On the evening of April 23rd, the US Senate passed a package of aid measures, including a potential ban on TikTok. President Biden signed these bills into law on Wednesday. The new law requires ByteDance, the Chinese owners of TikTok, to sell its US operations for the social media application within 9 months to 1 year, or else TikTok will face a ban.
TikTok has stated its intention to challenge the new law in court. So, what will be the outcome of this legal battle? Will this legislation prompt other countries to follow suit?
The US Congress and government are concerned that under the Chinese National Security Law, the Chinese government may access the data of TikTok’s 170 million American users. Christopher Wray, director of the Federal Bureau of Investigation (FBI), has stated that ByteDance is “controlled by the Chinese (Communist) government.”
He warned that the Beijing authorities could influence Americans by manipulating algorithms that control what people see on TikTok. This could allow the Chinese government to collect user data for “traditional espionage activities.”
TikTok has denied that the Chinese government is trying to obtain American user data, and has stated that it will reject any such requests. Last year, during a congressional appearance, TikTok CEO Shou Zi Chew stated, “Let me be clear: ByteDance is not an agent of China (the Communist Party) or any other country.”
According to a report by Fortune on April 15th, many former employees interviewed, some of whom were hired just last year, revealed that during their tenure, TikTok’s business was at least partially intertwined with its parent company, and the company’s alleged independence from China was largely a facade.
Former employees disclosed that every 14 days, spreadsheets containing data of hundreds of thousands of American TikTok users were sent via email to ByteDance in Beijing. This data included the names, email addresses, IP addresses, as well as geographical and demographic information of American TikTok users. All of this occurred as TikTok began implementing policies to keep sensitive American user data in the US and only allow US employees to access it.
Senate Intelligence Committee Republican leader Senator Marco Rubio stated on Tuesday night, “For years, we have allowed the Chinese Communist Party to control one of the most popular applications in the US, which is a dangerous shortsighted act.” “A new law will require the foreign owner to sell the application. This is a good move for the US.”
The bill grants ByteDance, the Beijing-based parent company of TikTok, 270 days to sell the application’s US operations. If the deadline approaches and ByteDance seems close to completing the transaction, the President can authorize a 90-day extension.
The final deadline is expected to arrive around the time of the next president’s inauguration on January 20th, which means that if Trump wins the election, he could decide whether to extend the sale process.
If ByteDance fails to sell TikTok, then TikTok will face a nationwide ban, prohibiting app stores and network hosts from distributing the TikTok application.
Ahead of the law becoming effective, TikTok has already announced that once the bill is signed, they will challenge it in court, claiming it violates the First Amendment of the US Constitution protecting freedom of speech.
On Wednesday, TikTok posted on X, stating, “This unconstitutional law is a ban on TikTok, and we will challenge it in court.”
Although some analysts believe that the stance of the First Amendment favors TikTok, Barron’s interviewees stated that the specific details of the legislation make it unlikely for the company to significantly delay the law’s enforcement in the long term.
Barron’s reported on April 22nd that one reason for this is that the law stipulates that ByteDance or other companies affected by the law have 165 days to challenge it or, within 90 days, question the investigation results for the divestment of TikTok. These challenges are directly submitted to the US Circuit Court of Appeals for the District of Columbia, rather than lower courts, significantly shortening the time the law could be stayed in the judiciary.
Ed Mills, a Washington policy analyst at Raymond James, stated, “By filing suits in the DC Circuit, Congress has also eliminated the possibility for TikTok or ByteDance to shop for a judge in multiple jurisdictions to try to find one that aligns with their viewpoint.”
Mills added, “We’ve seen the judicial system used for significant review of regulators and Congress, but this is an uphill battle for TikTok.”
The company’s preliminary prediction is that TikTok, at least for now, may cease operations in the US by 2025.
TikTok did not respond to requests for comment from Barron’s. Following the bill’s passage in the House, the company stated that it would “trample the free speech rights of 170 million Americans, destroy 7 million businesses, and shutter a platform that contributes $24 billion annually to the US economy.”
