This involved an unfair competition dispute between the Tencent Technology (Shenzhen) Co, Tencent Computer System Co and Beijing Qihoo 360 Technology Co and Qizhi Software (Beijing) Co.

Background

The two Qihoo companies developed a special software product for Tencent QQ and advertised the software’s role in protecting QQ user safety on related websites, where it could be downloaded. The protecting device would automatically run a security check on QQ and alert users to QQ’s alleged safety problems. After the protecting device was installed, there would be warning that it was dangerous not to install the 360 security product, upgrade the QQ security, or forbid the QQ to scan the users’ folders. The virus elimination could not continue if the security guard was not installed. There were also alerts on installing and downloading the guard. And a one-click approach would allow the QQ bodyguard to change its security interface. Tencent said that these security approaches were unfair competition and filed a lawsuit. The Guangdong superior people’s court, in the first trial, declared that Qihoo’s actions constituted unfair competition and that it had deliberately fabricated false claims about Tencent’s operations that damaged its credibility and name. The court ruled that Qihoo had to make a public apology to undo the damage and compensate Tencent with 5-million yuan for its losses and infringement. In response, Qihoo appealed the ruling with a higher court. A second trial by the Supreme People’s Court found that businesses can freely choose the business model they want based on market demand and consumer needs and that Tencent’s model integrated a free platform with advertisements and services which was common practice in the Internet industry at the time. It also said that this accorded with China’s Internet market development and that the business model did not violate the unfair competition law. Furthermore, Tencent’s desire to make a profit should be protected and that others should not interfere with this right. In addition, Qihoo’s actions undermined QQ’s software and service safety and integrity and interfered with QQ’s operations, harming QQ’s interests. Qihoo’s actions were said to be taking advantage of QQ users to promote the 360 security guard, increasing Qihoo’s market opportunities and getting an edge on the competition. These actions were said to be illegal use of another party’s market achievements to gain opportunities and competitive advantages and were a violation of the principle of honesty and fair competition and constituted unfair competition. The Supreme People’s Court rejected the appeal and upheld the ruling from the earlier trial.

Significance

In this case, the Supreme People’s Court clearly stated what constituted defamation in the Internet market. A key element was the notion of a party’s action causing damage to a rival’s credit through misleading remarks. The court pointed out that market players should be very cautious and fully aware of their obligations when conducting business reviews or critiques for the purpose of competition. The healthy development of internet needs an orderly market environment and clear market competition rule. Competition and innovation freedom shouldn’t infringe on other’s legal rights and interests. The Supreme People’s Court clarified relations among technical innovation, and free and unfair competitions in internet market in this case, which is of great significance in helping internet companies carry out orderly competition and boosting market resource optimization.