Technology Feb 04

China's TikTok sues Tencent for monopolistic practices

Douyin has lodged a lawsuit in a Beijing court accusing Tencent of monopolistic practices and seeking 90 million yuan ($14 million) in compensation; Tencent says the claim is 'slander' and has vowed to sue its rival; Indeed, this feud has gone on for years

China's TikTok sues Tencent for monopolistic practices
In 2018 alone, Tencent and Douyin reportedly sued each other about 500 times. However, now the regulators are taking a far tougher line on monopolistic behavior and market dominance. File photo by Reuters.

(ATF) ByteDance’s Douyin, the Chinese version of TikTok, has filed a lawsuit in a Beijing court against Tencent Holdings for monopolistic practices and asked for 90 million yuan (nearly $14 million) in compensation. Tencent hit back by saying ByteDance’s claims are “malicious slander” and vowed to countersue its rival.

“Since April of 2018, WeChat and QQ – products of Tencent – have blocked and restricted content sharing by Douyin for three years for its so-called purpose of ‘rectifying short video content’. This has infringed Douyin’s lawful rights, as well as users’ interests,” Douyin said on Tuesday in a statement on Weibo, a Chinese equivalent of Twitter, operated by Sina.

While WeChat clamped down on video content on its platform, it launched more than 10 short video products of its own, Douyin said.

With 1.2 billion and 600 million users respectively, WeChat and QQ have penetrated many aspects of people’s lives and have become “infrastructure” with “market-dominating positions”, but their behaviour should be prohibited by the anti-monopoly law, Douyin added.

In its 10 years of existence, WeChat has evolved from a simple messaging app into an ubiquitous all-in-one app that includes mobile payments, news service, ride-hailing, and more. WeChat has blocked many third-party links for years.

Douyin, launched in 2016, now has 600 million monthly active users and is popular among millennials and Gen Z.

Tencent responded on one of its official WeChat public accounts that it has not yet received documents regarding the lawsuit, but said that ByteDance’s allegations were “untrue” and “malicious slander.”

“Several of ByteDance’s products, including Douyin, have obtained WeChat users’ personal information by way of unfair competition, which have violated our platform’s rules. Courts have already issued multiple orders to stop their behaviour,” Tencent said.

The Shenzhen-based internet giant vowed to countersue, alleging ByteDance and its affiliates have damaged its platform ecosystem and violated user rights.

Just one day before Douyin announced it would take its dispute with Tencent to court, it pushed back against rumours that Douyin would become a “closed-loop network” and would start blocking links to WeChat and QQ from 1 February. It said such reports were a coordinated campaign targeting the platform.

However, Douyin clarified that it does block links to WeChat and QQ for finance- and healthcare-related content creators, saying they faced a high risk of scams and illegal sales tactics on third-party platforms.

A PREVIOUS ANTI-TRUST CASE

The latest spat between Douyin and Tencent reminds people of the lawsuit Qihoo 360 Technology Co Ltd, a Beijing-based security software provider, raised against Tencent almost 10 years ago and lasted for over two years.

In August 2011, Qihoo 360 sued Tencent on grounds that it “abused its dominant market position” and asked for 125 million yuan ($19.4 million) in compensation. Tencent’s QQ computer application had stopped supporting Qihoo 360’s security software, which led to a large number of users uninstalling the Qihoo 360 app.

A court in Guangdong province ruled in March 2013 that Tencent’t QQ did not have a “dominant market position”. So, 360 filed an appeal, but the Supreme Court did not find Tencent guilty. It said in its ruling: “The focus of the anti-monopoly law is not about individual businesses’ interests, but whether the healthy competitive mechanism has been skewed or damaged.”

STRICTER REGULATIONS TODAY

But today’s internet space is much more competitive than years ago, and the market players cutting each other off has become a familiar argument in public.

China has also passed multiple laws to regulate the internet industry.

Beijing issued draft rules in November aimed at preventing monopolistic behaviour by internet firms. And the central bank unveiled new payment rules last month that specify the criteria for a “dominant market position” in the payment sphere.

Zhou Zhaofeng, the Managing Partner of Beijing-based law firm Fieldfisher, said the monthly active user number is not a criteria for determining a company’s market dominance. It should be determined according to a definition in law instead.

Tencent’s WeChat was not an irreplaceable app, and should not be considered an “infrastructure” – a term originally used to refer to fixed physical resources such as bridges, highways and train lines, he added.

Meanwhile, Zhao Zhanling, a lawyer from Beijing-based Yunjia Law Firm, said: "In the Qihoo 360 vs. Tencent case, the court at the time used a broad category and considered QQ to be a similar product as Sina's Weibo, China Mobile’s Feixin, and Microsoft’s MSN. Therefore, the court did not determine QQ to have a dominant market position. If taking that case as a reference, it would be difficult to determine that Tencent has a dominant market position in this case.”

However, Zhao noted that China’s legislation and regulators now attach far greater scrutiny against monopolistic practices, and a stricter criteria may be applied in the Douyin vs. Tencent case.

'POT CALLING THE KETTLE BLACK'

Many Chinese users have noted on social media that Douyin's latest action seems somewhat ironic, and a little like the pot calling the kettle black.

“Douyin is applying double standards. It blocks people from providing any type of link to WeChat in their videos or comments. Jinri Toutiao also restricts the traffic if people post links to other platforms... What a phony,” a Chinese Weibo user commented on Douyin’s statement.

“I can’t think of any reason for Douyin to win the case. So I have a feeling that they will lose. This will give them publicity though,” an industry professional said.

ByteDance and Tencent have been fighting for years as competition has heated up. In 2018, there were 500 lawsuits between the two companies alone, according to TechWeb.

In June 2018, Tencent sued ByteDance’s news aggregation service Jinri Toutiao for damaging its reputation and asked for a nominal 1 yuan ($0.15) of compensation. The Jinri Toutiao app republished an  editorial by Xinhuanet but changed its headline to specifically accuse Tencent of corrupting China’s younger generation with obsessive games.

In March 2019, a court in Tianjin municipality ruled that Douyin should stop providing a WeChat and QQ login function to Duoshan, another short-video app under ByteDance with social features. Duoshan was also ordered to stop using WeChat and QQ user profile images that it had obtained through Douyin.

In September 2019, Douyin filed a complaint on the grounds of “unfair competition” with a court in Fuzhou in southern China’s Fujian province against Tencent’s restrictions on users from sharing Douyin content over WeChat and QQ apps. The court decided recently that the case should be transferred to Shenzhen Intermediate People’s Court - a jurisdiction where WeChat and QQ developer agreements are signed and where Tencent is headquartered. 

As competition between the two entertainment rivals heat up, the lines between Douyin and WeChat are also blurring. 

WeChat launched its own short-video feature last year, which had 200 million users as of July 2020. Allen Zhang, the head of WeChat, said earlier this month that video will be an important format for content in the coming decade.

With WeChat stepping into its territory, Douyin has also started to test social networking features such as video calls and interactive games. In the last couple of years, ByteDance’s move into gaming has fuelled further clashes between the two rival.

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Tencent’s WeChat changes direction from finance to live-streaming

Tencent downplays impact of new anti-monopoly rules

Tencent makes its move in China's e-commerce arena

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