On 28 March, 2013, the third civil department of Guangdong Provincial High People's Court openly delivered its decision on the lawsuit of Qihoo 360 Technology Co., Ltd ("Qihoo") v. Tencent Inc.("Tencent") for abusing dominant market position, denying all claims of the Plaintiff Qihoo and ordering Qihoo to bear the court fees fully. The case that attracted tremendous attention within the field or even throughout the society has so far achieved a preliminary conclusion.
Qihoo alleged that Tencent's QQ software is dangerous for customers' security so that it launched 360 Privacy Protector, QQ Bodyguard and 360 Security Guard one after another to block the function of QQ. On 3 November, 2010, Tencent published A Letter to QQ's Users calling for users to make an "either-or" choice between QQ software and 360 software and further claiming that it will refuse to provide QQ software service for 360's users and will deploy technical instruments to block users who have installed 360 Browser from visiting QQ Space. In addition, Tencent sells QQ Software Butler bundled with its QQ Software and upgrades QQ Software Butler with a default installation of QQ Doctor.
Qihoo claimed that Tencent has breached the Anti-Monopoly Law of the People's Republic of China ("AML") for abusing its dominant market position and thus constituted restriction on transaction without justifiable reasons1 and tie-in sale without justifiable reasons2. On 15 November 2011, Qihoo filed a lawsuit before Guangdong Provincial High People's Court, requesting to rule that Tencent should immediately stop the act of abuse of dominant market position and pay damages of RMB 150 million.
After accepting the case, the Court conducted an open trial on 18 April, 2012 and delivered its decision publicly on 28 March, 2013, denying all of Qihoo's claims and ordering Qihoo to fully bear the court fees of RMB 796,800 in total.
Disputing Issues and Court Decision
1. How to Define the Relevant Market
- Relevant Product Market
Pursuant to theGuidelines of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market ("Guidelines"), since any competitive action occurs within a certain market,3 the definition of relevant market is vital to decide whether a competitive action constitutes abuse of dominant market position. While defining a relevant market, the demand substitutability test is often conducted with focus on the demand to the function and use of a commodity, quality recognition, acceptance on price and availability, etc. In the event there are competition constraints on business operators from supply-side substitutability that are similar to demand substitutability, such supply substitutability should be taken into consideration.4 If a definition raises uncertainties, the SSNIP Test could be applied.5 The Court, by applying the method above, finally determines that the relevant product market shall comprise: i) instant messaging softwares and services as claimed by Qihoo, including the all-in-one, cross-platform and cross-network instant messaging services; ii) text, audio and video instant messaging; and iii) SNS networking and weibo. In addition, the Court confirms that there are objective competition between Tencent's products and other internet platforms.
- Relevant Geographic Market
Concerning the definition of relevant geographic market, the Court rules that it should be identified as the global market, having analyzed the geographic distribution, language and use habits of operators and users of the relevant products.
2. Whether Tencent has dominant market position in the relevant market
Pursuant to the AML, when the market share of an operator in the relevant market reaches 50%, the operator is presumed to have dominant market position unless contrary evidence can be provided by the operator. In this case, since the market definition alleged by Qihoo is considered as "unduly narrow", the Court denied the evidence submitted by Qihoo to prove the market share of Tencent. The Court analyses further that whether Tencent possesses dominant market position even in the narrowest relevant market claimed by Qihoo. The Court determines that Tencent does not have the ability to control the price and quantity of the commodity and other terms of exchange, nor does Tencent have the ability to impede or affect relevant market entrance. Therefore it is ruled that Tencent, even in the narrowest relevant market, does not have dominant market position.
3. Whether Tencent abuses its dominant market position
With respect to the judgment on the conduct of forcing users to make an "either-or choice", the Court holds that Tencent's purpose to employ such policy is to restrict users to transact with Tencent exclusively instead of Qihoo. Therefore, it falls within restrictions on transaction in essence. The Court does not support the argument of legitimate private remedy claimed by Tencent, i.e. to protect its interests against the illegitimate harm caused by Qihoo. Because even Tencent is suffering from illegal infringement and calls for justifiable defense, it should fight against the illegal infringer, Qihoo, rather than having users involved.
However, as Tencent does not have dominant market position in the relevant market, and its action does not restrict users' right of choice. It has economic rationale and does not cause the effects of restricting or precluding competition . Therefore, the Court does not support the argument that Tencent's behaviors constitute restrictions on transaction and tie-in sales without justifiable reasons.
1. The pioneering work done by the Court is to apply the SSNIP to define the relevant product market within the internet industry, and it basically adopts the method provided by the Guidelines in defining the relevant geographic market. However, we noticed that the SSNIP is mainly applied in the traditional one-sided market. One-sided market only has a single value chain and the profits are generated from the downstream markets. In a two-sided market like the internet industry, one single product is related to two groups of consumers, namely end users and advertisement demanders. Then it would be difficult to identify the source of revenues, which puts the SSNIP in danger of becoming an empty shell.
According to the Court's logic in defining the relevant geographic market, any of the markets within the internet industry would be a global market. In fact, however, due to political concerns, internet in mainland China has never been completely open. First of all, the entrance of any foreign internet company must accept supervision from Chinese regulators. Secondly, Chinese users cannot freely get access to all the overseas websites and fully enjoy the internet services on a global basis. Under such circumstances, we hold that it is debatable to define the relevant geographic market as a global market.
2. It is worth to highlight that the Court has made constructive explorations in the determination of dominant market position. It is stipulated in AML that an operator can be identified as possessing dominant market position if its action meets either of the following two conditions: i) the position of an operator in the relevant market is sufficient for the operator to manipulate the price and quantity of commodities or other terms of exchange; or ii) an operator has the ability to impede the market entry of other operators. Although the Court denies Qihoo's assertion that Tencent has a market share of over 50% and the relevant evidence, it analyzed whether Tencent has dominant position in the narrowest market defiintion. According to the direction of the provision by AML above, the Court's analysis focuses on two issues, i.e. the ability to control the terms of exchange and the ability to block market entry. With respect to the former issue, the Court discussed the power on pricing in the market and the power to control other terms of exchange. With respect to the latter issue, the Court discussed from the perspectives of the capital and technological barriers in the market entry, the means of entry, the developing space of the new entrants and whether competition is sufficient, etc.
3. The Court denies Tencent's argument that the "either-or choice" falls within the scope of legitimate private remedies, but it seems to be inappropriate to categorize such type of actions as possible justifiable defense conducts. We hold that Tencent's conduct of limiting users' right to free choice in order to protect itself would be closer to the "act of rescue", yet it lacks of justifiable grounds since the interest of consumers are much more important than that of Tencent's and such action also goes beyond necessity. Therefore, we also opine that the action of "either-or choice" does not fall within the scope of legitimate private remedies but on different grounds.
1 See Art.17 of the AML, "Undertakings holding dominant market positions are prohibited from doing the following by abusing their dominant market positions:...(4) without justifiable reasons, allowing their trading counterparts to make transactions exclusively with themselves or with the undertakings designated by them；"
2 See Art.17 of the AML, "Undertakings holding dominant market positions are prohibited from doing the following by abusing their dominant market positions:...(5) without justifiable reasons, conducting tie-in sale of commodities or adding other unreasonable trading conditions to transactions；"
3 See Art.2 of the Guidelines.
4 See Art.4 of the Guidelines.
5 See Art.10 of the Guidelines.
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