Applicability of Article 2 of Law Against Unfair Competition and the Boundary Among Technological Innovation, Free Competition and Unfair Competition in the Context of Internet Market
——Qihoo and QGOA v. Tencent Company and Tencent Computer Company
[Syllabus]
Operators shall comply with the principles of voluntariness, equality, fairness, honesty and credibility in market transactions and observe the generally recognized business ethics. It also applies to the internet market. The key to determining whether a behavior constitutes unfair competition is whether it violates the principle of honesty and credibility and generally recognized business ethics in the internet industry and harms the legitimate rights and interests of others.
Technological innovation can stimulate competition, which in turn can further promote technological innovation. Neutral as it is, technology also can be used as a tool for unfair competition. Technological innovation should become a tool for fair and free competition, rather than an excuse to interfere with the legitimate business model of others.
[Case No.] Supreme People’s Court (2013) MSZZ No. 5
[Cause of Action] Dispute over unfair competition
[Collegial Panel Members] Wang Chuang Wang Yanfang Zhu li etc.
[Keywords] Unfair competition, internet market, honesty and credibility, fair competition, technological innovation
[Relevant Legal Provisions] Article 2, 14 and 20 of Law of the People’s Republic of China Against Unfair Competition
[Basic Facts]
In this dispute on unfair competition (hereinafter referred to as “Tencent QQ” unfair competition case) between the Appellants Beijing Qihoo Technology Co., Ltd. (hereinafter referred to as “Qihoo”) and QGOA Software (Beijing) Co., Ltd. (hereinafter referred to as “QGOA”) and the Appellees Tencent Technology (Shenzhen) Co., Ltd. (hereinafter referred to as “Tencent Company”) and Shenzhen Tencent Computer System Co., Ltd. (hereinafter referred to as “Tencent Computer Company”), Qihoo and QGOA developed QQ Safeguard to work specifically against QQ software and publicized on relevant websites that QQ Safeguard could comprehensively protect the security of QQ users, and offered the software for download. In this case, once installed, the QQ Safeguard software would automatically test QQ software, and then display messages such as “The test score is 4, and QQ has a serious health problem”, “Totally 40 items have been tested. 31 of them have problems. It is suggested to repair immediately! and test again”; “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 in QQ in red fonts, provided one-click repair help in green font, and listed as dangerous items “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, it would display a message “If you do not install 360 Safeguard, you will be unable to use Trojan search and kill function”, and provide the installation and download services for 360 Safeguard with a green button. After performing the one-click repair, QQ Safeguard would replace QQ software’s secure communication interface with the QQ Safeguard interface. On June 10th, 2011, Tencent Company and Tencent Computer Company instituted a lawsuit, claiming that such conducts of Qihoo and QGOA constituted unfair competition. In the first instance, High People’s Court of Guangdong Province held that QQ Safeguard developed by Qihoo and QGOA specifically against QQ software destroyed the security and integrity of the legitimately running QQ software and services, deprived Tencent Company and Tencent Computer Company of transaction opportunities of legitimate value-added services and income from advertisements, games and others, and that QQ Safeguard replaced some functions of QQ software to promote its own products by altering the functional interface of QQ, which conduct violated the principle of honesty and credibility and that of fair competition, and constituted unfair competition. Qihoo and QGOA willfully fabricated and distributed false information against the operation of Tencent Company and Tencent Computer Company, which damaged the commercial reputation and commodity goodwill of Tencent Company and Tencent Computer Company and constituted commercial disparagement. Therefore, the court ruled that Qihoo and QGOA make public apology, eliminate the influence and jointly and severally indemnify Tencent Company and Tencent Computer Company RMB5 million in total for economic losses and reasonable enforcement expenses. Unsatisfied with this judgment, Qihoo and QGOA appealed.
Holding
The Supreme People’s Court made a civil judgment (2013) MSZZ No. 5 on February 18th, 2014, dismissing the appeal and upholding the original judgment.
[Reasoning]
In the second instance, the Supreme People’s Court opined that in market competition, operators can usually select the commercial model freely according to the demands of the market and consumers, which is a necessary requirement of market economy. In order to seek market benefit, Tencent Company and Tencent Computer Company developed QQ software, built around it a comprehensive internet business platform, and provided instant messaging services free of charge to attract both relevant consumers to experience and use their value added services and relevant advertisers to advertise on their 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 when the dispute in this case occurred, and also conformed to the stage characteristics of development of the internet market in China. In fact, Qihoo and QGOA in this case also used this business model. This business model did not violate the principled spirit and prohibitive provisions of the Law against Unfair Competition; the behavior of Tencent Company and Tencent Computer Company to seek commercial benefit shall be protected, and others shall not damage their legitimate rights and interests in an improper manner. Qihoo and QGOA developed and operated QQ Safeguard specifically against QQ software, destroyed the security and integrity of QQ software and its services through aiding and abetting, reduced Tencent Company and Tencent Computer Company’s economic income and value-added service transaction opportunities, disturbed their proper operational activities and harmed their legitimate rights and interests. Fair competition is honest competition among competitors by making necessary efforts. Seeking competitive advantage without making the efforts or by unfairly using others’ market achievements for one’s own business opportunities and competitive advantages is unfair competition. While operating QQ Safeguard, Qihoo and QGOA embedded their own products and services into QQ software’s interface, and replaced some functions of Tencent Company and Tencent Computer Company’s QQ software. Their fundamental purpose was to sell and promote 360 Safeguard by relying on the strong user group of QQ software and by disparaging QQ software and its services, so as to increase the market transaction opportunities of Qihoo and QGOA and obtain competitive advantage in the market. In essence, this behavior is an improper use of others’ market achievements for one’s own business opportunities, so as to obtain competitive advantage. Thus, the said behavior of Qihoo and QGOA violated the principles of honesty and credibility and that of fair competition, and constituted unfair competition.
Issues regarding the boundary among technological innovation, free competition and unfair competition.
Qihoo contended that its behavior manifested the free and innovative spirit of internet, and that the court of first instance violated the laws of industrial development and oppressively applied the general principles of the Law Against Unfair Competition, which would limit competition and discourage innovation. The Supreme People’s Court held that internet’s development relies on free competition and scientific and technological innovation. The encouragement of free competition and innovation in the internet industry does not mean that internet is an arbitrary space beyond the law, and freedom of competition and innovation must be bounded by the principle of not infringing others’ legitimate rights and interests. Furthermore, the sound development of 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 based on whether it helps to establish an equal and fair competition order and whether it conforms to the general interest of consumers and the public interest of the society. Free competition and innovation cannot be found as long as there is some progress in technology. Otherwise, anyone may arbitrarily interfere with others’ technological products or services with the excuse of technological progress, which will create a “law of the jungle” under the disguise of technological progress and innovation. 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 become a tool of fair and free competition, rather than an excuse to interfere with the legitimate business model of others. In this case, Qihoo specifically developed QQ Safeguard to deeply interfere with Tencent’s QQ software in the name of technological innovation, which can hardly be found to comply with internet’s spirit of freedom and innovation. Hence, the Supreme People’s Court did not support the grounds of the appeal.
