Legal dispute adds to Qihoo 360’s woes as it awaits regulatory approval for back door listing

The legal dispute has prompted regulatory inquiry, adding more uncertainty to Qihoo’s back door listing worth US$7.5 billion

PUBLISHED : Monday, 18 December, 2017, 9:46pm
UPDATED : Tuesday, 19 December, 2017, 3:12pm

Qihoo 360, the dominant Chinese cybersecurity software provider, is being threatened with a lawsuit by a former business partner, the latest in a string of legal disputes to get in the way while it awaits regulatory approvals for its US$7.5 billion plan to transfer its listing status from New York back to Shanghai.

The9th Limited, a Nasdaq-listed gaming operator, demanded 2.3 billion yuan (US$340 million) in compensation from Qihoo, in a dispute involving a venture for distributing and operating an online game called FireFall.

The dispute arose because Qihoo “did not cooperate, operate or promote as promised in the agreement, leading to losses for our company,” said Ji Wei, legal lawyer of The9th’s subsidiary City Channel, which owns 50 per cent stake in the venture. A spokeswoman said Qihoo was working on a response to queries by the Post.

The dispute comes at an inopportune moment for Qihoo’s founder and chief executive Zhou Hongyi, who took his firm private last summer in a 50 billion yuan (US$7.5 billion) plan to relist his assets in Shanghai for their higher valuation. The plan is awaiting the approval of the China Securities Regulatory Commission (CSRC), according to a stock exchange filing on November 2.

Qihoo’s subsidiary Qifei owns the remaining 50 per cent of the FireFall venture with The9th.

The9th is a US$64 million operator of gaming and software industry based in China. It was founded in 1999 by Zhu Jun, former boss of the Chinese Super League member Shanghai Greenland Shenhua Football Club.

The9 Limited went public on Nasdaq in late 2004 and raised more than US$100 million, after winning the exclusive license to distribute and operate the online game World of Warcraft, which it later lost to another Chinese internet gaming company NetEase.

The venture itself was sued last year for US$160 million by Red 5 Singapore Pte., an affiliate of the American developer of FireFall, a company called Red 5 Studios Inc.

That suit, and the legal risks faced, have not been fully disclosed, Red 5 said during a November 29 press conference in Shanghai, after it filed a report to the CSRC.

The Chinese regulator wrote back more than two weeks later, demanding Qihoo to clarify its ongoing lawsuits and arbitration cases related to it, according to a stock exchange statement.

The disputes didn’t end with Red 5 or FireFall. Earlier this month, a blogger reported that restaurants, cafes and even hotels using Qihoo’s surveillance cameras were live-streaming the footage to the company’s subsidiary Waterdrop Livestream without the customers’ knowledge.

Qihoo defended itself last Tuesday, saying the live broadcast function is turned off by factory settings, so the owners of the cameras, rather than Qihoo, are responsible for making the live broadcasts available.

(Corrects the name of the gaming venture to FireFall.)