China: Review On The Case Qihoo vs. Tencent

Last Updated: 28 May 2014
Article by Ying Yang

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.

Facts

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.

Comment

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.

Footnotes

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions