Yahoo China is being sued by the record industry for infringing copyright laws by providing links directly to illegal music downloads.
According to a report by Bloomberg, EMI and other record labels have started the process of suing the search engine and the proceedings will begin in a few weeks time.
Yahoo China is operated by Alibab.com Corp, of which Yahoo Inc owns 40 percent.
Seven record labels, including EMI, Sony BMG, and Universal Music, sued Baidu.com in a civil suit, and failed to make an agreement in the case after meetings with Baidu.com on 30 June.
John Kennedy, chairman of the International Federation for the Phonographic Industry, told Bloomberg that the terms of settlement were unacceptable, and didn't say how much compensation the companies are seeking from Yahoo China.
Damages in the US for cases like this one, "would certainly run into tens of millions and perhaps even more than that", Kennedy said.
A new law in China that holds websites responsible for copyright infringement "if it knows or should know that the work, performance or sound or video recording linked to was infringing" may also be invoked in the case.
China is cracking down on the rampant piracy that costs media companies hundred of millions each year – $400 million for music alone.