Judgement of the Supreme People's Court of 8 October 2014 - Qihoo 360 vs Tencent

The very famous litigation war between Qihoo 360 and Tencent during 2013 and 2014 has given rise to two major Supreme Court decisions. The first judgement, of which Tencent is the claimant, was delivered on 24 February 2014, and is related to unfair commercial practice issues.

The second judgement, which excepts will be translated here, was delivered on 8 October 2014. It became a landmark decision setting standards for antitrust enforcement in the Internet related industries.

Facts

In order to give you a reminder of the case's context, I here quote the case summary done by David Evans and Vanessa Yanhua Zhang, in an article titled Qihoo 360 v Tencent: First Antitrust Decision by The Supreme Court published on Competition Policy International site on Oct 21, 2014.

"The case involved a dispute between two Internet companies in China. Tencent attracts users by providing a variety of free services including QQ (its IM platform), Weibo (its micro-blogging platform), online gaming, online security, SNS, search and e-commerce. The company makes money from selling virtual products/items for its online gaming services; charging its users for SMS packages, mobile games, and other mobile value-added services such as mobile books and mobile games; and selling advertising to companies that want to reach Tencent’s users.

Qihoo360 attracts users by providing a variety of free services including online and mobile security through anti-virus software, a web browser, a game platform with games developed by third-party game developers, and a search engine. Qihoo 360’s Safety Guard, which is an Internet security product, had 456 million monthly active users in April 2013. Qihoo 360 profits through selling advertising, and providing web game services.

On November 3, 2010, Tencent required the users of its IM services to choose between Tencent’s QQ or Qihoo 360 software. Tencent’s users therefore had to use security software made by providers other than Qihoo 360, including Tencent’s own security software. Tencent and Qihoo 360 both restored interoperation on November 4, 2010, the next day. This is the famous “choose-one-from-the-two” incident, also known as “non-interoperability” conduct.

The case was initially heard at the Guangdong High Court. The Guangdong High Court dismissed Qihoo 360’s allegations in March 2013. Qihoo 360 appealed to the Supreme Court."

Main teachings of the case (on relevant market definition)

1. It is not necessary to clearly define the relevant market in every abuse of market dominance case

"并非在任何滥用市场支配地位的案件中均必须明确而清楚地界定相关市场。竞争行为都是在一定的市场范围内发生和展开的，界定相关市场可以明确经营者之间竞争的市场范围及其面对的竞争约束。在滥用市场支配的案件中，合理地界定相关市场，对于正确认定经营者的市场地位、分析经营者的行为对市场竞争的影响、判断经营者行为是否违法以及在违法情况下需承担的法律责任等关键问题，具有重要意义。因此，在反垄断案件的审理中，界定相关市场通常是重要的分析步骤。尽管如此，是否能够明确界定相关市场取决于案件具体情况，尤其是案件证据、相关数据的可获得性、相关领域竞争的复杂性等。同时，本院认为，在滥用市场支配地位案件的审理中，界定相关市场是评估经营者的市场力量及被诉垄断行为对竞争的影响的工具，其本身并非目的。即使不明确界定相关市场，也可以通过排除或者妨碍竞争的直接证据对被诉经营者的市场地位及被诉垄断行为可能的市场影响进行评估。因此，并非在每一个滥用市场支配地位的案件中均必须明确而清楚地界定相关市场."

It is not necessary to clearly define the relevant market in every case of abuse of market dominance. Competitive behaviors always occur within certain markets, market definition allows to determine the markets within which undertakings compete with each other and the competitive constraints they face. In an abuse of market domination case, the reasonable definition of the relevant market is of great importance as regards to the correct determination of the undertaking's market position, the analysis of the effects of the undertaking's behavior on market competition, the determination of the legality of the undertaking’s behavior and its liability in case of illegality. Therefore, in an antitrust case, the definition of the relevant market is usually an important step of analysis. However, whether it is possible to clearly determine the relevant market depends on the specific circumstances of the case, especially the evidence, the availability of relevant data, the complexity of the relevant fields of competition, etc. At the same time, the Court believes that in an abuse of market dominance case, the definition of the relevant market is a tool for assessing the undertaking's market power and the effect of the alleged conduct on the market, but not a purpose in itself. Even if the market is not clearly defined, it is possible to assess the market position of the undertaking and the likely effect of the alleged conduct on the market by considering the direct evidence of excluding or hindering competition. Therefore, it is not necessary to clearly define the relevant market in every case of abuse of market dominance.

