Internet & Tech

Searching case

Tencent taken to court over alleged monopoly

It is the classic tale of David taking on Goliath. Last week Qihoo 360, an antivirus software maker, brought a lawsuit against Tencent, China’s largest internet company by revenue, in Guangdong Higher People’s Court.

The feud between the two began two years ago, when Tencent started bundling its anti-virus software QQ Doctor with its popular instant messaging system QQ, which has over 600 million users (and whose logo is a bescarfed penguin, see above). That trod on the toes of Qihoo, another anti-virus software vendor.

To retaliate, Qihoo accused Tencent of spying on its customers through QQ, scanning their computer files and violating privacy. Tencent responded by refusing to allow its own users to use QQ software if they had downloaded the Qihoo antivirus programme (see WiC86).

The case – the first anti-monopoly lawsuit in the internet sector – has Qihoo seeking Rmb150 million ($24 million), in damages.

It’s certainly a bold move. After all, Qihoo is a fraction of the size of its rival: in 2011, Qihoo recorded $168 million in revenue versus Tencent’s $4.5 billion. But judging from the open letter written by Qihoo’s chief executive Zhou Hongyi (see Who’s Hu in issue 98) to his employees, he has a lofty mission in mind.

“Most companies only resign themselves to enduring Tencent’s abuse of its status in the market, and the few companies that stand up can only strongly criticise [Tencent],” he wrote.

“Qihoo hopes that this anti-monopoly lawsuit will eliminate the abuse…ending the chaos of the internet and purifying the environment.”

It remains to be seen whether the court agrees with Qihoo but industry observers are paying close attention to the case. Currently, China’s anti-monopoly law defines companies with a market share above 50% as having a controlling, or dominant, position, and reserves the right to refuse or limit business transactions with certain counterparts.

If the court determines that Tencent did indeed misuse its market position, it might order the Shenzhen-based firm to separate QQ from its other business initiatives. That could be hugely damaging for the company, whose empire now spans online gaming, social networking and internet shopping.

It could prove bad news for Baidu, too. After a court ruling against Tencent, the search giant could be the next target. Baidu controlled 78.5% of the search market in the first quarter of this year, and can sometimes find itself the target of public criticism.

A high-profile case is also being welcomed by some parties.

“The internet market in China has entered the monopolistic competition stage,” says Fang Xingdong, the board chairman of Chinalabs.com, a Beijing-based IT thinktank. “The government urgently needs to formulate new rules to prevent the abuse of dominant positions.”


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