China

China’s Big Tech legal teams are unbeatable on their home courts, literally

Opponents fear to sue teams like Tencent's "Nanshan Indominables" and Huawei's "Longgang Invincibles."

China’s Big Tech legal teams are unbeatable on their home courts, literally

It's clear Tencent prefers local courts.

Photo: Qilai Shen/Bloomberg via Getty Images

In late March, TikTok's parent company ByteDance dropped an unfair competition lawsuit against Tencent. Upon Tencent's request, the matter had been relocated to a court in Shenzhen, the tech-intensive southern metropolis where Tencent has its headquarters.

Many on the internet speculated that Douyin knew it had a slim chance of winning. After all, it was facing a suit on defendant Tencent's home court, where its proclivity to win has earned its legal team the nickname "Nanshan Indominables" (南山必胜客) on China's web, named after the district where Tencent's offices are based. Douyin, which disputed the change of venue, ultimately dropped its suit.

Small wonder. A data analysis of public court rulings by the Chinese newspaper Dahe Daily found that between 2018 and 2020, out of a total 564 matters involving Tencent as either the plaintiff or the defendant, Tencent won 95% of those litigated in Shenzhen courts. By contrast, the newspaper found Tencent's win rate in Beijing courts to be 54%. The analysis didn't track suits that settled. Tencent declined to comment.

Douyin filed its suit in the coastal city of Fuzhou, a large city in Fujian province, in September 2019. It alleged Tencent had violated the Anti-Unfair Competition Law by banning Douyin links shared on Tencent's social media platforms QQ and WeChat. Douyin requested a preliminary injunction and compensation of $13.9 million.

Protocol was unable to verify the Dahe Daily data, but Mark Cohen, a senior fellow and director of the Asia IP Project at the Berkeley Center for Law and Technology, told Protocol that local protectionism is often apparent in Chinese court rulings. In China, judges are generally locally appointed. An academic study found that the stronger party — the party with greater resources, more experience or in a better strategic position — in a legal tussle tends to prevail in Chinese litigation. And in a case involving local and out-of-town parties, the local one, especially a bread-and-butter institution, often comes out ahead, as the government and the business can both influence the outcome through back channels

Generally, in an IP dispute, "if you're a foreigner, or you're from out of town, and there's not a huge local interest, you'll probably get fair treatment," Cohen said. "But it's when other economic or national policy interests are implicated that you start seeing the scales of justice get unbalanced."

Tencent is not the only company known for triumphing at a high win rate in local courts. ByteDance, for instance, is sometimes called the "Haidian Roly-Polys" (海淀不倒翁) in the Haidian District of Beijing, where its headquarters are based, presumably because it can't be knocked over. Huawei, headquartered in the Longgang District of Shenzhen, is the "Longgang Invincibles" (龙岗无敌手). Cohen said he had looked into Huawei's legal outcomes in the past, and what he found validates Huawei's reputation. "I heard from many companies who have gotten in fights of various kinds with Huawei," Cohen said, "that the last place they want to go is Shenzhen."

It's clear Tencent prefers local courts. In February, Douyin filed a separate case against Tencent in the Beijing Intellectual Property Court, alleging Tencent violated antitrust rules by blocking the sharing of Douyin content on its messaging apps. A month later, Tencent played the same game, requesting the Beijing court transfer the matter to Shenzhen. (The suit is ongoing.)

These days, antitrust cases can have very serious outcomes. Ecommerce titan Alibaba was slapped with a record $2.75 billion fine by China's antitrust regulators earlier this month amid a broad and harsh crackdown on anticompetitive practices by Big Tech.

China's legal system is not precedent based like the U.S. or U.K. systems — where a judge's decision is binding on future ones — but judges do strive to be consistent with their decisions. The last high-profile antitrust case Tencent was involved in was years ago, when the cybersecurity firm Qihoo 360 and Tencent sued one another for unfair competition. In 2014, the Supreme People's Court issued a landmark ruling on the dispute, dismissing Qihoo 360's claims against Tencent. Angela Zhang, associate professor of law at the University of Hong Kong, said that matter essentially set precedent for other courts, making it harder for plaintiffs to challenge Tencent's dominance.

The general perception of local protectionism is broadly accurate, but doesn't make for slam dunks. "Chinese judges, especially those from developed regions such as Guangdong, have become very professional after rounds of judicial reform," Zhang said. "Blatant corruption in those highly professionalized courts is uncommon these days."

And local businesses worldwide prefer to have local courts handle their legal disputes. "[Local companies] simply know the judges in their home jurisdiction better, not necessarily in person, but also in understanding their preference and belief," Zhang said. "This information advantage helps local firms better frame their arguments and present them in court."

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