2. The claimant bears the burden of proof.

"在滥用市场支配地位案件中，主张他人滥用市场支配地位的当事人对相关市场的界定承担举证责任。法院根据案件证据、当事人主张及专家意见等对当事人所主张的相关市场是否合理作出判断。如果认定当事人所主张的相关市场界定并不合理，则应尽可能根据案件具体情况对相关市场进行重新界定。"

In an abuse of market dominance case, the parties which bring the claim of abuse of market dominance by other parties are responsible for providing evidence in the definition of relevant market. According to the evidence, claims of the parties and expertise, the court determine whether the proposed market definition is reasonable. If it is determined that the relevant market definition of the parties is unreasonable, the relevant market should be redefined as far as possible according to the specific circumstances of the case.

3. On the feasibility of hypothetical Monopoly test: SSNIP may be difficult to carry out in certain markets where the price is zero, for certain cases, SSNDQ test may be more appropriate.

"第一，作为界定相关市场的一种分析思路，假定垄断者测试（HMT）具有普遍的适用性。假定垄断者测试的基本思路是，在假设其他条件不变的前提下，通过目标商品或者服务某个变量的变化来测试目标商品与其他商品之间的可替代程度。实践中，假定垄断者测试的分析方法有多种，既可以通过数量不大但有意义且并非短暂的价格上涨（SSNIP）的方法进行，又可以通过数量不大但有意义且并非短暂的质量下降（SSNDQ）的方法进行。同时，作为一种分析思路或者思考方法，假定垄断者测试在实际运用时既可以通过定性分析的方法进行，又可以在条件允许的情况下通过定量分析的方法进行;

First, as an analytical method of relevant market definition, the hypothetical monopolist test (HMT) has universal applicability. The basic approach of the HMT is that, assuming that the other conditions are constant, one can assess the substitutability between a target product and other products by changing a certain variable of the target product and service. In practice, there are many ways to undertake the HMT, either through a small but significant non transitory increase in price (SSNIP), or by means of a small but significant non transitory drop in quality (SSNDQ). At the same time, as an analytical method and approach, the HMT can be carried out either through qualitative analysis method, or through quantitative method as far as possible.

第二，在实践中，选择何种方法进行假定垄断者测试取决于案件所涉市场竞争领域以及可获得的相关数据的具体情况。如果特定市场领域的商品同质化特征比较明显，价格竞争是较为重要的竞争形式，则采用数量不大但有意义且并非短暂的价格上涨（SSNIP）的方法较为可行。但是如果在产品差异化非常明显且质量、服务、创新、消费者体验等非价格竞争成为重要竞争形式的领域，采用数量不大但有意义且并非短暂的价格上涨（SSNIP）的方法则存在较大困难。特别是，当特定领域商品的市场均衡价格为零时，运用SSNIP方法尤为困难。在运用SSNIP方法时，通常需要确定适当的基准价格，进行5%-10%幅度的价格上涨，然后确定需求者的反应。在基准价格为零的情况下，如果进行5%-10%幅度的价格增长，增长后其价格仍为零；如果将价格从零提升到一个较小的正价格，则相当于价格增长幅度的无限增大，意味着商品特性或者经营模式发生较大变化，因而难以进行SSNIP测试。"

Second, in practice, to determine which method one should choose to carry out the HMT test depends on the sector involved in the case and available relevant data. If in a specific market the products tend to be homogeneous so price competition is predominant, it is relatively plausible to use small but significant non transitory increase in price (SSNIP) method. However, in the markets where product differentiation is considerable so non-price competition on quality, service, innovation, consumer experience, etc. becomes predominant, it is then relatively difficult to carry out the SSNIP test. It is particularly difficult to use the SSNIP test when the market equilibrium price is zero in certain specific economic sectors. When using the SSNIP method, it is usually necessary to determine the appropriate benchmark price and simulate a price increase of 5% to 10%, then observe the reaction of the consumers. If the benchmark price is zero, if the price increases by 5-10 %, the price still equals to zero. If one increases the price to a small and positive amount, which is equivalent to an infinite change in price, then there is a major change in the undertaking's product characteristics or business model, rendering SSNIP test difficult. "

4. On the Relationship between quantitative method and qualitative method: if qualitative analysis is enough, it is not necessary to carry out quantitative analysis.

