over alleged copyright infringement, ahead of its planned first-time share sale in the U.S.

Beijing New Picture Film Co., copyright owner of ``House of Flying Daggers,'' filed suit last month against Baidu for allowing users to download the movie for a fee, the plaintiff's lawyer, Ye Zhijian, said yesterday by phone in the eastern city of Hangzhou. The Chinese-language film was released overseas by Sony Corp.

Shanghai Busheng Music Culture Media Co. in June also sued Baidu for allowing unauthorized downloads of 53 songs, according to share sale documents released by Beijing-based Baidu ahead of its planned offer of stock on the Nasdaq market in the U.S. Baidu spokeswoman Zhang Ling in Beijing declined to discuss either case.

``The copyright issue has cast great uncertainty over Baidu's future business models and revenue,'' said Gu Feng, a technology analyst at Shenyin Wanguo Securities Co. in Shanghai. ``This is something investors should take into account.''

The government, under pressure from the U.S. and Europe, is stiffening punishments for intellectual property theft. China on Dec. 21 made such piracy punishable by as much as seven years in prison. Still, illegal copies of the latest movies are sold on the streets of Beijing and Shanghai for as little as a dollar.

`Higher Risk'

Baidu sold 749,625 shares, or a 2.6 percent stake, to Google for $5 million in June, 2004. It has hired Credit Suisse First Boston and Goldman Sachs Group Inc. to help raise as much as $88.5 million in a U.S. initial public offering as early as this month.

``We face a higher risk of being the subject of intellectual property infringement claims in China,'' Baidu said in its share sale documents. ``Any litigation can result in substantial costs and diversion of management resources and attention.''

Beijing New Picture Film is demanding $20,056 in compensation and damages from Baidu, lawyer Ye said. The Hangzhou Intermediary Court will rule on the case in about two weeks, Ye said. Shanghai Busheng is seeking $67,661 in damages, Baidu's documents show.

Baidu competes with Yahoo! Inc., Microsoft Corp., Sina Corp., and Sohu.com Inc. for user traffic, and last year posted its first profit of 12 million yuan ($1.5 million). Customers pay Baidu to place links in keyword search results, and for online advertising.

The number of Internet search users in China will grow to 187 million in 2007, from 115 million in 2005, according to Shanghai iResearch Co., a China Internet market research company.

To contact the reporter on this story: Samuel Shen in Shanghai Sshen3@bloomberg.net

Last Updated: August 2, 2005 01:32 EDT