Competition and anti-trust – QQ vs 360

By Edward Lehman

The recent dispute between Tencent’s QQ and Qihoo’s 360 software have caused quite a stir.

In September 2010, Qihoo 360 launched a software called “360 Privacy Protector”. This product is used to keep tabs on other software on a user’s computer and is able to detect a number of things, for instance the type of data that another software extracts from a user’s computer. The objective of this product is to shield a user from software which illegally extracts or retains a user’s personal data; in other words, to protect a user’s privacy.

On 26 September 2010, Qihoo 360 published an article on their website entitled “360 Privacy Protector 1.1 Beta – new function – privacy clean up function” . In this article, Qihoo 360 alleged that its 360 Privacy Protector software had recently detected that a “certain instant messaging software” was found to be “peeping” at the private files and data of users, without first obtaining the approval of those users. The article itself did not name which instant messaging software Qihoo 360 was referring to. However a screenshot in the article bore the logo of the Tencent QQ instant messaging software.

On 14 October 2010, Tencent Technology (Shenzhen) Limited and Shenzhen Tencent Computer System Limited filed an application with the Beijing Chaoyang District People’s Court. Further in Tencent QQ’s court application, they claimed that they could properly be construed as a competitor to Qihoo 360 as the latter also manufactures and supplies their own anti-virus or security software (i.e. called “QQ Computer Housekeeper”).

On 3 November 2010, the Court accepted this case (the AUCL allegation). On the same day Tencent QQ issued a newsletter to all its users entitled “A letter to all users of QQ”. Through this newsletter, Tencent QQ informed all users that they have made the “difficult” decision of making the use of QQ instant messaging service incompatible with the use of 360 privacy or anti-virus software. In other words, QQ users who choose to use 360 privacy or anti-virus software will no longer be able to use QQ instant messaging in the same instance.

Tencent QQ explained that this was mainly because they were not confident that they could continue to protect their users’ privacy (including data such as chats and passwords), if they continued to use the 360 line of security software. In its newsletter, Tencent QQ also requested that users use its “QQ Computer Housekeeper” or other antivirus or security software in place of the 360 line of security software. [Note: From 3 November 2010, users of QQ reported that they weren’t able to use the 360 line of security software and QQ at the same time. However, a few days later, reports suggest that government agencies intervened and users reported that their QQ and 360 softwares were able to be used concurrently.]

On 4 November 2010, Li Changqing (a Beijing based lawyer ) filed a complaint with the State Administration of Industry and Commerce (SAIC) requesting that the SAIC should commence an antitrust investigation against Tencent QQ. In his application, Li alleged that Tencent QQ had abused its dominance by restricting QQ users or “forcing” QQ users to uninstall 360 software, without a valid reason (in breach of Article 17(4) of the AML).

Li also submitted a report issued by iResearch Consulting Group – this report showed that Tencent’s market share in the instant messaging software market was approximately 76.2%. Li requested that the SAIC impose an appropriate penalty on Tencent QQ for its alleged breach of Article 17(4) of the Anti-Monopoly Law (the AML allegation). It is quite interesting to see how the AUCL and AML allegations pan out – i.e. how the former court case is resolved; and whether the latter will result in an SAIC investigation or present a catalyst for an AML-based private action in court. Complex AUCL and AML issues are raised in this case and a close watch will be kept on developments.

About the author

Edward Lehman
Edward Lehman is the Managing Director of Lehman, Lee & Xu in China where he specializes in the legal aspects of doing business in China. He advises foreign companies on joint ventures, wholly-owned subsidiaries and holding companies, technology licensing, engineering and construction projects, and the financing of such projects, as well as the protection of intellectual property rights in transactions and projects in China. In practice for over 27 years, Edward Lehman has advised on a wide variety of China projects ranging from cars to pharmaceuticals to power plants and websites.