How the Qihoo v Tencent case affects China's anti-monopoly regime
Guangdong Higher People's Court has ruled against Qihoo in a dispute over market dominance. The Court's comprehensive 80-page decision shows that it is taking anti-monopoly cases seriously
In a battle between two of China's largest internet companies – Qihoo 360 and Tencent – the Guangdong Higher People's Court held that Tencent had not abused its market dominance under the PRC Anti-monopoly Law (中华人民共和国反垄断法).
The Court released its decision on March 28, almost 18 months after Qihoo filed the lawsuit accusing Tencent of abusive practices and seeking damages of Rmb150 million ($24 million). Qihoo maintains that Tencent abused its dominant market position by introducing bundle sales to prevent users from installing Qihoo's antivirus software.
The case has attracted much attention from practitioners as this is the first antitrust case to be heard by a higher people's court. It has also sparked interest from the public as both companies have hundreds of millions of users.
"This is the most significant decision since the Supreme People's Court issued its rules to promote antitrust litigation between private parties. The court seems to have taken its task very seriously by identifying the various elements that Qihoo had to prove,” said Sébastien Evrard, an antitrust partner with Jones Day in Beijing.
Evrard was referring to the Provisions on Several Issues Concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts (关于审理因垄断行为引发的民事纠纷案件应用法律若干问题的规定) released on May 4 2012 and effective as of June 1 2012.
The Provisions are the first court interpretation on civil anti-monopoly disputes and present a procedural framework for litigation. They were praised for lowering the burden of proof and expanding the scope of expert witnesses.
|The Judgment
“The Judgment contains exhaustive analysis, especially in terms of market definition and market dominance. As for the plaintiff's arguments, there were five different issues and it addresses each one. It shows the seriousness of the Court in establishing the issues,” said Qi Fang, an antitrust lawyer with Fangda Partners in Beijing.
The Court's Judgment is around 80 pages long. This is rare in China as judgments are short and often fail to expand on the issues. But the country's Anti-monopoly Law is young, with few cases making it before the courts. There is also much discussion that judges are ill-equipped to handle anti-monopoly cases.
The Court wanted to disprove this notion through the Qihoo v Tencent judgment. Evrard argues this is a result of the SPC Provisions: “The courts feel more confident to handle cases since the Provisions came out, as it gave confidence to the courts by explaining what they need to do.”
In antitrust cases it can be difficult to meet the burden of proof for dominant market position. However, Evrard and Qi both argue that burden of proof is not the problem; rather it is how the court interprets the evidence that is presented to them.
“In this case, when the Court defined the scope of the relevant product market different from the plaintiff's presentation, the Court also refused to consider some of the plaintiff's evidence about the defendant's market power. The problem then exists how plaintiffs can prove market dominance if they do not know the scope of the market courts are going to adopt in cases. The Judgment is also a reminder that market share is only one contributory factor in proving market dominance, ” said Qi.
“It all depends on how the judges will assess market share. Some judges have lower thresholds, while others might feel they have not been presented with enough evidence,” said Evrard.
|Technological innovation
China Daily quoted chief judge Zhang Xuejun as saying: "Those who gain a dominant market position through technological innovation, better operation and management, and price advantages are not the targets of the country's anti-monopoly law.”
In high technology markets it is common that dominant players come and go. Tencent currently holds a dominant market position, but this may change, especially when a new innovative product is launched.
“In high tech markets, market share does not necessarily reflect market power. Dominant positions are often transitory so that courts should be very careful when they are asked to intervene," said Evrard.
The case will undoubtedly aid future antitrust judges and plaintiffs, as they will feel more comfortable with the Law. It is thought Qihoo will appeal the case to the Supreme People's Court. “This is a good thing for antitrust litigation, as I believe this will be the first case before the SPC,” said Qi.
PRC Anti-monopoly Law (中华人民共和国反垄断法)
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