SAN FRANCISCO - Yahoo Inc., reeling from a growing backlash over human rights and its China operations, settled a lawsuit Tuesday that accused it of illegally helping the Chinese government jail and torture two journalists.
Neither side disclosed details other than to agree Yahoo would pay the attorneys fees of Shi Tao and Wang Xiaoning and the family member who sued on their behalf. Yahoo also said it would "provide financial, humanitarian and legal support to these families."
The settlement has reopened debate over Internet companies cooperating with governments that deny freedom of speech and crack down on journalists.
It marked a dramatic change of heart for Yahoo, which had steadfastly maintained it had to comply with a request from Chinese authorities to share information about the online activities of the two Chinese nationals.
But Yahoo's cooperation turned into a public relations nightmare over the last week after irate federal lawmakers lambasted it on Capitol Hill, accusing it of collaborating with an oppressive regime.
"While technologically and financially you are giants, morally you are pygmies," House Foreign Affairs Committee Chairman Tom Lantos, D-Calif., said at a hearing.
Alibaba.com, China's biggest online commerce firm, has run Yahoo's mainland China operations since Yahoo bought a 40 percent stake in Alibaba in 2005. Shi and Wang sued Yahoo and Alibaba in April.
Yahoo would not say whether its dealings in China or Alibaba's mode of responding to government requests will change as a result of the settlement. But Yahoo has said it only owns a 40 percent stake in Alibaba and has no control over the Chinese company, a subsidiary of Alibaba Group.
Many other U.S. companies, including Google Inc., Cisco Systems Inc. and Microsoft Corp., are facing similar quandaries in China, said business professor Peter Navarro of the University of California, Irvine.
"They have all crossed a gray ethical line in China with their anything-for-a-buck mentality," Navarro said. "I don't believe that will change without a broader examination of the U.S.-China relationship."
He and other China watchers said the settlement would do little to stem similar behavior by other U.S. business operating in one of the world's fastest growing economies.
"Congress hasn't figured out that Yahoo is not the only culprit," said Navarro, who just published the book "Coming China Wars."
Shi, a former writer for the financial publication Contemporary Business News, was jailed under state secrecy laws for allegedly providing state secrets to foreigners. Shi's e-mail allegedly contained notes about a government memo on media restrictions.
Wang was arrested in 2002 in connection with anonymous e-mails and other political writings he posted online. They are both serving 10 year prison sentences.
The pair were represented in the lawsuit by The World Organization for Human Rights in Washington, D.C.
At the congressional hearing, Yahoo Chief Executive Jerry Yang and General Counsel Michael Callahan apologized to Shi's mother, who sat behind them.
Yang met with family members afterward.
"After meeting with the families, it was clear to me what we had to do to make this right for them, for Yahoo and for the future," Yang said in a statement Tuesday. "We are committed to making sure our actions match our values around the world."
Yang said the company was establishing a "human rights fund to provide humanitarian and legal aid to dissidents who have been imprisoned for expressing their views online."
The journalists' U.S. attorney, Morton Sklar, said Yahoo's will to fight the lawsuit withered amid growing outcry after members of Congress accused company officials of misleading them.
"There was a dramatic change in their position and that was strong incentive to settle," Sklar said. "They did not want to be on the wrong side of this issue."
Sklar said he suspects there are many more dissidents in Chinese jails because of U.S. companies' cooperation with the Chinese government. Sklar said there may be other lawsuits filed and further pressure on Capitol Hill if U.S. companies don't soon change their business practices in China.
"They will have to recognize they have to do more than just follow the law," Sklar said. "They can negotiate with the host countries and not be complicit in torture."
Lantos also called on other 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."
"It took a tongue-lashing from Congress before these high-tech titans did the right thing and coughed up some concrete assistance for the family of a journalist whom Yahoo had helped send to jail," Lantos said in a statement. "What a disgrace."
Yahoo shares gained $1.32, or 5.3 percent, Tuesday to close at $26.10.
