Yahoo’s settlement with families of Chinese dissidents may not change its ways in China

Internet company Yahoo Inc. has settled a lawsuit brought by the families of a Chinese dissident and a journalist, who claim they were jailed after the company cooperated with Chinese authorities, according to a report in CNN.

Yahoo's decision to settle comes a week after the company was criticized in Congress, with one congressman accusing the company of being moral pygmies. "While technologically and financially you are giants, morally you are pygmies," House Foreign Affairs Committee Chairman Tom Lantos, said at a hearing.

Yahoo and other Internet companies have maintained that to operate in countries like China they have to play by local rules. This stand has however come in for criticism that when it comes to business interests, Internet companies like Yahoo and Google give democratic norms the go by.

In this instance, the Chinese government demanded from Yahoo the name of the account holder who was using a Yahoo account to send out pro-democracy documents, and Yahoo complied.

Tom Lantos called on Internet companies to "resist any attempts by authoritarian regimes to make them complicit in cracking down on free speech, otherwise they simply should not do business in those markets", according to this report by the Associated Press.

In interviews, Yahoo executives have said that their refusal to comply could land their local employees in China in trouble. They add that the technologies for online community and sharing that they offer will in the final analysis promote democracy in countries run by repressive regimes.

There may be some merit to this argument. During the violent repression in Myanmar earlier this year, the Internet has proven to be an useful conduit to the world for people to communicate the atrocities to the rest of the world. Even as Pakistan places curbs on traditional media and television in Pakistan, the Internet has emerged as a key alternative.

Yahoo and other Internet companies have argued that it is not for one company to challenge the system in China. It requires an inter-governmental resolution between the US and Chinese governments.

It is not clear at this point whether the settlement by Yahoo reflects a change in the company’s position on how it operates in China. At this point it seems that the company settled to avoid further embarrassment and scrutiny in the US.

The company may now be in a better position legally in the US after it handed over the management of its Chinese operations to Alibaba.com in which Yahoo has a 40 percent stake. It is now more likely to argue that it has no control over Alibaba.com in which it holds a minority stake.