China Supreme Court Clears Tencent Of Monopoly Claims
Big foreign multinationals may be feeling the heat from a recent string of anti-monopoly investigations, but Chinese Internet firms won’t have to face such worries anytime soon. That’s the latest message coming from Beijing, with word that China’s Supreme People’s Court has ruled in favor of social networking giant Tencent (HKEx: 700) in a long-running lawsuit claiming the company controlled a monopoly in the instant messaging market. I originally sided with Tencent when the case was filed 3 years ago by security software specialist Qihoo 360 (NYSE: QIHU), because I felt the lawsuit looked retaliatory for an unrelated suit between the pair at that time. But much has changed since then, most notably the meteoric rise of Tencent’s wildly popular WeChat mobile instant messaging service that has become an indispensable tool for millions of people in China, myself included.
In reading the reports about the Supreme Court decision, I found myself just a bit confused by the court’s own admission that Tencent now controls about 80 percent of the instant messaging market. (English article; Chinese article) I understand that everyone’s definition of a monopoly can vary, since very few companies ever control 100 percent of a major market like instant messaging. But surely 80 percent must qualify as a monopoly in anyone’s rule book, China’s included.
According to the late reports, the Supreme People’s Court refused to hear an appeal by Qihoo in the case, which was ruled in Tencent’s favor by a provincial court in Guangdong back in March. (previous post) The court cited insufficient evidence in Qihoo’s case, and ordered it to pay 790,000 yuan ($130,000) in legal costs accrued by Tencent. That should officially bring the case to a close, though perhaps Qihoo could bring a new case later based on fresher evidence following the rapid rise of WeChat.
I didn’t follow the original case closely enough to know what evidence Qihoo presented exactly. But the fact that a private company had to bring the case against Tencent is already quite unusual. In most western markets, such cases would come from the nation’s antitrust regulator, which has much broader powers than a private company when collecting information on the accused company.
China’s regulators have used that power quite often lately by demanding information and even raiding company offices in a recent series of investigations targeting multinationals like Microsoft (Nasdaq: MSFT), Audi and Qualcomm (Nasdaq: QCOM), just to name a few. More recently the regulators have announced one or two probes against Chinese firms as well, though the only one widely reported was in the low-tech and low-profile cement industry dominated by stodgy, older state-run firms.
Qihoo’s original antitrust lawsuit came well before the rise of WeChat, and was based on Tencent’s hugely popular QQ instant messaging service that formed the basis for its original success. Since then leading mobile carrier China Mobile (HKEx: 941) has also accused Tencent of operating a monopoly in a spat more than a year ago, though that case never really went beyond a brief period of high-profile name calling. (previous post)
In all fairness, Tencent certainly isn’t the only Internet company that controls a huge share of a lucrative Internet space in China. The other obvious case for years was Baidu (Nasdaq: BIDU), which controlled more than 70 percent of China’s equally lucrative online search market. More recently there’s Alibaba (NYSE: BABA), which now controls about 80 percent of the equally lucrative e-commerce market.
All that said, I’m honestly not sure why one of China’s very active antitrust regulators doesn’t launch a probe against any of these companies, which should easily qualify for the definition of monopoly. Such an investigation and remedial actions would not only bring more competition to the market, but would also help to quiet criticisms that the recent wave of anti-monopoly investigations is targeted against foreign firms.
Bottom line: Tencent’s triumph in an antitrust lawsuit by a rival shows that such probes should come from the government, which should open an investigation of the company’s dominance of the instant messaging market.
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