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Here is the details of the dispute (as outlined in the Wall Street Journal).

The conflict appears to have started two months ago when Qihoo 360, which has 300 million users, alleged that QQ was scanning the private data of its more than 600 million users and released software claiming to block plug-ins that could cause such privacy leaks. Tencent denied the allegations and sued Qihoo, according to state-run newspaper Guangzhou Daily, which reported yesterday that a Beijing district court accepted the case.

It’s unclear what prompted Qihoo to target Tencent, and both companies declined to answer more questions on the issue.

Meanwhile, social networking site Renren.com has rushed out a patch program–named QQ Quarrel Interpose–for web users to download so they can still run QQ and 360’s anti-virus software on the same computer.

In a statement sent to users Wednesday, Tencent said “Dear QQ users, this email is to inform you that we’ve just made a very difficult decision. Until Qihoo 360 removes the tag-on service and malicious slander against QQ software, we have decided to stop running QQ software on computers that have installed the 360 software. We are fully aware of the inconvenience this may cause you, and we sincerely apologize for it.” Analysts say it’s hard to estimate how many users use software from both companies, but given their popularity, the number could be in the millions.

An attempt by The Wall Street Journal to run QQ on computers with 360 products Wednesday night resulted in a window reading: “360 malware damages the safe operation of QQ, and therefore threatens the safety of QQ accounts. We urge you to uninstall all 360 products before normally running QQ.”

Beijing-based Qihoo 360 first responded to the announcement by suggesting that QQ users transfer to a browser-based instant-messaging client through which they can log in to their QQ accounts without installing any software. But Tencent then suspended its browser-based QQ  service , prompting Qihoo 360  to release an open letter calling on web users to “stop using QQ for three days and switching to other instant messaging tools” as a resistance against Tencent.

Though online polls are hardly a scientific measurement of public opinion, one poll on popular Internet portal 163.com suggests Tencent may be taking a hit in this publicity battle. Of 423,000 respondents who were asked whether they would remove Tencent or Qihoo 360’s software, 66% voted to remove Tencent’s software, while 34% chose Qihoo 360. As of Thursday afternoon, 7,200 people signed a petition saying “In this vicious war, we general users are the innocent ones! Tencent is the probable winner, but what the company has done is wantonly trample on users’ right to freely use the Internet.”

Meanwhile, industry analysts say the incident is developing into a lose-lose situation.

“Both firms claim users supreme, but they are actually doing harm to the interests of users,” said Yu Yang, head of Beijing-based research firm Analysys International. “No products are indispensable, and any kind of customer hijacking is simply lifting a rock only to drop it on their own feet.”

Several Chinese government departments, including the Ministry of Industry and Information Technology and the Ministry of Public Security, have interfered in the dispute between the two companies, Qihoo 360 executives said last night, according to several Chinese-language media outlets, but a resolution has yet to be reached.

Source: China Realtime Report