Whether the loading of "search candidate"function into the input software constituted unfair competition? - Comment on Beijing IQIYI Science & Technology Co., Ltd. vs. Sogou, Inc. over Unfair Competition

March 20, 2019 http://www.iprchn.com Rev. 08

Author: Fan Jingbo

[Case No.]

(2017) H0110MC No. 12555

(2018) H73MZ No. 420

[Abbreviature of adjudication]

Whether new competition acts in the internet environment are proper depends on the degree of damage caused to other operators, as well as the impact on the legitimate rights and interests of consumers and the market competition order. As for competition acts that neither substantially hindered the normal operation of other operators nor distorted and disrupted the market competition order, and had creative effects, necessary judicial restraint shall be applied to allow more space for the free competition in the market.

[Case Brief]

Beijing IQIYI Science & Technology Co., Ltd. ("IQIYI") is the operator of iQIYI.COM. Sogou, Inc. ("Sogou") is the provider of Sogou input software. When users use the Sogou input software to spell words in the internet environment, the software provides both the "input candidate" and "search candidate" words, and if users click on a "search candidate" word, the search site of Sogou will be shown. The "input candidate" and "search candidate" words of different sizes were arranged in two columns, and the close of "search candidate" was available, but the software was installed with "search candidate" function by default. The allegedly unfair competition acts were mainly reflected in that when a mobile phone user entered iQIYI.COM through a browser and if the user input a proposed video name using Sogou input software and clicked on a search candidate word provided by the software, Sogou's search engine would be started and show the search results with the content from Sohu Video listed in the first place. IQIYI argued that the "search candidate" words were presented in the Sogou input in a manner that easily misled users to consider such words as "input candidate" ones, induced users to click on such words to redirect the webpage to Sogou search engine, and presented the associate Sohu Video, which damaged the interests of iQIYI.COM and constituted unfair competition. The Defendant Shanghai Nduo Network Technology Co., Ltd. ("Nduo") provides the download of Sogou input method for the public via its "Nduo Market", and shall assume liability for the infringement. IQIYI requested the court to order the Sogou to immediately stop the infringement and compensate for losses.

Shanghai Yangpu District People's Court held that the alleged acts did not have negative impacts on IQIYI and consumers and did not constitute unfair competition. According to the judgement of first instance, the claims of IQIYI were rejected. IQIYI refused to accept the judgement and instituted an appeal. Shanghai Intellectual Property Court held that the alleged acts might cause some losses to IQIYI, but as for whether the acts constituted unfair competition, the impact of such acts on IQIYI and consumers' rights and interests and the market competition order should be taken into full consideration. The alleged acts in this case did not substantially hinder the normal operation of IQIYI and had complex impacts on consumers' rights and interests, but did not damage the function of market selection and disrupt the market competition order. Therefore, the court of second instance rejected the appeal and affirmed the original judgement.

[Judge's comment]

The alleged acts are not explicitly listed in the Anti-unfair Competition Law; whether the alleged acts constituted unfair competition shall be determined in consideration of whether the acts caused any losses to the plaintiff and in combination with the characteristics of internet environment, the development of internet industry and the legislative intent of the Anti-unfair Competition Law.

I. Whether any losses were caused to the operator's interests due to the alleged acts

The allegedly acts in this case were mainly reflected in that when a mobile phone user entered iQIYI.COM through a browser and if the user input a proposed video name using Sogou input software and clicked on a search candidate word provided by the software, Sogou's search engine would be started and show the search results with the content from Sohu Video listed in the first place. The alleged acts in this case occurred after the user entered iQIYI.COM and started the search; it was obviously that the user wanted to search or watch a video on iQIYI.COM, and IQIYI could have had the transaction opportunity or at least corresponding search traffic. Although the "input candidate" and "search candidate" words in Sogou input software were of different sizes and arranged in two columns and the close of "search candidate" was available, which to some extent helped to reduce the confusion, it was not sufficient to thoroughly avoid confusion among users without clearer prompt. Therefore, the intervention of the alleged acts might cause the transfer of some transaction opportunity or search traffic from IQIYI to Sogou or other affiliates, and it was objective that IQIYI suffered from losses.

