China: Doctrine Of Non-Interference Not Necessary For Public Interest In Competition Between Internet Product/Service Providers

Last Updated: 1 March 2016
Article by Xiaojun Guo

- Baidu v. Qihoo (Beijing High Court, 2013)

Unfair competition cases have been greatly increasing during the last five years, which in many times were between internet giants marketing in China, such as Tencent, Baidu and Qihoo. In a  significant case between Beijing Baidu Netcom Science and Technology Co., Ltd., Baidu Online Network Technology (Beijing) Co., Ltd. (both under the control of Baidu Inc. and collectively referred to as "Baidu"), and Qihoo Technology Co., Ltd. and Qizhi Software (Beijing) Co., Ltd. (both under the control of Qihoo 360 Technology Co., Ltd. and collectively referred to as Qihoo), made by Beijing High Court for the second instance, the court established, for the first time, a new doctrine against unfair competition, i.e. the doctrine of non-interference not necessary for public interest.

Baidu Inc. provides the biggest search engine in China and has been the winner in its fights with many competitors in China, such as Google and Yahoo. Qihoo 360 is a profound new force in the internet market and provides internet related products/services including 360 browsers, 360 search engine as well as its core security products such 360 SafeGuard.

In 2012, Qihoo 360 SafeGuard selectively labeled the search results conducted by Baidu search engine with white exclamatory marks of red background as warning signs, meaning that, the corresponding websites on the search result pages are not safe. Further, By means of the exclamatory marks, Qihoo led consumers to install their 360 safe browser. Qihoo further, on its navigation website, inserted the search box of Baidu but changed the pull-down call words initially provided by Baidu, so as to lead consumers to visit Qihoo's own websites of movies/television programs and computer games etc., which are not in the front of the keyword-based search results or which are even in no relation with the search purposes, for gaining more visits. Consumers would also be led to the relevant websites of Qihoo, when no keywords were input but only search directions were set. For the same websites which were labeled on the search results made by Baidu, Qihoo did not label those on the search results made by other search engines.

Baidu therefore sued Qihoo before Beijing First Intermediate Court, which supported Baidu and held that the labeling act and the act of amending pull-down call words in the search box constitute unfair competition, and the judgment of the first instance court was upheld by the second instance court, i.e. Beijing High Court.

Two questions were, inter alia, raised in the litigation:

1) Is the labeling act necessary for guaranteeing the internet security?

2)  Is the act of amending the pull-down call words free-riding?

When the answer to question 1) is "no" or the answer to question 2) is "yes", the act of Qihoo will be unfair competition.

Beijing High Court found,

Qihoo did not show that the labeled websites/telephone numbers on the search result pages would harm consumers, nor they showed that the act of labeling is necessary for protecting internet consumers from damages by the labeled information. Without labeling, other measures might also protect internet consumers from harm by virus. Also, the labeling act of Qihoo was selectively made to the search result pages of Baidu so as to lead consumers to install its 360 safe browser. Summarizing, Qihoo did not prove to the court that the labeling act is necessary for public interest.

Qihoo didn't stop here, it also 1) inserted pull-down call words of less relevance with the search directions set by consumers, leading consumers to visit its websites of movies/television programs and computer games etc., which are not in the front of the keywords-based search results or which are even in completely different direction from the search purpose set by consumers; 2) instead of loading the search result pages of Baidu, led consumers to the above websites of movies/television programs or computer games when clicking the pull-down call words set by Qihoo; 3) loaded websites run by Qihoo when consumers set only search directions without inputting keywords.

The court held that,

The act of Qihoo were not for the purpose of protecting public interest nor protected public interest in practice, but interfered the normal run of Baidu search engine overall, harassed the order of the internet market, and therefore constituted unfair competition.

Beijing High Court articulated that,

For the purpose of protecting legal rights of internet consumers, it shall be allowed and encouraged for internet security software providers to recognize information which might harm consumers' interest, and alarm the consumers in an appropriate way. However, competition in the internet market shall follow the rule of peaceful coexistence and free competition of internet products/services. Whether or not to use certain kinds of internet products/services shall be determined by consumers of free will. Competition between internet products/services shall not interfere with each other. Only when it is necessary for protecting public interest of internet consumers etc., can an internet product/service provider, under specified circumstances, without being known and voluntarily selected by internet consumers and without consent of other internet product/service providers, interfere runs of others' internet products/services. Such measures of interference shall be necessary and rational. Otherwise, such interference shall be held violating the basic principles of free will, equity, fairness, bona fide, public interest first and any commercial ethics of competition within the area, therefore would harm other business entities' legal interest, harass the social-economical order, and shall bear liability of tort or unfair competition.

The italic wordings above define so called doctrine of non-interference not necessary for public interest.

Meanwhile, the court affirmed that since Baidu didn't definitely exclude others from amending the pull-down call words, the act of using different pull-down call words by Qihoo from those provided by Baidu on the search box of Baidu didn't constitute unfair competition.

Since amendments of laws such as Chinese Anti-Unfair Competition Law go normally behind the development of high technology in the internet area, it is important for courts, in such case, to adjudicate cases based on basic principles and develop doctrines so as to maintain the order of market, when there is no applicable law and regulation. In this case, the court actually cited the 2nd Article of the Anti Unfair Competition Law, which prescribes the basic principles for business competition, including principles of voluntariness, equality, fairness, honesty and good faith and public interest first. Based on the above principles, the court created the doctrine of non-interference not necessary for public interest, which is especially applicable to competition between internet product/service providers and defines the border for competition in internet market. The doctrine requires competition in the internet area respect others' autonomy in management and be restricted so as not to violate others' legal interest.

In Union Network Technology (well known for its Youku and Tudou video contents providing services) v. Kingsoft, the court held that unless there is obvious legal reasons such as for antivirus, the act of Kingsoft's CM browser, i.e. the act of filtering advertisement appeared before playing a video on Youku interfered the business of Youku and shall be prohibited.

In another case between Baidu and Qihoo in 2013, Beijing Dongcheng District Court held that the act of distributing a plug-in, which specially shielded advertisement on the search result pages of Baidu, harmed the business of Baidu and violated the principle of honesty and good faith, fairness and said doctrine of non-interference not necessary for public interest.

In Feb. 2014, the Supreme Court, in Tencent v. Qihoo unfair competition case, upheld the first instance judgment of unfair competition by Qihoo. In this case, the Supreme Court held that 360 QQ SafeGuard changed the run of Tencent's QQ software and led consumers to install 360 SafeGuard in place of QQ security software for business purpose only, harmed the security of QQ software and its integrity.

These cases were made slightly earlier or later than Baidu v. Qihoo case and may be deemed as excellent judicial practices for richening the doctrine of non-interference not necessary for public interest.

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.

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