Analysis on the Anti-monopoly Dispute Filed by Qihoo against Tencent, III

(By Luo Yanjie) In our previous two posts, we introduced the reader to the facts involved in the monopoly dispute between Qihoo and Tencent, as well as the Court’s decision. Today, we continue that discussion of the case and would like to share our opinions on it.

Lawyer’s comments and analysis

It is not difficult to find from the above judgment that Qihoo lost the lawsuit mainly because the court in the first instance denied its allegation that Tencent held a dominant position in the market; in addition, it’s evidence that the court’s decision was primarily based on a broad definition of “relevant market” in regard to Tencent’s QQ instant messaging software. The following is our analysis on the issue:

I. How big is the relevant market in regard to the QQ software ?

As determined by the court in the first instance, instant messaging software in general is subject to a high degree of competition and capability for substitution in the market with other social network services like Weibo and similar instant messaging services – because of this reality, Qihoo’s definition of the “relevant market” was far too narrow. Undoubtedly, such a definition lies in conflict with the average netizen’s understanding of QQ. The logic behind the court’s judgment was its finding that once QQ would begin charging users for its service, users would more likely than not abandon QQ and switch to another instant messaging service available like Weibo and other similar social networking services. Therefore, these types of products in general are highly substitutable with QQ and could be included in the same product market, comprising the “relevant market.” Theoretically, the court is not incorrect in its assumption, for , such products share the same functions, meaning they all deliver an instant messaging service to users. In addition, according to the Guide of the Anti-Monopoly Committee of the State Council for the Definition of the Relevant Market, substitutability is the key factor to consider in determining the “relevant market”, and pricing is the basis upon which to determine “substitutability.”

However, for the Internet industry, the aforesaid standard and methods of defining the relevant market should be carefully considered. First, despite Weibo or other social network services having instant messaging functions, such products are different from “traditional” instant messaging software, and from the point of view of the common end user, Weibo’s instant messaging service and traditional instant messaging software are actually two kinds of products currently in demand. Therefore, the competition between the two is inherently less fierce than if they were the same product. Second, although QQ may lose a number of its users after enforcing a charging policy, taking into consideration the “free” culture of the Internet, QQ’s price is less likely to be adjusted to fall in line with other similar products. Therefore, the first instance court’s determination of the definition and scope of the “relevant market” in regard to QQ is worthy of discussion.

II. Is the relevant regional market a global one, or limited to QQ’s China’s market?

According to court’s opinion in the first instance, taking into consideration the operator and end user are not limited to those in Mainland China, the relevant regional market should actually be considered the global market, and not artificially limited to Mainland China. As the court in the first instance stated in its judgment, due to the global nature of the Internet, no Internet product can truly be limited to a certain region, but rather is exposed to worldwide audience. However, can a relevant regional market be considered a global one only this element is taken into account? It’s no secret that QQ’s main users are primarily situated in Mainland China, that its company policies are primarily directed at the Mainland Chinese market, and that it focuses its efforts at profiting from end users in China Under this type of situation, doesn’t it make more sense to apply some limitations in defining what the relevant regional market is, rather than applying artificial characteristics to the market that don’t really exist due to the fact that the instant messaging software is an Internet product?

In addition to the two main points above, the case has also presented other points of interest, like the first instance court’s finding of a tie-in sale. Undoubtedly, the definitions established in relation to the two points discussed above have resulted in Qihoo losing its lawsuit in the first instance. So far, there is no specific information indicating that Qihoo has made an appeal, but based on the study of law, we would like to see the company make such an appeal so that the Supreme People’s Court in China can provide further interpretation of the law and questions presented by this case.

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