QIHOO AND QGOA V. TENCENT TECHNOLOGY AND TENCENT COMPUTER (2013)
MSZZ No. 5, SPC
Cause of action: Dispute alleging unfair
competition
Collegial panel members: Wang Chuang |
Wang Yanfang | Zhu Li
Keywords: fair competition, integrity and good
faith, Internet markets, technological innovation, unfair competition
Relevant legal provisions: Law of the People’s
Republic of China against Unfair Competition (as published in 1993), articles
2, 14 and 20
Basic facts: In a dispute alleging unfair
competition between Beijing Qihoo Technology Co., Ltd. (hereinafter “Qihoo”)
and QGOA Software (Beijing) Co., Ltd. (hereinafter “QGOA”) against Tencent Technology
(Shenzhen) Co., Ltd. (hereinafter “Tencent Technology”) and Shenzhen Tencent Computer
Systems Co., Ltd. (hereinafter “Tencent Computer Systems”), Qihoo and
QGOA had developed KouKou Bodyguard security software to specifically
target Tencent’s QQ IM software, had publicized on relevant websites
that KouKou Bodyguard could comprehensively protect the security of
QQ users and had offered the software for download. Once installed, the KouKou Bodyguard
software ran an automatic inspection of the QQ software and then displayed
messages such as: “The inspection score is 4, and QQ has a serious health
problem”; “In total 40 items have been tested. 31 of them have problems. It is
suggested to repair immediately! and run inspection again”; and
“While running, QQ will scan the files on your computer (Tencent calls it
a security scan); you can prohibit QQ from scanning your files and avoid breach
of your privacy.” Meanwhile, it reminded users of serious problems with QQ in
red fonts, offered one-click repair help in a green font and listed certain QQ
items as “dangerous” in terms such as: “Your computer is in danger as 360
Safeguard has not been installed; upgrade QQ Security Center; and
prevent QQ from scanning my files.” While searching for and killing Trojans in
QQ, KouKou Bodyguard would display a message reading, “If you do not
install 360 Safeguard, you will be unable to use Trojan search and kill
function”, and accompany this with a green button with which to download and
install 360 Safeguard. After performing the oneclick repair, KouKou Bodyguard
would replace QQ’s secure communication interface with the KouKou Bodyguard
interface.
On June 10, 2011, Tencent Technology and Tencent Computer Systems filed a lawsuit claiming that Qihoo’s and QGOA’s conduct constituted unfair competition. At first instance, the Higher People’s Court of Guangdong Province held that KouKou Bodyguard, which Qihoo and QGOA developed specifically to target QQ software, destroyed the security and integrity of the legitimately running QQ software and services, deprived Tencent Technology and Tencent Computer Systems of opportunities to deliver legitimate value-added services, such as advertisements and games, among other things, and thereby earn income, and replaced some functions of the QQ software, promoting Qihoo’s and QGOA’s own products by altering QQ’s functional interface, which conduct violated the principle of integrity and good faith, and that of fair competition, and constituted unfair competition. Qihoo and QGOA willfully fabricated and distributed false information about Tencent Technology’s and Tencent Computer Systems’ operations, which damaged their commercial reputation and goodwill, and constituted commercial disparagement. The court ordered that Qihoo and QGOA were to make a public apology, mitigate the negative effect of their acts, and jointly and severally indemnify Tencent Technology and Tencent Computer Systems in the sum of RMB5 million in total for economic losses and reasonable enforcement expenses.
Dissatisfied with this judgment, Qihoo and QGOA
applied for permission to appeal to the Supreme People’s Court.
Held: The Supreme People’s Court delivered its
judgment on February 18, 2014, disallowing the appeal and affirming the
decision at first instance.
Reasoning: In the appeal proceedings, the
Supreme People’s Court opined that, in market competition, operators can
usually select their preferred commercial model freely according to the demands
of the market and consumers, and that this freedom is a necessary requirement
of a market economy. To seek market benefit, Tencent Technology
and Tencent Computer Systems had developed their QQ software, had
built a comprehensive Internet business platform around it, and had provided IM
services free of charge to attract relevant consumers to experience and use
their value-added services and relevant advertisers to promote their goods or
services on the platform, so as to create business opportunities and obtain
relevant advertising income. Such a business model of combining a free platform
with advertisement or value-added services was a common operational model in
the Internet industry at the time when the dispute in this case occurred and
also conformed to the characteristics of the developing Internet market in
China. In fact, Qihoo and QGOA also used this business model. This
business model did not violate the principles and spirit or the prohibitive
provisions of the Law of the People’s Republic of China against Unfair
Competition; it was appropriate to protect the right of Tencent Technology
and Tencent Computer Systems to seek commercial benefit, and to
ensure that others should not damage their legitimate rights and interests
without justification.
Qihoo and QGOA developed and operated KouKou Bodyguard specifically to target QQ software, destroying the security and integrity of QQ software and its services by aiding and abetting, reducing Tencent Technology’s and Tencent Computer Systems’ economic income and opportunities for value added service transactions, disturbing their proper operational activities, and harming their legitimate rights and interests. “Fair competition” can be defined as honest competition among competitors exerting appropriate efforts. “Unfair competition” can be defined as seeking competitive advantage without exerting effort or by unfairly exploiting others’ market achievements for one’s own business opportunities, so as to obtain competitive advantage. While operating KouKou Bodyguard, Qihoo and QGOA embedded their own products and services into the interface of QQ software, and replaced some functions of Tencent Technology’s and Tencent Computer Systems’ QQ software. Their fundamental purpose was to sell and promote 360 Safeguard by relying on the huge group already using QQ software and by disparaging QQ software and its services, so as to increase the market transaction opportunities of Qihoo and QGOA, and thereby obtain competitive advantage in the market. In essence, such behavior is an improper use of others’ market achievements for one’s own business opportunities, so as to obtain competitive advantage. Thus Qihoo’s and QGOA’s behavior violated the principles of integrity and good faith, and that of fair competition, and constituted unfair competition.
Issues regarding the boundaries among technological innovation, free competition and unfair competition
Qihoo contended that its behavior manifested the free and innovative spirit of the Internet, and that the court of first instance had violated the laws of industrial development and oppressively applied the general principles of the Law against Unfair Competition in ways that would restrict competition and discourage innovation. The Supreme People’s Court held that the development of the Internet relies on free competition, and on scientific and technological innovation. The encouragement of free competition and innovation in the Internet industry does not mean that the Internet is an arbitrary space beyond the law; freedom of competition and innovation must be bound by the principle of not infringing others’ legitimate rights and interests. Furthermore, the sound development of the Internet shall be guaranteed by an orderly market environment and clear rules for market competition. Whether a behavior is free competition and innovation encouraged by the spirit of the Internet needs to be determined on the basis of whether it helps to establish a system of equal and fair competition, and whether it conforms to the consumers’ general interests and the public interest. Mere technological progress cannot be regarded as free competition and innovation; otherwise, anyone may arbitrarily interfere with others’ technological products or services under the guise of technological progress and innovation, which will create a “law of the jungle”. Technological innovation may stimulate competition, which in turn can further promote technological innovation Neutral as it is, technology can also become a tool of unfair competition. Technological innovation should be a tool of fair and free competition, rather than an excuse to interfere with the legitimate business models of others. In this case, Qihoo had specifically developed KouKou Bodyguard to deeply interfere with Tencent’s QQ software purportedly in the name of technological innovation, which can hardly be found to comply with the Internet’s spirit of freedom and innovation. Hence the Supreme People’s Court did not support Qihoo’s and QGOA’s grounds for appeal.