"在实践中，界定相关市场既可以采取定性分析的方法，又可以采取定量分析的方法。定性分析通常是相关市场界定的起点。在定性分析足以得出明确的结论时，不必要进行复杂的定量分析。"

In practice, the definition of the relevant market can rely on qualitative analysis method as well as quantitative analysis method. Qualitative analysis is usually the starting point for the definition of the relevant market. If qualitative analysis is sufficient to draw a clear conclusion, it is not necessary to carry out complex quantitative analysis.

5. The analysis of the features of Internet Platform competition can be skipped at the stage of market definition

"第二，判断本案相关商品市场是否应确定为互联网应用平台，其关键问题在于，网络平台之间为争夺用户注意力和广告主的相互竞争是否完全跨越了由产品或者服务特点所决定的界限，并给经营者施加了足够强大的竞争约束。这一问题的答案最终取决于实证检验。在缺乏确切的实证数据的情况下，本院注意到如下四个方面：首先，互联网应用平台之间争夺用户注意力和广告主的竞争以其提供的关键核心产品或者服务为基础。例如本案中，上诉人提供的核心产品和服务是互联网安全服务，被上诉人则主要提供即时通信服务。其次，互联网应用平台的关键核心产品或者服务在属性、特征、功能、用途等方面上存在较大的不同。虽然广告主可能不关心这些产品或者服务的差异，只关心广告的价格和效果，因而可能将不同的互联网应用平台视为彼此可以替代，但是对于免费端的广大用户而言，其很难将不同平台提供的功能和用途完全不同的产品或者服务视为可以有效地相互替代。一个试图查找某个历史人物生平的用户通常会选择使用搜索引擎而不是即时通信，其几乎不会认为两者可以相互替代。再次，互联网应用平台关键核心产品或者服务的特性、功能、用途等差异决定了其所争夺的主要用户群体和广告主可能存在差异，因而在获取经济利益的模式、目标用户群、所提供的后续市场产品等方面存在较大区别。最后，本案中应该关注的是被上诉人是否利用了其在即时通信领域中可能的市场支配力量排除、限制互联网安全软件领域的竞争，将其在即时通信领域中可能存在的市场支配力量延伸到安全软件领域，这一竞争过程更多地发生在免费的用户端。如果把搜索引擎、新闻门户、互联网安全等平台均纳入本案相关商品市场范围，可能会夸大其他网络平台对被上诉人的即时通信所形成的潜在竞争约束，弱化被上诉人实际的市场力量。鉴于上述理由，本院在本案相关市场界定阶段将不主要考虑互联网平台竞争的特性。

To determine whether the relevant product market in this case should be identified as an Internet application platform, the key question is whether the competition between Internet platforms to attract users' attention and advertisers is reaching beyond the boundaries determined by the characteristics of the product or service, and imposed strong enough competitive constraints on the undertakings.The answer to this question ultimately depends on empirical evidence. In the absence of accurate empirical data, the Court noted the following four aspects: first, the competition in attracting users' attention and advertisers between Internet application platforms is based on their core products or services. For example, in this case, the core products and services provided by the appellant are Internet security services, and the appellee mainly provides instant messaging services. Second, the core products or services provided by Internet application platforms are quite different in terms of attributes, features, functions, and intended use, etc. While advertisers, ignoring the differences in these products or services and only focusing on the price and effect of advertisement, may consider the different Internet application platforms as interchangeable, for the vast number of users at the free side of the platform, however, it is difficult to equalize the different platforms providing completely different products or services with different function and use. A user attempting to find a historical figure usually use a search engine rather than instant messaging service, she rarely thinks that the two can be interchangeable. Third, the differences in Internet application platforms' core products or services, features, functions and use determine the differences in target user groups and advertisers, and thus give rise to considerable differences in the business models, the target user base, and products provided in follow-on markets. Finally, the case is about whether the appellee, using possible market dominance in the field of instant messaging to exclude, limit competition in the field of Internet security software by extending that dominance power from the former to the latter, the competition being more intense on the users' side which is free of charge. If the search engine, news portal, Internet security platforms are included to the relevant product market in this case, it may exaggerate the potential competitive constraints formed by other Internet platforms on the instant massaging service provided by the appellee, weakening its actual market power. Considering the above reasons, the Court will not take into account the characteristics of Internet platform competition at the stage of market definition.

