HONG KONG -- Tencent Holdings-backed Kuaishou Technology, which operates China's second-largest short-video platform after ByteDance-owned Douyin, has filed a lawsuit against its larger rival, shedding light on the intense competition in the country's multibillion-dollar streaming market.
The dispute started as Beijing-based Kuaishou alleged that searching for the keyword "Kuaishou" on 360 Mobile Assistant, a major app store in China, leads users to a paid advertisement on Douyin, rather than its own app, according to a Beijing court filing released on Wednesday.
By clicking on the ad, users can directly download Douyin and may not need Kuaishou, the plaintiff said. Calling such practice "unfair competition," Kuaishou is now seeking compensation of five million yuan ($705,000), the court said.
"To date we have not received any legal documents from the court," a ByteDance spokesperson told the Nikkei Asian Review. "In fact, ByteDance had filed [a] lawsuit prior to this claim against Kuaishou on March 6th to Beijing Haidian District People's Court for illicit competition. Kuaishou diverted potential customers away from app stores and search engines by listing Kuaishou among the search results when users searched for Jianying, Toutiao and other ByteDance products. On May 12th, both parties have finished evidence exchange for the above mentioned lawsuit," the spokesperson said.
The lawsuit comes as short videos -- which usually last for 15 seconds and caters to Gen-Z users who have grown up in a fragmented media landscape -- have become the darling of advertisers. Practically nonexistent a decade ago, China's short-video market is expected to reach 38 billion yuan this year, according to a 2019 report published by consultancy iiMedia Research.
Douyin is the indisputable leader in the market, but Kuaishou is catching up. During the Lunar New Year holiday in late January, more than 226.5 million people, on average, tuned in every day to Kuaishou, according to market research firm QuestMobile. While that still lags behind Douyin's active daily users of roughly 317.7 million, it is a 40% jump from the preholiday period.
Backed by deep-pocketed investors, including Tencent and Singapore state investment company Temasek Holdings, Kuaishou last month also rolled out a new short-video app targeting overseas users, a move that has put the company in direct competition with ByteDance's hugely popular streaming app TikTok.
While their battle in the commercial world remains to be seen, Zhao Zhanling, a lawyer with Beijing-based firm Zhilin Law, told Nikkei that the outcome of the legal battle is almost certain.
"If a company uses its competitor's trademark as keywords for paid search service without permission, that company is generally viewed as misleading consumers and violating the law," Zhao said. "There is a very high chance that Kuaishou will win the case."
The court in Beijing said the case is under investigation and did not disclose a ruling date.
The latest argument with Kuaishou is adding to the legal risks facing ByteDance, the most valuable startup in the world whose services span from search to content and entertainment.
Last year, Chinese search engine Baidu sued ByteDance's news aggregation app Toutiao for "interfering with" its search results, while ByteDance has also been locked in a series of ongoing lawsuits with Tencent for accusations ranging from violating copyrights to unfair competition.