Yahoo China wins unfair competition lawsuit

SHANGHAI (Reuters) - Yahoo China has won a lawsuit it brought against a local search engine operator over unfair competition, Yahoo China's owner, Alibaba.com, said on Thursday.

Beijing's Second Intermediate Court ruled that Beijing Sanjiwuxian Internet Technology, operator of the Qihoo search engine, must stop competing unfairly and compensate Yahoo China for damages and legal costs, Alibaba said in a statement.

Beijing Sanjiwuxian was also required to make a public announcement clarifying "incorrect allegations," the statement said, without specifying the size of any possible damages.

A Beijing Sanjiwuxian spokeswoman said the firm would appeal the verdict.

Yahoo China's suit had claimed that Qihoo's 360safe software prompted users to uninstall the Yahoo Toolbar by making users believe the toolbar was 'malware' -- software that users download unknowingly and is difficult to remove.

Qihoo is run by Zhou Hongyi, a former Yahoo employee who sold his Internet search business to U.S.-based Yahoo Inc. (YHOO.O) in 2003 and had remained with the firm after that.

Yahoo Inc. took a 40 percent stake in Alibaba, folding its own China business into Alibaba and making a $1 billion payment in exchange.

Zhou left shortly after it was announced last year that Alibaba would take over Yahoo Inc.'s Chinese operations. He now is chairman for Qihoo, whose investors include venture capital heavyweights Sequoia Capital and IDG.

Zhou previously took legal action in Beijing alleging defamation against Yahoo China.

Both Zhou and Alibaba founder Jack Ma are known in China's Internet world as highly vocal and opinionated entrepreneurs, each building his company from scratch to become the business leader in its respective area.

Zhou's company, formerly known as 3721, was virtually synonymous with search in China when Yahoo bought it in 2003.

He was a highly visible figure before the purchase, and continued to freely express his views after the deal even as 3721 stumbled under competition from Google (GOOG.O) and Baidu (BIDU.O), China's current Internet search leader.