On 16 October 2014, the Chinese Supreme People’s Court (SPC) delivered its judgment in the first case under the Antimonopoly Law which came into force in 2008. The case is being closely monitored by international business and legal advisers alike to ascertain how the emerging Chinese competition and antitrust law will be interpreted.
The case involves the running battle between one of China’s largest instant messaging providers Tencent, and the provider of anti-virus software Qihoo. In 2011, Qihoo filed an action against Tencent, accusing the Chinese internet giant (who provides the popular Weibo, QQ and WeChat services) of an abuse of dominance in tying the use of its QQ instant messaging service with its own rival antivirus software which competes with Qihoo’s product. Among a range of combative behaviour between the two, Tencent sent its users a letter stating that Tencent would not provide their QQ services to those users who had installed Qihoos software, asking those users to uninstall the Qihoo software. Qihoo viewed this letter as an exclusionary practice by making the use of QQ instant messaging incompatible with Qihoo’s antivirus software.
In the court of first instance, Qihoo failed to establish their claims adequately and appealed to the SPC which delivered its judgment on 16 October 2014, agreeing with the court of first instance but correcting them on several points of law. The following aspects of the judgment set new precedent in Chinese competition law and highlight the evidential burden in establishing an abuse of dominance:
- The SPC has stated that it will take a pragmatic, effects based approach when looking at whether an abuse of dominance has occurred.
- Microblogging and social media are distinct markets from instant messaging, though the instant messaging features of those websites themselves could be considered the same market. The relevant market in this case was China and not the whole world as Chinese users (for several reasons including State censorship-Editors note) tend to use instant messaging and other social networking services provided by Chinese mainland companies.
- Market dominance is proved on an effects based basis. The 50% market share threshold in the Antimonopoly law is just a starting point in that analysis. The SPC found that although Tencent had a large market share over 80%, Tencent in reality was not in a dominant position as the instant messaging market was highly competitive and that Tencent could not control prices and other trading conditions in a way that could restrict competition.
- Qihoo had failed to establish an abuse of a dominant position by Tencent as the behaviour that Tencent were accused of (the letter asking for the Qihoo uninstall) had only lasted one day. The SPC looked at the effect of the one communication and found that it had not caused any significant change in the market or had resulted in any significant exclusion of Qihoo’s business or even of other antivirus software.
- The SPC even found that the tying of Tencent’s instant messaging and own anti-virus was justified on the grounds of efficiency and ease of use to consumers and that the arrangement had again not led to any significant decrease in market share for Qihoo’s antivirus software.
Whilst the case on first reading may look like a high bar for establishing an abuse of dominance when Tencent had over 80% market share in the relevant market, the SPC have shown a highly pragmatic and logical, effects based doctrine when assessing this case. However, it is too early to say how widely this approach will be followed. Future cases will paint a fuller picture of the evidential and procedural landscape when bringing private competition litigation in China and the SPC’s approach when assessing cases.