Does 360’ s QQ Guard Constitute Unfair Competition against Tencent? Part I

(By Luo Yanjie) Abstract: Although online ads or pop-up ads may make you feel uncomfortable, that is a profit model utilized by free software like Tencent’s QQ, the popular online messaging software. But, when the 360 Guard software removed QQ’s ads, it would no doubt damage Tencent’s legal rights. We’d like to introduce this case to our readers, beginning with today’s post and extending into tomorrow’s.

In 2010, Tencent introduced its “QQ Computer Keeper” to the market, which focuses on defending against attacks on Tencent. Before that, the Qihu 360 Company publicized its product 360 Guard. 360’s software could remove QQ’s ads, remove supplemental and additional functions found within QQ’s software, and prevent computer viruses from stealing QQ account information. Within the first 72 hours after the introduction of 360 Guard, it was downloaded more than 20 million times. Tencent believed that 360’s Guard software constituted unfair competition, and was possibly even stealing end user’s personal information. For this reason, Tencent announced that all computers with 360’s software installed would no longer be able to use QQ’s software.

This battle between the two Chinese software giants was known as the 3Q battle. Our website has previously posted an article introducing one aspect of the case, and can be found along with other posts on our website – just click here for more information.

Case summary: on October 29th 2010, Tencent discovered that 360 Company was providing its 360 Guard (the “Guard”)software for download on its website 360’s description alone had the capability to discredit, damage or modify QQ software functions. At the same time, through the use of questionable marketing, 360 encouraged users to delete any value-added plug-ins made for use with QQ software, and embedded 360 code into QQ software to publicize and promote itself.

To Tencent’s understanding, 360’s conduct had not only damaged its lawful business operation , but had also damaged its business model. In addition, Tencent believed that 360’s conduct had caused severe damage to its business credit and commercial reputation. For Tencent, this conduct constituted unfair competition as defined in Chinese law. 360 believed that its Guard software had not damaged the QQ’s software ecosystem, but had adopted ways conformed to widely accepted commercial ethics in encouraging Tencent to modify its predatory commercial model.. For document scanning, 360 Guard did not state definitively whether QQ scanned private files or documents, and did not use negative terms. The objective description of QQ’s software provided by 360 Guard did not comprise a negative evaluation regarding QQ’s software.

After the hearing, the court determined that the focus of the dispute in the case included:

I. Whether 360 has reduced the transaction chances for Tencent and could that be unfair competition?

360 developed the Guard which aims QQ software. After running Guard on a computer installed with QQ, the computer would automatically check to see if QQ software was running on the computer, and subsequently warn the end-user that QQ presented a serious threat to the computer’s security. Such messages would influence QQ’s income revenue from ads posted when using QQ software, and revenue generated from value-added service transactions. At the same time, it would modified user experience. The ultimate consequence is that Tencent’s reputation would suffer.

The court also held that Tencent’s ads, games, and value-added services did not constitute computer viruses or malware, and therefore 360 had no right to interfere with the end user’s use of other’s software under the guise of protecting its privacy by making unlicensed changes to other’s software, resulting in purposeful damage to another’s reputation.

The court found that 360 damaged the security and complete nature of QQ’s software, and this conduct resulted in Tencent losing transaction revenue as well as other forms of income from ads or games. This conduct could rightly be deemed malicious and ergo unfair competition.

II. Whether 360 fabricated and spread false rumours when running its Guard and related services, and whether this could be considered discrediting a business.

The main defence for 360 is: to rate QQ does not equal an overall evaluation of the software, but simply is a way to reflect on and assess the running of the software. As for the court’s understanding: once a false statement or misleading facts are made during the assessment of the product, business discrediting will be found. When determining whether business discrediting exists, a court shall comprehensively judge the implications of any expressions provided by the software during the “grading,” which could influence the end-users or affect proper use of the software. That means it shall not separately judge whether the “grading” itself has constituted the business discrediting. Consequently, the court found that 360 had deliberately fabricated and spread false rumours and that it had damaged Tencent’s reputation and business credit, and therefore determined business discrediting.

III. Whether 360’s Guard changed QQ’s user interface to replace part of QQ’s functions to promote its own product, and whether this constitutes Unfair Competition

360 limited the security function of QQ’s Safe Center in the name of upgrading the QQ security center; also, 360 would through that method replace the original interface with its own 360 Guard. This conduct violates good faith principles and principles of fair competition pursuant to the Unfair Competition Law.

Based on the above reasons, the court ruled against 360..

Lawyer Comments:The 3Q Battle gained wide attention among Chinese netizens and the general population. Due to 360 adopting a free to use policy, 360’s loss in the case resulted in a lot of users sympathizing with 360 over Tencent. In reality, the case is not an easy one to adjudicate; that being said, the author believes that ruling against 360 was proper for the following reasons:

1. The promotion of ads and fees are lawful items

Despite some of QQ’s functions could be annoying, like pop-up ads or value-added services, these functions are part and parcel of Tencent’s legal profit model. QQ is free to use (despite charging for various items, the basic function is online messaging and providing services for free). Tencent has invested many resources in hardware and management costs, and should naturally be repaid through revenue from ads or value added services. Therefore, if other companies prevent Tencent’s exercise of this lawful business model, and interfere with Tencent’s lawful practice of such, this shall be deemed illegal.

2. The unfair competition judgement against 360 Guard was not due only to use of the 360 Guard software360 is a noted safe software developer in the Chinese software industry, and once its 360 Guard could ensure software security as it claims, most people believed the court would not find it guilty of unfair competition. But 360’s Guard functions are not solely limited to its raison d’être (security and maintenance), and also had the ability to remove QQ ads, and did so by utilizing misleading text and modification of QQ’s user interface. This cannot seriously be considered necessary to ensure security of a personal computer, and objectively damage’s QQ’s commercial reputation, and as a corollary, its ability to capitalize on its reputation to promote its value-added services. Based on the aforementioned analysis, the court reasonably found unfair competition violations.

In conclusion, 360 was found guilty of unfair competition for its 360 Guard, and the fact of the case show that the judgement was based on Guard’s ability to disrupt the normal functioning of QQ software, which could not reasonably be considered in the interest of the end-user’s computer security. With regard to the judgement in the case, 360 has appealed to the Supreme Court in China. Of course, we will keep a close eye on the case, and when the time comes share with our readers our thoughts as the case progresses.

We posted this article several months ago which might be too long to read it on. Our intern Mr. Le Duc helped us to abstract it again. You may click here for the detailed post, if you prefer to know more on the case.

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