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So does this means we can create ISOs of Ubuntu etc with all the media codecs pre-installed and distribute them freely in India ?

I would think so. As long as you don't distribute in countries which do have software patents.

Copyright is different from patents.

Of course, but wouldn't there be a legal-issue in distributing patent-infringing software?

The codecs used in GNU+Linux don't infringe copyright, only patents.