Qihoo v. Tencent Anti-Trust: The Final Showdown Underway

China’s first Internet law anti-trust case is underway!

An epic Internet law case is currently making headlines in China. Qihoo 360 Technology Co. Ltd (“Qihoo”) is suing Tencent, the world’s 3rd largest Internet company behind Amazon and Google. The legal question up for debate is whether or not Tencent is an illegal monopoly engaging in unfair practices. Yep, it’s like the Google antitrust saga – Eastern Hemisphere edition.

About Tencent

Arguably the Google of China, Tencent has its tentacles in nearly every facet of Internet business. Valued at US$101B in 2013, the ISP handles approximately 90% of the country’s instant messaging traffic. The company’s mascot — a squat penguin with a red scarf — is as ubiquitous in China as the Nike swoosh is in the United States.

2010: The Qihoo/Tencent Rivalry Origins

In September 2010 Qihoo launched legal proceedings against Tencent for allegedly invading users’ privacy via QQ Doctor – a Tencent security packet for the company’s popular QQ IM service. Qihoo insists Tencent used QQ Doctor to scan and monitor the personally identifiable information of users.

Speculation abounded, however, about Qihoo’s motivation in filing the original lawsuit, for the company was scheduled to release a competing security package – Koukou Guard – in October 2010. The marketing materials for Koukou promised to speed up QQ IM and offer better privacy. The timing of the lawsuit and the release of the product had cynics thinking the lawsuit was simply a marketing effort for the new product.

Subsequently, on November 3, 2010, Tencent announced it would shut down its popular instant messaging app on any computer running Quihoo’s security package. Tencent swore the shut downs were only a matter of protecting users’ rights and privacy.

From that point, it was pretty much on between Tencent and Qihoo. Things got so heated the Ministry of Industry and Information Technology censured both sides to curb the antics.

Upon release of Koukou Guard, however, Tencent released a provacative statement averring that Qihoo’s new security product would break Tencent products. Qihoo says it lost $135M thanks to the statement.

2012: Let The Qihoo/Tencent Battle Continue!

About Qihoo 360

Founded in 2005, Qihoo is another Chinese Internet Service Provider with a Web browser and several mobile apps in its portfolio. As you might imagine, Qihoo and Tencent are fierce competitors.

Fast Forward to November 2012. Despite the ministry censure, Qihoo once again filed suit against Tencent. This time around Qihoo argued that Tencent abused its dominant market position with the Koukou-related announcement. Unfortunately for Qihoo, in March 2013, the Guangdong High People’s Court rejected Qihoo’s case.

Undeterred, Qihoo decided to take the issue to the Supreme People’s Court. At the beginning of this month, both sides made arguments. Now, the Supreme People’s justices must deliberate and ultimately rule on the definition of “Internet Marketplace.”

One of The First Big Monopoly Lawsuits Since China’s 2008 Anti-Monopoly Law

The Qihoo versus Tencent showdown is significant not only for its impact on Internet law, but because it is one of the first major anti-monopoly cases to be heard since China passed its 2008 anti-trust law. As such, the case is expected to set precedence.

A law Professor at Peking University explained to the press that Chinese anti-trust law considers 3 elements:

  1. Whether or not an entity is unfairly blocking competitors;
  2. Whether or not government intervention is a factor;
  3. Whether or not barriers to entry of a given industry are low.

A widely followed case in the People’s Republic, many folks want the court to hold a public hearing to solicit opinions about Tencent’s alleged dominant market position. As you might imagine, smaller Internet companies in China are dying to weigh in on the issue.

If this case resolves like the Google monopoly investigation, Tencent will get a slap on the wrist and a stern warning to watch itself. If the Supreme People’s Court sides with Qihoo, perhaps Chinese technology companies will start seeking greener pastures to grow.

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