Chinese regulator warns Qihoo 360 for unfair competition with browser and antivirus products [updated]

Shares of Chinese Internet giant Qihoo 360 slipped 1.5% on Monday as news broke that the company had been warned for unfair competition and its iOS apps had been mysteriously pulled from the App Store, as noted by Bloomberg.

Updated below with response from Qihoo’s CFO

Though the original report points out that Qihoo had hit its lowest share price in the past week, the drop is not yet cause for concern. In the past six months, it has climbed an impressive 104% with the help of investor confidence that it will pose a competitive threat to Baidu, China’s leading search engine.

Qihoo operates browser, antivirus and security software, as well as a Web portal and now a search engine. It also runs one of the country’s top gaming sites. It first launched its search product last summer and quickly gained traction. The company has, however, faced allegations that it was copying search results from Baidu. Last November, the government even stepped in to the dispute by calling search engine operators together to have them sign a “self-discipline agreement”.

Last week, the government intervened yet again. The Beijing Industrial and Commercial Administration Bureau announced on its Sina Weibo microblog that it had met with a Qihoo representative to issue an administrative warning of unfair competition with the use of its 360 security software in the browser space.

Qihoo itself may have its own competition complaints. It alleges that Baidu is notifying users that visit its site from Qihoo’s browser that the software is incompatible.

The other piece of bad news for Qihoo recently is the disappearance of its apps from Apple’s App Store. Company CFO Alex Xu told Bloomberg that its software had been “abruptly removed” with no explanation why. Rival Baidu also had its apps temporarily pulled from the App Store earlier this month, though its offerings have since been restored. Qihoo’s own apps will most likely return to the App Store soon as well.

Update: Qihoo CFO Alex Xu provided the following statement to The Next Web:

We received a notice from Beijing Industrial and Commercial Bureau regarding an unfair competition complain a few days ago. We are not aware any additional pending procedure related to this matter. In the past few years, we have been going through quite a few unfair competition related law suit, both as plaintiff and defendant. None of these legal procedure resulted in any material consequence to us or our rivals. Most industry observers believe that “unfair competition” claim is simply becoming a legal and regulatory maneuver frequently used by Chinese companies to slow competitors’ gaining.

Regarding the Apple iTunes situation, last Saturday (Jan. 25) morning Apple abruptly removed most of Qihoo’s iOS apps from its iTunes store without a clear reason. We note other leading Chinese Internet companies’ (such as Tencent and Baidu) key apps were also removed from iTunes for a short period of time in the past few months probably due to Apple revising some of the iTunes store policies. We are in close communications with Apple and we expect the situation to be temporary. Users who already installed our apps on their iOS devices should be able to continue using those apps normally.

As a leading mobile security solution provider and Android based mobile market place operator in China, a significant majority of our user base are on Android. With Chinese smartphone market further penetrating toward lower end, we intend to maintain and expand our leadership positions and our user base is likely further moving toward Android based open system. We do not expect the incident to have any meaningful financial or operational impact to our business.

Image via Flickr / keso