Qihoo, Tencent trial begins in top court

The legal dispute between Chinese anti-virus software provider Qihoo 360 Technology and leading Internet company Tencent Holdings Ltd began in the Supreme People's Court Tuesday.

Experts said the trial result will be a legal benchmark for the Chinese Internet industry.

It is the first anti-monopoly lawsuit in the Internet industry after the anti-monopoly law was released in 2008.

It is the second and final trial of the lawsuit brought by Qihoo against Tencent, alleging the latter was abusing its monopoly position in the market. Qihoo lost in the first trial before the High People's Court of Guangdong Province in May.

The conflict between the two companies can be traced back to 2010. Tencent released its security software QQ "Doctor" (now called QQ "Housekeeper") in the beginning of 2010 and it was installed automatically when users updated their QQ, the most popular instant message software in the Chinese mainland.

Because of a large number of QQ users, QQ Housekeeper rapidly gained users, which posed direct competition to Qihoo's product, a PR staff member of Qihoo who preferred to be anonymous, told the Global Times Tuesday.

Qihoo launched security software called "Bodyguard" in October 2010 to filter ads promoted by QQ. The dispute intensified on November 3, 2010 when Tencent announced it would stop the QQ service on computers that had software provided by Qihoo so that users would not be able to use QQ until they had uninstalled Qihoo's software, The Beijing News newspaper reported Tuesday.

The Ministry of Industry and Information Technology (MIIT) criticized the two companies on November 21, 2010. Then, as required by the MIIT, the two companies apologized to users and restored mutual compatibility, the report said.

Tencent used its monopoly position to force customers to uninstall Qihoo's software, leading to a serious loss for Qihoo, Qihoo told the Global Times via e-mail Tuesday.

Tencent was "forced" to do that in a bid to protect users' QQ from damage made by Qihoo's Bodyguard as well as users' privacy, according to a trial record for Tuesday's lawsuit from Tencent sent to the Global Times Tuesday.

On the dispute of whether Tencent has monopoly market position, the two companies have disagreements on product market definition and geographic market definition.

Tencent believed that the market QQ competes in is much bigger than Qihoo claimed because it covers all instant message (IM) services markets including IM apps on cellphone and voice IM such as Skype, as well as social media, according to the trial record from Tencent.

Another disagreement is about the geographic market. Qihoo insisted that according to the language that users prefer and users' habits, QQ's geographic market is the Chinese mainland. However, Tencent told the Global Times that QQ is faced with global competition.

The anti-monopoly law came out in 2008, and as a law designed for all industries, it does not have clauses customized for the Internet industry, which is quite different from general business, said Zhao Zhanling, an IT legal expert.

Zhao also noted it is hard to define whether the companies monopolized or wrongly utilized their market positions when they do not charge users.

Therefore, the final trial result will be highly significant and will become an important reference for similar lawsuits in the industry, Zhao said.

It is a fact that the Chinese Internet industry is occupied by several tycoons, said Jin Qing, an analyst at iResearch.

There have been plenty lawsuits in the Internet sector and sometimes companies will use lawsuits to attract public attention, which is crucial for them, Jin said.

The two companies also have another ongoing lawsuit. Tencent sued Qihoo over unfair competition in 2010 and obtained a favorable ruling this year, which Qihoo appealed. The appeal will be heard on December 4 before the Supreme People's Court.