Yahoo China's bitter divorce drags on

The Internet giant's Chinese division files suit against its former president's rival portal, Qihoo.

Call it the battle of China's Internet tigers. Yahoo! China has gone to court in Beijing claiming rival portal Qihoo is engaged in unfair business practices. At issue: Qihoo's new anti-spyware program, 360 Safe, that prompts users to de-install Yahoo China's toolbar.

The battle between the two similarly named companies - hoo means "tiger" in Chinese - has been heating up for months. It only makes matters worse that Qihoo's founder, Zhou Hongyi, is a former president of Yahoo China. Zhou, says Yahoo China spokesman Porter Erisman, is "motivated by a personal vendetta and is using the resources of Qihoo to carry it out by misleading Chinese Internet users and attempting to damage Yahoo China's business."

Zhou is equally tough. "I don't mind being cursed as evil," says the 36-year-old chairman, who started Qihoo earlier this year after being forced out of Yahoo China for what Erisman calls "performance reasons." Zhou berates Yahoo China and other Internet companies for being afraid to stand up to spyware: "Qihoo is providing a tool for all Chinese Internet users to protect themselves."

That may come as a surprise to those who know Zhou as the founder of 3721, China's first keyword search engine, which he sold to Yahoo for $120 million in 2003. That company's 3721 Assistant software, which was almost impossible to de-install and which plagued users with frequent pop-up windows, is considered by many to have introduced spyware to China. "I did something inappropriate," says Zhou, "that I am now trying to make up for."

Zhou insists that 360 Safe doesn't target any company and gives users the option to de-install Yahoo's toolbar. That seems to be what a lot of them are doing. On Qihoo's top ten de-installed list in early October, Yahoo's toolbar ranked No. 1, with 700,000 users of 360 Safe choosing to trash it in just one week. If those numbers are to be believed, Zhou is certainly getting his revenge. And it would explain why Yahoo China, which is far bigger and healthier than Qihoo, is worried.

But Yahoo China's new chief, Jack Ma, whose Internet company, Alibaba, sold a 40 percent stake to Yahoo (Charts) last year for $1 billion, isn't boo-hooing. In addition to filing a lawsuit, he announced he was spending $13 million to promote his toolbar, and he called on Chinese Internet users to help stamp out malicious software like 360 Safe.

"You know why Yahoo China is so arrogant and reluctant to face their wrongdoings?" counters Zhou. "Because they have money."

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