第三，本案中对互联网企业平台竞争特征的考虑方式。相关市场界定的目的是为了明确经营者所面对的竞争约束，合理认定经营者的市场地位，并正确判断其行为对市场竞争的影响。即使不在相关市场界定阶段主要考虑互联网平台竞争的特性，但为了正确认定经营者的市场地位，仍然可以在识别经营者的市场地位和市场控制力时予以适当考虑。因此，对于本案，不在相关市场界定阶段主要考虑互联网平台竞争的特性并不意味着忽视这一特性，而是为了以更恰当的方式考虑这一特性。"

Regarding the way of taking into account the characteristics of Internet Platform competition: the purpose of the relevant market definition is to clarify the competitive constraints faced by the undertakings, to reasonably determine the market position of the undertakings and to correctly assess the impact of their behaviors on market competition. Even if the characteristics of Internet platform competition is not considered at the stage of relevant market definition, in order to correctly identify the undertaking's market position, it can still be taken into account when identifying the undertaking's market position and market power. Therefore, in the present case, not considering the characteristics of Internet platform competition at the stage of relevant market definition does not mean that they are ignored, they will be taken into account in a more appropriate way later on.

6. When defining a relevant market, one should not only analyze the competition situation at the time when anticompetitive conduct occured, but also the predictable and possible market responses and changes in the foreseeable future.

"上诉人主张，界定相关市场应着重分析被诉垄断行为发生时的市场竞争态势，而非未来的市场变化，[…] 被上诉人则认为，界定本案的相关市场应当考察一段时间内的相关市场状况，而不能仅仅界定一个时间点。本院认为，相关市场界定的目的是为了明确被诉垄断行为发生之时经营者所面对的竞争约束，合理评估被诉经营者的市场力量。由于竞争尤其是互联网领域的竞争呈现出动态竞争的特征，在界定相关市场时，需要考虑在可预见的未来具有现实可能性的市场反应和变化，例如需要考虑假定垄断者的行为持续适当的一段时间后（例如一年）的市场反应和变化，以正确判断其是否受到来自其他方面经营者的竞争制约。如果经营者缺乏一定时期内较为持久的市场支配力，难以对竞争产生影响。仅仅在某个时间点上考虑相关市场界定，而不在一个相对长的时间内考察市场反应和变化，则可能会过窄地界定相关市场，并夸大经营者在相关市场上的市场力量。如果这种市场反应和变化被事后发展所证实，则可以进一步证明这种考虑的正当性。

The appellant argued that the definition of the relevant market should focus on the analysis of the market competition situation when the alleged monopolistic behavior occurred, without consideration of the future market changes […] while the appellee argued that the relevant market definition should take into account the market conditions over a period of time and not just a point in time. The Court believes that the purpose of the relevant market definition is to clarify the competitive constraints an undertaking faces when the alleged conduct occurred and reasonably assess the market power of the appellee. Competition, especially Internet related competition has dynamic characteristics. When defining relevant markets, one should take into account predictable and possible market responses and changes in the foreseeable future, such as the market reaction to the behavior of a hypothetical monopolist during a reasonable time period (for example, one year), in order to correctly determine whether the undertaking is subject to competitive constraints coming from other undertakings in the market. If the undertaking lacks a relatively permanent market power over a period of time, then it is difficult for it to have an impact on competition. Determining relevant market at a certain point in time rather than examining market reactions and changes over a relatively long period of time may narrow the scope of the relevant market and exaggerate the market power of the undertaking in the relevant market. If such market reactions and changes are confirmed by ex post development, the legitimacy of such considerations can be further substantiated.

Please feel free to comment below, if there is any error.

Translation : Hengrui WAN, all rights reserved.

Abuse of dominant position - Market definition - case studies