(By You Yunting) Recently, the Beijing Municipal Administration of Industry and Commerce (“Administration”) published on its official Weibo that the Beijing Administration and Xicheng Administration of Industry and Commerce made an appointment with the chief of Beijing’s Qihoo Co. (“Qihoo”), and issued an administrative warning against company conduct, claiming violations of unfair competition laws and regulations related to its “360 Safeguard” for use in computer internet browsers.

Following the warning, Qihoo replied, stating that it had “no idea why the Administration would investigate internet industry competition and practices, and that previously, the management of the Internet companies was mainly the responsibility of the Ministry of Industry and Information Technology (“MIIT”).” In response to this, the higher authorities in the Beijing Administration, the Market Regulation Management Office of the State Administration published its response to Qihoo on the official website of the State Administration, stating that, “[a]lthough the MIIT is the governing department in regard to Internet industries, the Administration of Industry and Commerce also has the legal duty and responsibility to govern the Internet market in accordance with the Anti-Unfair Competition Law and other relevant regulations promulgated by the State Council,” and that no conflict would exist between these two departments in regard to regulation of said industry.

Subsequently, the China Industry and Commerce News, a newspaper affiliated with the State Administration published an article explaining the reasons why the authorities met Qihoo and issued the administrative warning: “Qihoo’s product, the 360 Safeguard, has now occupied over 80% of the market share.” Taking into account such a monopolistic advantage, Qihoo induced clients through its 360 Safeguard software to use its 360 browser; moreover, it has prevented users from installing similar software from other developers, and has made it difficult to remove its software from user computers once installed. Furthermore, Qihoo forced installations of its software in user computers, like its 360 browser and the 360 homepage and navigation site. In addition, Qihoo would automatically change the client’s browser and home page settings with its default settings and forced updates”. The article also contained four cases of unfair competition caused by the 360 Safeguard in Internet browsers.

1. The Maxthon Browser was reported by 360 Safeguard as a virus and was subsequently “intercepted,” and the 360 Safeguard software induced clients to uninstall the browser.

2. 360 Safeguard reported “errors” and intercepted Kingsoft’s Liebao (“Cheetah”) Browser, and also induced users to uninstall the software.

3. 360 Safeguard published a patch numbered “KB360018”, and claimed it was from Microsoft, and because the patch was falsely presented as being from Microsoft, an install by any user of said patch resulted in installation of Qihoo’s 360 browser.

4. The Sogou Browser was also reported as a virus by the 360 Safeguard software, and 360’s software would change the homepage of the Sogou Browser once used.

Lawyer’s Comments: As a Internet company with an incredible amount of subversive power, Qihoo’s aggressive strategies have long haunted its opponents in the Internet browser business. Obviously, the administrative warning from the Beijing Administration was issued based on complaints filed by Qihoo’s competitors. However, according to China’s laws and regulations, the Beijing Administration is faced with a problem regarding the administrative warning itself. According to Article 8 of the Administrative Punishment Law,

“There are eight types of administrative punishments that may be imposed by the authorities for illegitimate acts: (1) Warnings; (2) Fines; (3) Forfeiture of illegal earnings, and/or forfeiture of illegal property; (4) Orders to stop production and business; (5) Suspension or withdrawal of permits, and/or suspension or withdrawal of licenses; (6) Administrative detention; and (7) Other administrative punishments as stipulated by law or administrative regulations.”

Note that administrative warnings are not included in this article (taking into account that “Warnings” as listed above as one of the eight types of punishments is distinct from administrative warnings). Since this is not a lawful punishment, at least to the understanding of the author, this type of “administrative warning” is better viewed as a kind of suggestion with characteristics of a warning by the Beijing Administration. As an administrative authority, there exist no issues in giving advice to a company like Qihoo; regardless, the issue here is that the warning given by the Beijing Administration was published and released to the public. Due to the public nature of this “suggestion” by the Beijing Administration, the content of said warning could result in a negative reaction toward the company by the public. Under these circumstances, if Qihoo is dissatisfied with the warning, it has the legal right to protect itself through judicial methods.

However, despite the fact that the Beijing Administration is an administrative authority, it seems difficult for Qihoo to protect its lawful rights through administrative lawsuits. Pursuant to Article 2 of Administrative Procedure Law of China:

“If a citizen, a legal person or any other organization considers that his or its lawful rights and interests have been infringed upon by a specific administrative act of an administrative organ or its personnel, he or it shall have the right to bring a suit before a people’s court in accordance with this Law.”

Since the administrative warning issued by Beijing Administration to Qihoo can only be considered a kind of advice, and such advice has not attempted to regulate  Qihoo’s rights or obligations by exercising its power as an industry and commerce authority (like a penalty against the company or suspension of business until practices are brought up to industry standards), Qihoo has no grounds for filing an administrative lawsuit.

In the author’s opinion, since the warning was published and released to the public, and if there are any inconsistences among the reported facts in the warning, and Qihoo’s reputation is subsequently damaged, the company could file a civil case against the Beijing Administration based on the General Principle of Civil Law and Tort Liability Law, with the claim that its reputation has been damaged, and demand that the Beijing Administration clear up any injury caused, make an apology, compensate for any losses incurred as a result, and rehabilitate Qihoo in the eyes of the public. The key to such a lawsuit is whether Qihoo would be able to prove without a doubt that the Beijing Administration’s public warning contained any fallacies or inconsistencies.

In closing, although to consider the issue from the content of the warning, even if Qihoo is guilty of some illegal conduct, especially conduct related to business and competition methods, the Beijing Administration, as an administrative authority, should first determine that its decisions and orders are within the scope of the relevant laws or regulations. If Qihoo has in fact violated the law, the authorities should first collect evidence, and based upon a thorough investigation of said evidence, impose the appropriate punishment pursuant to the Anti Unfair Competition Law and Antitrust Law, which regulates the power of these administrative offices. If the administration wishes to offer advice to a company like Qihoo, then such advice should be made confidentially in order to avoid any unnecessary damages to a party’s reputation or competitive strength in the market that may result.

Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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