Microsoft was caught red-handed stealing and blames a contractor. A company is responsible for its contractors and bears legal liability in most jurisdictions for their actions. While it was good of them to apologize and pull it down immediately, Plurk is right to pursue Microsoft further if they so choose.
If, say, your kid gets caught stealing a car and say "oops, sorry" then walks away, that doesn't make everything ok.
Work done by a subcontractor is (in most circumstances) considered work-for-hire. So the main company owns the product of that work (in this case code). If the main company decides to publish this work as their own, they take on all the liabilities associated with that action. It is up to Microsoft to police itself and it's contractors. If it doesn't, that then opens them up to legal liability. The fact that they took care of the problem quickly doesn't lessen that liability (it only stops the liability from getting bigger).
If this wasn't the case, what would stop the companies of the world from hiring shady sub-contractors to steal other's IP and code, pass it on to the hiring company, and then let the hiring company sell that IP/code as it's own? Where are the repercussions?
Let's be clear about this: there are two aggrieved parties in this: Plurk and Microsoft. Plurk was aggrieved by Microsoft when MSN China attempted to use Plurk code as their own. Microsoft was aggrieved by the sub contractor used by MSN China when they tried to pass off code stolen from Plurk as a unique work.
Legally (IANAL), Plurk's beef is with Microsoft. If MSFT then wants to sue the contractor, that is up to them.
I see, I was reading "A company is responsible for its contractors and... their actions" in much broader terms, like "contractor builds parts using child labor." Thanks for the clarification.
If, say, your kid gets caught stealing a car and say "oops, sorry" then walks away, that doesn't make everything ok.