TikTok may argue that the law violates the constitutional protection of freedom of speech and is an unconstitutional “bill of attainder” that punishes specific companies without due process. The company has used similar arguments to challenge another law in Montana concerning a TikTok ban. A federal judge recently halted that law, stating it may infringe on the First Amendment.
Isaac Boltansky, an analyst at BTIG, wrote in a research report, “Most of our contacts view this as a complex case with diverging views on the outcome, but we tend to believe that the divestiture/ban law will receive judicial support.”
The last time the US attempted to ban TikTok was in 2020 when then-President Trump issued executive orders, and a Washington judge deemed the ban “likely exceeds” the bounds of the law, leading TikTok to secure a preliminary injunction against Trump’s executive orders.
However, this time TikTok is facing a law, not a presidential executive order.
The US government may argue in court that there are national security reasons for enforcing the ban.
The Guardian reported that David Greene, the Director of Civil Liberties at the Electronic Frontier Foundation, stated, “The government must prove in court that the national security concerns are real, rather than assumed or speculative… A complete ban on TikTok is not a tailored solution to address national security issues.”
The Guardian reported that analysts at Wedbush Securities, a US financial services company, stated that they do not expect the Chinese government to approve the sale of TikTok’s algorithm.
In a report to investors, Wedbush stated, “Without the algorithm, TikTok’s value would undergo massive changes, making the final sale/divestiture of TikTok a very complex process, with many prospective strategic/financial bidders eagerly awaiting the start of this process.”
Host of “Shark Tank” and Canadian star investor Kevin O’Leary stated on CNBC’s “Street Signs Asia” in March that he is forming a consortium interested in acquiring TikTok for $20 to $30 billion, a 90% decrease from TikTok’s valuation in 2023 of $220 billion according to PitchBook data.
O’Leary explained that the Chinese government is unlikely to agree to the sale of TikTok’s algorithm, so any sale transaction would not include the algorithm. Potential buyers would have to “reverse-engineer” these algorithms using US code and act as “stewards” to transition the platform from “TikTok China to TikTok US,” leading to the devaluation of TikTok.
Former US Treasury Secretary Steven Mnuchin stated in a CNBC interview that he is assembling a group of investors to purchase TikTok’s US operations, but did not disclose specific details.
The Chinese government stated last year that they would “firmly oppose” the sale of TikTok, citing that it would “seriously harm the confidence of investors from China and other countries investing in the US.”
China has also implemented export rules banning the sale of certain technologies.
Due to shared concerns about data, TikTok has already faced pressure in other Western countries. The UK, US, Canada, and New Zealand have banned the use of TikTok on government-issued phones, and staff at the European Commission are also prohibited from using TikTok on work devices.
TikTok has been banned in Pakistan, Nepal, and Afghanistan, and is restricted in many European countries.
People, including former Conservative Party leader Iain Duncan Smith, have called for a ban in the UK. Smith stated last month, “We should be doing this ourselves.”
TikTok and dozens of other Chinese applications were banned in India in 2020, with the Indian government stating that they “jeopardize India’s sovereignty and integrity, India’s defense, national security, and public order.”
In India, the ban was swiftly enacted in 2020. While TikTok and other companies were given time to address privacy and security issues, by January 2021, it became a permanent ban.
Digital policy expert and founder of the tech website MediaNama, Nikhil Pahwa, told The Washington Post that the situation in the US is different. “In India, TikTok decided not to go to court, but the US is a larger revenue market for them. Additionally, the First Amendment in the US is quite strong, so it’s not as easy for the US to do it as it was in India.”
“The Chinese intelligence and cybersecurity laws can allow Chinese applications to operate for (Communist) self-security, creating a situation of mistrust and posing national security risks to other parties,” Pahwa added.
“Different rules should apply to democratic countries and authoritarian regimes; in these (authoritarian) countries, companies can act as extensions of the state,” he added.