II. Whether the alleged acts violated the business ethics

As for whether the alleged acts of Sogou violated the business ethics, the following factors shall be considered.

1. Impact of the alleged acts on the operation of IQIYI

The loading of "search candidate" function into Sogou input software might reduce the traffic or transaction opportunity of IQIYI, but measures were taken to reduce confusion, so the losses incurred to IQIYI were limited. Moreover, Sogou did not take measures to force users to change website, or mislead or force users to close iQIYI.COM, or cause the failure of IQIYI's search function, and the normal operation of iQIYI.COM was not substantially hindered or destroyed. Therefore, in terms of the extent of damage caused to IQIYI, it was not sufficient to take the relief according to the Anti-unfair Competition Law.

2. Impact of the alleged acts on the protection of consumers' rights and interests

In this case, IQIYI claimed that Sogou's acts caused confusion among users and damaged consumers' interests. The alleged acts were different from general counterfeiting act and had complex impact on consumers' interests. On the one hand, as aforementioned, the allegedly acts did not thoroughly avoid confusion among users; on the other hand, the alleged acts would to some extent increase consumers' benefits. When users clicked on "search candidate", Sogou's search engine was started to provide more search results for users' choice, when users may select to return to iQIYI.COM or continue to use Sogou's search engine. In addition, different to physical environment, it was not costly for users to return to iQIYI.COM in network environment; in comparison with the more choices for users, consumers' benefits were improved as a whole.

Network users involved in this case were intended to watch corresponding videos online, and what transaction decision users made was on which website to watch videos. Before this, the confusion among users caused by "search candidate" provided by Sogou input software has no direct relationship with the transaction decision to be made by users. It should be noted that the possibility of confusion caused by the alleged acts in this case differs to certain degree from that caused by general counterfeiting acts, the latter of which are intended to directly impact consumers' transaction decision, and destroy the information transfer in the market and choice functions; in this case, even some consumers were misled to click on the "search candidate" provided by Sogou input software and enter Sogou's search engine, they knew for sure the search results were not related to iQIYI.COM, and may freely choose to return to iQIYI.COM; in this regard, the market selection was not really destroyed.

3. Impact of the alleged acts on the market competition order

In this case, the Sogou input software provided "search candidate" and "input candidate" functions, which was technical innovation and had certain positive market effect. Although the use of Sogou input software in the interface of iQIYI.COM might cause the loss of some traffic to iQIYI.COM, which in another word means that Sogou input software brought some traffic by means of iQIYI.COM, but such acts that seemed to have intervened in iQIYI.COM was not sufficient to prove they were improper. First, with increasingly fierce competition in the internet market and the development of information technology and internet technology, various products or services in fields of the internet market have become increasingly correlated and dependent to each other, it is impossible for operators to get stuck in their market or technical field, and it is inevitable to participate in competition in competitors' field in many ways. Second, what's more important to encourage market competition is to promote innovations, which are more likely to come from the fierce collision of technologies and business modes between operators, than the self-improvement behind closed doors. If simply because of the intervention caused to the operation of the competitor by virtue of some technologies and business modes, the acts are deemed improper, the innovative enthusiasm will undoubtedly be damaged. As aforementioned, the alleged acts in this case did not excessively hinder the normal operation of IQIYI and did not damage the function of market selection to the extent of disrupting the market competition order. According to the principle of proportionality, the alleged competition acts in general are efficiency competition.

To practice the legislative spirit of the Anti-unfair Competition Law, not only improper competition acts that disrupt market order shall be judicially stopped, but also judicial restraint be applied to some extent to allow more space for the free competition in the market.

(Affiliation: Shanghai Intellectual Property Court)