Just under two weeks ago, on May 30th, Qihoo 360 Technology Co. Ltd (NYSE:QIHU) was found to be in contempt of court.
As Sanji Wuxian Internet Technology Co., Ltd. of Beijing and Qihoo 360 Technology Co., Ltd. of Beijing have refused to comply with their duty to place a notice of cessation of activities causing influence at a prominent location on the 360.cn website homepage … ['Sanji Wuxian' operates Qihoo.com.]
The original verdict was for unfair competition (see below), and now in contempt of the previous court order, Qihoo has until the end of June to post a court approved mea culpa on its web site.
The defendants ... must, within one month of this ruling taking effect, place a notice of cessation of activities causing influence at a prominent location on the 360.cn website homepage for seven consecutive days. (Said notice must first obtain the approval of this Court … ~ Judgment
Along with this ruling comes a threat of additional, more detailed exposure:
… should the defendant parties refuse to comply, this Court will publish the related portions of the judgment documents in the People's Court Daily at the expense of the defendant parties. ~ Judgment
The judgment in which Qihoo was found to be in contempt was the one involving Kingsoft.
In the case of Kingsoft Security Software Co., Ltd. of Beijing vs Sanji Wuxian Internet Technology Co., Ltd. of Beijing and Qihoo 360 Technology Co., Ltd. of Beijing, for unfair competition,… ~ Judgment
In Qihoo's SEC filings, we find the following verdict, with the same dates and awarded damages as in the relevant PRC-based Qihoo case:
In May 2010, Beijing Kingsoft Security Software Co., Ltd., or Kingsoft, brought an unfair competitive practices claim against us in the First Intermediate People's Court of Beijing, alleging that we misled users with statements that Kingsoft's anti-virus software products pose security risks to users' systems and seeking retraction of the statements and approximately RMB20.0 million in damages. In October 2011, the court ruled that our actions constituted unfair competition and awarded RMB350,000 ($55,609) as damages to Kingsoft. ~ Qihoo's SEC filed 2011 20-F, page 81
Here is another piece of litigation involving Kingsoft:
In November 2010, we brought an unfair competitive practices claim against Kingsoft in the First Intermediate People's Court of Beijing, alleging that Kingsoft made defamatory statements against us and that Kingsoft's software interferes with the use of 360 Safe Guard. We sought retraction of the defamatory statements and approximately RMB5.0 million in damages, which we subsequently raised to RMB10.0 million. In November 2011, first instance judgment was made by First Intermediate People's Court of Beijing, which rejected our claims. ~ 2011 20-F
Qihoo is not a stranger to litigation and public controversy … in China; rather, Americans are a stranger to Qihoo's past and present. Here is how Caixin Online put it, "But beyond the market buzz, Qihoo has also come under a harsh light after major competitors accused the company of unethical business practices last fall." (See "What's behind Qihoo 360's squabbles with rivals in the past year?" April 2011, written in English)
Very little of this news made it across the ocean. At precisely the same time Qihoo was approaching American capital markets, its reputation in China was in a fight for survival. In short, there was an internet war going on in China throughout the year 2010 and reaching a climax in November, just months before Qihoo's public offering. Major internet companies joined together, accusing Qihoo of unethical business practices … and even accusing Qihoo of putting "backdoors" in its software. (The Qihoo "backdoor" controversy has been dragged out into the open again these last two weeks, here ‒ I've put some excerpts in a blog, here.)
The aforementioned "major competitors" formed a union and declared a boycott of Qihoo's software, even going so far as to declare their software incompatible with Qihoo's ‒ forcing users to choose between them. Among those in a united voice against Qihoo were Tencent (0700.hk), Baidu (NASDAQ:BIDU), Kingsoft (3888.hk), Keniu (later merges with Kingsoft), and Maxthon (English website).
So, what was happening in the Chinese press at this time? Here's a screenshot from an article in Sina Technology which I ran through the Google Translator:
In response to Qihoo's latest court judgment, an article put it this way,
To date, Qihoo 360 has butted heads with Baidu, Kingsoft, Tencent and other well known enterprises in the industry, and come out on the losing side of the lawsuits. This has turned Qihoo 360 into the black sheep of the industry. No other company has been involved in as many lawsuits with industry peers as 360. ~ "360 Defies Court Judgment, Forced to Accept" [Professionally translated.]
Follow up: You can see the above article,"360 Defies Court Judgment, Forced to Accept," here (in Chinese); through the Google Translator, here. For other articles on Qihoo's being in contempt of court, see the search hits through the Google Translator, here; in original Chinese, here.]
Disclosure: I am short QIHU.