The Supreme People's Court upheld a lower court ruling and rejected the appeal of Qihoo 360 Technology Co, a leading antivirus software developer, in a dispute with Internet giant Tencent Inc over monopoly practices, the court said on Monday.

The initial ruling, made by the Guangdong Provincial High People's Court in April last year, said that Qihoo had engaged in unfair competition and should pay Tencent, popularly known for its instant message service QQ, 5 million yuan ($820,000) as compensation for economic losses.

"Qihoo 360 improperly took advantage of its competitor for business interests. It abused its dominant market position and should be held accountable," Xi Xiaoming, vice-president of the SPC, said during the hearing.

He said to achieve its commercial aims, Qihoo invented and provided tools, including its 360 anti-virus software, that degraded Tencent products.

Qihoo then unfairly disparaged Tencent software and services to promote its own Qihoo anti-virus software and gain a competitive advantage, Xi said.

In a long-running tit-for-tat software war between the companies, millions of Chinese computer users were forced to choose one company's products only, and to uninstall software from the other.

It is the nation's first antitrust case involving Internet companies to be heard by the top court since the country's anti-monopoly law took effect in August 2008. The case has attracted attention from the public, the Internet industry, law experts and media.

The SPC focused on five aspects of the case: whether Qihoo's anti-virus software damaged the effectiveness of QQ's products; whether Qihoo's software was part of a deliberate scheme to disparage QQ; whether installing Qihoo's anti-virus software replaced some functions of QQ; how a market monopoly should be defined; and how to set compensation for damages.

Free competition could ensure optimal allocation of market resources, but using proper means to carry out fair and orderly competition are also required in the market economy, the court said.

"Business operators should follow principles of voluntariness, equality, fairness, honesty and credibility. They should comply with business ethics."

Violating the anti-monopoly law, damaging the legitimate rights of competitors and disrupting economic order should all be considered as elements of unfair competition, the SPC said.

The relationship between the two Internet giants deteriorated after September 2010, when Qihoo accused Tencent of invading its users' privacy through the use of QQ Doctor, a security program.

In October 2011, Qihoo sued Tencent for violating anti-monopoly laws, and it sought 150 million yuan in compensation.

On March 28, the Guangdong High People's Court rejected Qihoo's claims and ruled that Tencent did not violate the anti-monopoly law.

Li Lin of the Beijing Lawyers Association said that a monopoly case turns on three elements: whether an enterprise uses improper means to hinder competitors; the degree of access to the market for competitors; and whether government uses its administrative powers for intervention.

"The final verdict by the SPC is an important milestone. It legally distinguishes fair competition from market monopoly and is conducive to healthy Internet competition," Li said.

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