On 8 October 2014, the PRC Supreme People’s Court made the long-awaited final ruling on the dispute between Qihoo and Tencent on Tencent’s claimed abuse of dominant position in the instant communications (“IM”) service market. Since the plaintiff and defendant are both IT giants in China and their dispute impacts a large number of internet users, this case attracted considerable attention from the public throughout the legal proceedings.

In 2011, Beijing Qihoo Technology Ltd. (“Qihoo”) sued Tencent Technology (Shenzhen) Co., Ltd. and Shenzhen Tencent Computer System Co., Ltd. (collectively “Tencent”) by claiming that the latter abused its dominant position in IM service market by (a) forcing the consumers to make their choice between QQ product and Qihoo product and (b) bundling QQ safety software with QQ IM software without valid reasons.

After nearly three years’ of litigation proceedings, the PRC Supreme People’s Court ruled that Tencent does not have a dominant market position in the IM service market. The claims made by Qihoo against Tencent were not upheld by the court.

  1. Under Article 19 of the PRC Anti-Monopoly Law, if a business operator has 50% of the market share in the relevant market, it shall be deemed to have a dominant market position, unless such business operator is able to prove otherwise. Although Tencent has over 80% of market shares in the IM service market, the PRC Supreme People’s Court considers that it does not have a dominant market position.
    In the opinion of the Supreme People’s Court, market share is just one of the factors to decide the existence of a dominant position. That a business operator has a high market share does not automatically lead to the conclusion that it has a dominant position in the relevant market, in particular in a constantly changing and competitive market such as the IM service market. By considering such factors as (i) the competition status of the market; (ii) the ability of Tencent to control the price, quantity and other business conditions; (iii) the financial and technology strength of Tencent; (iv) the extent of reliance by other business operators on transactions with Tencent; (v) the level of ease and difficulty for other business operators to enter into the IM service market, etc, the PRC Supreme People’s Court came to the conclusion that Tencent does not have a dominant position in the IM service market. Such consideration of the above factors follows the stipulations of Article 18 of the PRC Anti-Monopoly Law.
  2. Qihoo claimed in the second instance at the Supreme People’s Court that the Guangdong Provincial High People’s Court failed to clearly define the relevant product market in the first instance. The common understanding is that in order to decide whether a business operator has a dominant market position it is crucial to define the relevant market. Surprisingly, the PRC Supreme People’s Court states in its judgment that it is not always necessary to first clearly define the relevant market in order to prove that a business operator has a dominant market position. Instead, the dominant market position can also be assessed by providing direct evidence that the relevant business operator has the capacity to restrict or hinder competition. Nevertheless, in the judgment of the Supreme People’s Court the relevant market is still clearly defined, i.e. the IM service market in China. We consider that in future cases it is still most important to define the relevant market before deciding whether a dominant position of a business operator exits or not.
  3. In the judgment, the PRC Supreme People’s Court also provides guidelines for the criteria on bundled sale which is prohibited by the PRC Anti-Monopoly Law. The criteria for unlawful bundled sale are as follows:
    1. The original product and the product for bundled sale are independent of each other;
    2. The business operator has a dominant position in the original product market;
    3. The business operator has subjected the buyers to some coercion that forces the latter to accept the product for bundled sale;
    4. The bundled sale has no justification whatsoever and does not conform to the established trading practice, behavioral pattern of consumers or has no regard for the functionality of the product in concern; and
    5. The bundled sale has a negative effect on the competition.

This is the first case ruled by the Supreme People’s Court regarding abuse of dominant position. The statements made by the Supreme People’s Court in its judgment are expected to serve as guidelines or reference for its local counterparts and other Chinese anti-monopoly enforcement authorities in the course of dealing with future competition cases.