Tencent anti-monopoly suit trial starts in Beijing

China's Supreme People's Court heard the country's first Internet anti-monopoly case on Tuesday in which Qihoo 360 Technology Co, a leading antivirus software developer, accused China's Internet giant Tencent Inc of "abusing its dominant market position".

The top court has not heard antitrust cases involving Internet companies since China's Anti-Monopoly Law was enacted on Aug 1, 2008.

This is Qihoo's second lawsuit against Tencent. On March 28, the Guangdong High People's Court ruled that Tencent was not in violation of the Anti-Monopoly Law and rejected Qihoo 360's monopoly claims.

During Tuesday's trial, attorneys for Qihoo 360 claimed the first trial was held unfairly and that the top court should reject the March 28 verdict.

Qihoo 360 claims it has lost 825 million yuan ($135 million) because of Tencent's abuse of its dominant market position. It is seeking 150 million yuan in compensation.

Qihoo 360 claims Tencent has a nearly 90-percent share in the domestic instant messaging service market and also said none of Tencent's competitors have more than a 5-percent market share.

Tencent countered by saying that Qihoo 360 lacks the evidence to support its claims. It said the 90-percent market share is not based on commercial revenues but the length of time users spend on Tencent's instant messaging service.

Qihoo 360 claims Tencent also abused its dominant position by forcing users to choose between the two companies' services. It points to Tencent's announcement on Nov 3, 2010, that it would shut down its QQ instant messaging service on computers that had installed security software by Qihoo 360.

Tencent said it was protecting the users' legal rights.

Both companies apologized to Internet users after being ordered by the Ministry of Industry and Information Technology to stop their bickering.

The relationship between the two companies soured after September 2010, when Qihoo 360 accused Tencent of invading its users' privacy through the use of QQ Doctor, a security program developed by Tencent and incorporated into the QQ instant messaging service.

In October 2011, Qihoo 360 sued Tencent for anti-monopoly law violations. It also sought 150 million yuan in compensation from Tencent.

The lawsuit dragged on for nearly a year before the Guangdong High People's Court began court proceedings on April 18, 2012. The court attempted to mediate a settlement between the two but failed, Xinhua said.

In a case study on the decision made by the Guangdong High People's Court, authors David Evans and Vanessa Zhang, both of the Global Economics Group, said that the suit "stands as both a landmark decision in China and an exemplar of serious antitrust analysis of the Internet sector for courts and competition authorities around the world."

The decision provides "the most detailed antitrust analysis" by a Chinese court thus far and shows that Chinese courts are already "adept at rendering sophisticated antitrust opinions and applying modern economic concepts" despite the anti-monopoly law going into effect for only five years.

Xue Zhaofeng, a professor of the Law School at Peking University, said a monopoly is based on three points: Whether the enterprise is blocking its competitors; the existence of government intervention; and whether restrictions on companies interested in entering a market are low.

"China's Internet market is highly competitive and does not possess these features," said Xue.

As every Internet company is looking for ways to expand in the market, an overlapping of services is inevitable, said Dong Xu, an analyst at Beijing-based research company Analysys International. He said Qihoo's long-standing fight with Tencent and Baidu Inc points to competitive fighting in the industry.

"Online searching is an important asset for Qihoo because it is the entry for major Internet functions, including video, social networking and online shopping," Dong said.