A video service labeled a "rogue site" by the United States Trade Representative was formally presented with a $42m copyright fine yesterday, but already a face-off has begun. China-based QVOD is allowed to appeal the record-breaking decision by local authorities but in the meantime must pay the fine anyway, something it is refusing to do.

Each year the United States Trade Representative publishes a “notorious markets” report detailing international sites whose services operate below U.S. standards of copyright protection. China regularly has at least one company in the list, sometimes several.

Most recently the USTR indirectly called out the Shenzhen QVOD Technology Co., creator of QVOD, a technology designed to enable businesses to distribute their content online using BitTorrent, P2P, and streaming technology.

Earlier this year the company indicated it was taking steps to stop its service being used for the transfer of protected content after the National Copyright Administration said it was infringing. Just just days later, however, QVOD was raided by the police. Adding to its woes, in May the company was found guilty of allowing the distribution of pornographic content via its service.

But despite its overtures towards licensed content, QVOD now has a sizable copyright-related headache to contend with. Following a hearing earlier this month, an authority in Shenzhen hit QVOD with a record-breaking fine equivalent to $42m after finding the company guilty of distributing local movie and TV show content online without rightsholder permission.

“According to our investigation [QVOD] earned 86.7 million yuan ($13.83m) from illegal practices. The fine levied amounts to three times the illegal gains, an amount the law allows,” a spokesman for the Shenzhen Market Supervision Administration said.

After being formally served on QVOD yesterday, the company was given 15 days to pay the fine. Any delays doing so will prove costly, with the authorities adding an additional 3% ($1.26m) to the fine for each day beyond the deadline.

The company does have the right to appeal the decision, either via administrative review or directly to the court within 90 days, but in the meantime QVOD has been ordered to pay the $42m fine. However, local media reports that the company is intending to mount a legal fight back to avoid paying up as required.

QVOD says it will appeal on three points – that the penalties are “unreasonable”, that the company “caused no great harm to society”, and that the company’s video player had no ads or subscription fees to generate profit from users.

A company insider, who spoke with local media on condition of anonymity, said that accepting the fine would mean not being able to pay 400 to 500 employees.