Executive Order Regarding the Acquisition of Musical.ly by Bytedance Ltd., Aug. 14, 2020

On Aug. 14, 2020, Donald Trump issued a second Executive Order directed at Chinese media company ByteDance.  The second Executive Order requires ByteDance to divest its ownership of TikTok, the popular social media platform involving short videos, within 90 days.  Trump's reason: "There is credible evidence that leads me to believe that ByteDance Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("ByteDance"), through acquiring all interests in musical.ly, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("Musical.ly"), might take action that threatens to impair the national security of the United States."

Earlier, President Trump and Secretary of State Mike Pompeo announced their desire to ban “untrusted” Chinese tech apps such as, TikTok in an effort to lower national security risks. Pompeo stated that Trump would take action against Chinese software companies that dispersed user data with the Chinese government. Several days later, Microsoft confirmed that it sought out the Chinese technology company that owns TikTok, ByteDance, to acquire parts of TikTok in the U.S. Microsoft ensured that it would work with the U.S. government regarding the deal of acquiring TikTok. Microsoft agreed to provide “proper economic benefits to the United States, including the United States Treasury.” (Read Microsoft's Aug. 2, 2020 statement.) Avery Gardiner, general counsel and senior fellow at the Center for Democracy and Technology, points out how deals with conditions set a dangerous precedent for future mergers. CNN suggests that Trump’s demand that the U.S. government receive a “substantial amount of money” from any TikTok deal will set a dangerous example for years to come. More particularly, President Trump hopes to receive a “very large percentage” in any deal made regarding this matter. Concerns arise about what that percentage might look like considering TikTok is estimated to be worth $50 billion. Ultimately, President Trump ordered the deal to be set by September 15, otherwise the app would be banned in the U.S.

China made it clear that TikTok will remain with the Chinese technology company, ByteDance – not the United States.  China appears to be contemplating various responses if the Trump Administration decided to “smash and grab” TikTok.

The Committee on Foreign Investment in the United States (CFIUS) grants the U.S. government the power to force foreign firms to sell their business to an American company.  CFIUS did so with Grindr, a gay dating app. The Chinese owners of Grindr were compelled to sell over the app due to national security concerns. Additionally, CFIUS is already investigating ByteDance, the Chinese tech firm that owns TikTok, over a 2016 acquisition of the app Musical.ly.  You can learn more about CFIUS's powers in this review by a US law firm Cooley.

Mike Jones, co-founder and managing partner at Science Inc., told CNN: “The recent events around TikTok will change the way we look at companies that are based in China or have interest in expanding to China, which is often one of the most interesting markets to expand into from the US. The recent developments give us pause and change the way we think about company growth and development when the government could block them from crossing into markets.” 

Trump sets deadline for sale of TikTok operations in the US https://t.co/tXanpUHtqa

— Financial Times (@FT) August 15, 2020

--written by Alfa Alemayehu

Late on Thursday, Aug. 6, 2020, Donald Trump issued two executive orders, one against TikTok and the other against Tencent's messaging platform WeChat.  Claiming a "national emergency," Trump invoked the authority of the "President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code." For a good summary of the International Emergency Economic Powers Act, read Anupam Chander's recent Washington Post op-ed and this NPR interview with Elizabeth Goitein.

The Executive Orders prohibits, "to the exent permitted under applicable law," any transactions with "ByteDance Ltd. (a.k.a. Zìjié Tiàodòng), Beijing, China, or its subsidiaries, in which any such company has any interest" (ByteDance owns TikTok) and with WeChat in 45 days.  The Secretary of Commerce is to identify the transactions prohibited by the order 45 days after the date of the order.  The Excecutive Order also prohibits "[a]ny transaction by a United States person or within the United States that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate the prohibition." To justify this emergency action, Trump claimed the following charges on Bytedance and TikTok:

I, DONALD J. TRUMP, President of the United States of America, find that additional steps must be taken to deal with the national emergency with respect to the information and communications technology and services supply chain declared in Executive Order 13873 of May 15, 2019 (Securing the Information and Communications Technology and Services Supply Chain).  Specifically, the spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China (China) continues to threaten the national security, foreign policy, and economy of the United States.  At this time, action must be taken to address the threat posed by one mobile application in particular, TikTok.

TikTok, a video-sharing mobile application owned by the Chinese company ByteDance Ltd., has reportedly been downloaded over 175 million times in the United States and over one billion times globally.  TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories.  This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.

TikTok also reportedly censors content that the Chinese Communist Party deems politically sensitive, such as content concerning protests in Hong Kong and China’s treatment of Uyghurs and other Muslim minorities.  This mobile application may also be used for disinformation campaigns that benefit the Chinese Communist Party, such as when TikTok videos spread debunked conspiracy theories about the origins of the 2019 Novel Coronavirus.

These risks are real.  The Department of Homeland Security, Transportation Security Administration, and the United States Armed Forces have already banned the use of TikTok on Federal Government phones.  The Government of India recently banned the use of TikTok and other Chinese mobile applications throughout the country; in a statement, India’s Ministry of Electronics and Information Technology asserted that they were “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India.”  American companies and organizations have begun banning TikTok on their devices.  The United States must take aggressive action against the owners of TikTok to protect our national security.

Trump made similar charges against WeChat:

WeChat, a messaging, social media, and electronic payment application owned by the Chinese company Tencent Holdings Ltd., reportedly has over one billion users worldwide, including users in the United States.  Like TikTok, WeChat automatically captures vast swaths of information from its users.  This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.  In addition, the application captures the personal and proprietary information of Chinese nationals visiting the United States, thereby allowing the Chinese Communist Party a mechanism for keeping tabs on Chinese citizens who may be enjoying the benefits of a free society for the first time in their lives.  For example, in March 2019, a researcher reportedly discovered a Chinese database containing billions of WeChat messages sent from users in not only China but also the United States, Taiwan, South Korea, and Australia.  WeChat, like TikTok, also reportedly censors content that the Chinese Communist Party deems politically sensitive and may also be used for disinformation campaigns that benefit the Chinese Communist Party.  These risks have led other countries, including Australia and India, to begin restricting or banning the use of WeChat.  The United States must take aggressive action against the owner of WeChat to protect our national security.

In a company blog post, TikTok said: "We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly – if not by the Administration, then by the US courts." TikTok also called upon its 100 users in the U.S. to make their voices heard in the White House: "We want the 100 million Americans who love our platform because it is your home for expression, entertainment, and connection to know: TikTok has never, and will never, waver in our commitment to you. We prioritize your safety, security, and the trust of our community – always. As TikTok users, creators, partners, and family, you have the right to express your opinions to your elected representatives, including the White House. You have the right to be heard."

In a report by CNN, a Tencent spokesperson said it it reviewing the Executive Order. There is some confusion on the scope of the Executive Order, which names any transactions with "Tencent Holdings" (not just WeChat). Tencent is a massive global conglomerate with many products and services (e.g., videogames by Riot Games, such as "League of Legends"), not just WeChat. A White House representative later confirmed to the LA Times that the order only applies to WeChat, not all of Tencent.

Meanwhile, according to the Wall St. Journal, bills have passed in the House and Senate that, if enacted, would ban federal employees from using TikTok on government devices. To pass, Congress would have to agree on the same bill.