Internet Giants Tencent, 360 Begin Legal Battle
   2012-04-18 23:08:38    Xinhua      Web Editor: Fuyu

Court proceedings began Wednesday for Qihoo 360 and Tencent, two Chinese Internet giants, with Qihoo 360 suing Tencent over the alleged abuse of market dominance and unfair competitive practices.

Qihoo 360, a leading antivirus software developer, is seeking 150 million yuan (23.8 million U.S. dollars) in compensation from Tencent, China's largest Internet company.

A hearing on the case at the Guangdong Higher People's Court lasted for the entirety of the day, with no ruling handed down as of yet.

The court debate centered around three issues; namely, whether Tencent has a dominant market position, whether Tencent has engaged in unfair competitive practices and whether the compensation Qihoo 360 is seeking should be awarded.

In addition to compensation, Qihoo 360 is also asking Tencent to apologize to Qihoo 360 on Tencent's website, as well as in newspapers.

Tencent's lawyer Xu Yan said at court that "Qihoo 360's allegations are unfounded and Tencent is asking the court to reject all their claims."

As for the accusation of market dominance, Xu said that in the instant messaging market, there are many products similar to Tencent's QQ, such as Windows Live Messenger (formerly named MSN Messenger) and Fetion, developed by China Mobile, as well as those provided by social networking sites. Therefore, Tencent does not have a dominant market position, Xu said.

However, Qihoo 360 believes that instant messaging software that only permits text messaging should not be described as being in the same market as QQ, which is a comprehensive instant communication tool that allows for text and voice messaging, as well as video chatting.

"For example, the iPhone is a cell phone that can take pictures and play music, but the 'related market' that iPhone is in includes other cell phones with similar functions, but not cameras or music players," said Zhao Ye, a lawyer representing Qihoo 360.

Due to the complexity and high profile of the case, expert witnesses were brought in for Wednesday's court session.

David Stallibrass, a special consultant for RBB Economics, which specializes in providing consultation on the economic aspects of competition law, and Jiang Qiping from the Chinese Academy of Social Sciences, are the expert witnesses representing Qihoo 360 and Tencent, respectively.

The case's presiding judge Zhang Xuejun said that the experts' views do not represent those of the court and that a ruling will only be reached by the judges after reviewing all the evidence.

The two companies have been engaged in a long and drawn-out legal war since 2010.

On Sept. 27, 2010, Qihoo 360 accused Tencent of invading the privacy of its users through the use of QQ Doctor, a security program developed by Tencent for use with its popular QQ instant messaging service. Qihoo 360 claimed that Tencent has used the software to scan and monitor its users' personal information.

Following the complaint, Qihoo 360 released its own security software called "Koukou Guard" on Oct. 29, 2010, claiming it could speed up QQ and offer more privacy to its users. However, Tencent responded by warning its users that the "Koukou Guard" could cause QQ to malfunction.

The dispute escalated when Tencent said on Nov. 3, 2010 that it would shut down the QQ instant messaging service on computers that had security software created by Qihoo 360 installed on them.

Although both companies apologized to Internet users after being ordered by the Ministry of Industry and Information Technology (MIIT) to stop squabbling, the war between the two Internet giants had already triggered a public outcry.

The MITT said in a statement in November 2010 that unfair competition between the companies, especially Tencent's move to unilaterally shut down its instant messaging service, had affected users and caused "bad social consequences."

Tencent has nearly 1 billion registered QQ users, while Qihoo 360, China's largest free anti-virus software provider, has 300 million clients.

Tencent also has a pending case against Qihoo 360 in which it is claiming that the "Koukou Guard" software is a form of unfair competition. Tencent is demanding Qihoo 360 to stop developing and promoting the software and claiming 125 million yuan in compensation. The case has been accepted by the Guangdong Higher People's Court, although a court date has yet to be set.

The Qihoo 360-Tencent battle is just one of many conflicts that have erupted between Chinese Internet companies.

NetEase, an Internet technology company, recently accused Tencent of plagiarizing an iPhone news app.

"Tencent's version of the news app copied NetEase's designs in terms of overall layout, photo viewing and commenting," NetEase said in a statement posted on its website on April 12.

NetEase has asked Tencent to withdraw the app or face legal action, the company said.

Qihoo 360's legal affairs director Han Han told Xinhua that they are suing Tencent not only to protect their legitimate rights, but also to ensure a sound competitive environment.

Tencent has long been accused of copying other companies. "For example, when microblogging became popular, Tencent began to offer a microblogging service; when 'Happy Farm,' an online farm management game, became popular, Tencent followed suit. By simply copying others and relying on QQ's billion-user base, Tecent can drive its competitors out of business quickly," Han said.

Chinese Internet companies are still in a developmental stage in which they frequently copy each other, said Li Yi, secretary-general of the China Mobile Internet Industry Alliance.

Foreign companies usually use mergers and acquisitions to acquire popular services offered by other companies, said Xu Xuan, vice dean of the Intellectual Property Institute of Guangdong-based Jinan University.

For example, social networking giant Facebook acquired Instagram, a popular mobile photo-sharing firm, for about 1 billion U.S. dollars, a lucrative deal similar to those often envied by small Chinese companies.

"Why didn't the same thing happen to smaller companies in China? Actually, companies like Instagram have developed technologies that cannot be easily copied, which is not the case currently in China," Xu said.

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