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Web battle tests anti-monopoly law
By Ding Yining |
April 24, 2012, Tuesday
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Print Edition
Print Edition
THE stakes are high as two of China's Internet giants cross swords in what is being called the "first anti-monopoly court case" in the nation's online realm.
Tencent, the biggest Chinese dot.com, stands accused in the Guangdong Province Higher Court of abusing its dominant market position. A lawsuit filed by Qihoo 360 alleges that Tencent used bundled sales to block its users from installing Qihoo's anti-virus software and stopped users from logging onto certain services if they had 360 software on their computers.
Tencent, which faces a public apology and up to 150 million yuan (US$23.8 million) in punitive compensation if found guilty, denies the charges. A first hearing on the suit was held last week in Guangzhou but was adjourned without comment.
"The outcome of the case could help establish some basic rules and resolve disorder in China's Internet industry," said Fang Xingdong, a veteran industry observer and the founder of Chinalabs. "At the very least, it will be a very enlightening event for lawmakers and industry participants."
Vague definition
A closer look at the case sheds light on some interesting aspects of China's mammoth Internet industry.
The nation's Antimonopoly Law only vaguely defines what constitutes a "monopoly position."
Anti-competition laws in Western countries are deemed necessary to prevent companies from using their domination to kill off competition. Microsoft, Google and other global players in the industry have felt the sting of competition regulators in the past.
In the biggest Internet market in the world, the absence of clear rules and definitions has led to creation of industry giants who operate in an unfettered environment.
Shenzhen-based Tencent operates the world's largest instant messaging service. It has parlayed its base of some 600 million users on its popular QQ messaging service to extend its business empire into sectors such as online gaming, shopping and video.
In the process, Tencent has attracted its share of criticism for a "copycat" expansion model that draws inspiration from dozen of other Internet companies, large or small, and often launches similar services - down to layout and design - when something new hits the market.
Smaller start-up companies who have grievances about copycat tactics have been loathe to take on Tencent because of its size and clout.
Qihoo President Zhou Hongyi said in an open letter to employees that the lawsuit was meant to stop Tencent's illicit moves to exclude business rivals and to "purify" the environment of China's Internet market.
The battle between Qihoo and Tencent started in late 2010, when Qihoo accused its rival of allowing QQ software scan its users' computers for personal data, and issued tools to block QQ components. Many users were outraged.
The court showdown was, perhaps, inevitable.
Simon Fang, former editor-in-chief at NetEase's news portal and founder of Xueqiu, an online financial services firm, said that monopolies have often accompanied every successful Internet company in China.
Kidnapping users
No one is suggesting that influential dot.com firms shouldn't try to build unshakable market positions.
But neither does it seem fair for Tencent to essentially "kidnap" users and force them to use the anti-virus software it bundles with its chat tools.
Take Google and Facebook for example. Both have launched dozens of services aside from their core businesses, trying every means to extend their product offerings to keep users on their platforms.
In the course of their expansion, they have also acquired smaller firms and their talent pools to fuel the growth in specific sectors.
So much of the Internet industry was built on the ingenuity of smaller firms, and their creative innovations deserve some protection from larger predators in a flourishing and fast-changing market.
The court case in Guangdong serves to remind us how far China is lagging in the protection of intellectual property.
Whatever the judicial outcome, perhaps the case will spur the government to step up the development of rules and procedures that every company must follow in the pursuit of profit and expansion.
Tencent, the biggest Chinese dot.com, stands accused in the Guangdong Province Higher Court of abusing its dominant market position. A lawsuit filed by Qihoo 360 alleges that Tencent used bundled sales to block its users from installing Qihoo's anti-virus software and stopped users from logging onto certain services if they had 360 software on their computers.
Tencent, which faces a public apology and up to 150 million yuan (US$23.8 million) in punitive compensation if found guilty, denies the charges. A first hearing on the suit was held last week in Guangzhou but was adjourned without comment.
"The outcome of the case could help establish some basic rules and resolve disorder in China's Internet industry," said Fang Xingdong, a veteran industry observer and the founder of Chinalabs. "At the very least, it will be a very enlightening event for lawmakers and industry participants."
Vague definition
A closer look at the case sheds light on some interesting aspects of China's mammoth Internet industry.
The nation's Antimonopoly Law only vaguely defines what constitutes a "monopoly position."
Anti-competition laws in Western countries are deemed necessary to prevent companies from using their domination to kill off competition. Microsoft, Google and other global players in the industry have felt the sting of competition regulators in the past.
In the biggest Internet market in the world, the absence of clear rules and definitions has led to creation of industry giants who operate in an unfettered environment.
Shenzhen-based Tencent operates the world's largest instant messaging service. It has parlayed its base of some 600 million users on its popular QQ messaging service to extend its business empire into sectors such as online gaming, shopping and video.
In the process, Tencent has attracted its share of criticism for a "copycat" expansion model that draws inspiration from dozen of other Internet companies, large or small, and often launches similar services - down to layout and design - when something new hits the market.
Smaller start-up companies who have grievances about copycat tactics have been loathe to take on Tencent because of its size and clout.
Qihoo President Zhou Hongyi said in an open letter to employees that the lawsuit was meant to stop Tencent's illicit moves to exclude business rivals and to "purify" the environment of China's Internet market.
The battle between Qihoo and Tencent started in late 2010, when Qihoo accused its rival of allowing QQ software scan its users' computers for personal data, and issued tools to block QQ components. Many users were outraged.
The court showdown was, perhaps, inevitable.
Simon Fang, former editor-in-chief at NetEase's news portal and founder of Xueqiu, an online financial services firm, said that monopolies have often accompanied every successful Internet company in China.
Kidnapping users
No one is suggesting that influential dot.com firms shouldn't try to build unshakable market positions.
But neither does it seem fair for Tencent to essentially "kidnap" users and force them to use the anti-virus software it bundles with its chat tools.
Take Google and Facebook for example. Both have launched dozens of services aside from their core businesses, trying every means to extend their product offerings to keep users on their platforms.
In the course of their expansion, they have also acquired smaller firms and their talent pools to fuel the growth in specific sectors.
So much of the Internet industry was built on the ingenuity of smaller firms, and their creative innovations deserve some protection from larger predators in a flourishing and fast-changing market.
The court case in Guangdong serves to remind us how far China is lagging in the protection of intellectual property.
Whatever the judicial outcome, perhaps the case will spur the government to step up the development of rules and procedures that every company must follow in the pursuit of profit and expansion.
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