By now, we have all heard about the ongoing battle in the USA over ByteDance’s famous app TikTok. How did a social media and video sharing app become such a problem? We asked our resident American attorney to offer a few insights into what is going on.
The August 6th Executive Order
This order states that TikTok poses a national security concern to the United States because it theoretically could allow inappropriate access to the personal information of US citizens gathered through the app’s social media sharing functions.
Based on this, President Trump exercised his authority under the International Emergency Economic Powers Act (IEEPA), which authorizes the President to restrict economic activities of foreign entities during a national emergency. Trump relied on his previous declaration in May of 2019 of a ‘national technological emergency’.
The relevant clauses of this order ban ‘transactions’ with TikTok, beginning 45 days from the date of the order.
Notably, ‘transactions’ is temporarily left undefined in the order. After day 45, and the US defines ‘transactions’, will investors be allowed to invest in TikTok? Will employees be precluded from earning salaries? All of this remains to be seen.
The August 14th Executive Order
This second order is based on different legal grounds, and centers on a formal finding by the Committee on Foreign Investment in the United States (CFIUS) that TikTok poses a national security threat to the United States.
This finding carries with it harsh consequences:
- The original acquisition by ByteDance of Music.ly is retroactively prohibited;
- ByteDance is given 90 days to divest itself from all US operations and assets;
- ByteDance must destroy all US-user data;
- ByteDance must keep CFIUS apprised of its efforts to sell its operations;
- ByteDance must allow federal agents to monitor its operations during these processes.
One important difference between these orders is the timeline. The August 6th order allows for a 45-day transition period, while the latest order gives ByteDance 90, with a potential extension. This likely indicates that more time will be allowed for a sale to occur.
Just the other day, TikTok/ByteDance filed a lawsuit against the US, seeking an injunction against enforcement of the August 6th executive order. They challenge it primarily on Constitutional grounds, alleging that the order deprives the company of due process and oversteps presidential power.
How that plays in Court remains to be seen, but it’s important to remember that the August 6th order and the August 14th order are predicated on different legal mechanisms entirely. In other words, neither order really supersedes or invalidates the other.
Quite interestingly, the company’s legal filing includes a window into the separate CFIUS inquiry that forms the basis of the August 14th order. Such inquiries are generally opaque, so it seems that TikTok/ByteDance is also using this filing to shed a little more light on the other outstanding actions it faces.
That said, even if we assume for a moment that TikTok/ByteDance prevails in this lawsuit, the second order is still hanging over its head, and that order is grounded in more commonly accepted powers related to CFIUS. Most notably, presidential actions like the August 14th EO related to CFIUS are subject to extremely limited judicial review, so TikTok/ByteDance will likely have a difficult time overcoming these efforts to force divestiture.
What does this all mean?
Regardless of outcome, the lawsuit lays out genuine constitutional and other legal concerns related to the August 6th order, considering the potentially wide-ranging repercussions of such executive actions. We will have to wait and see how the Courts handle it before speculating on what might happen to other similarly situated Chinese companies.
That said, the US is sending a strong signal, as it has been over the past several years, that it is taking an increasingly proactive posture on regulating foreign companies’ US investments.