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22 July 2024

TikTok, ByteDance sue to block US law seeking sale or ban of app

By Reuters

TikTok and its Chinese parent company ByteDance sued in U.S. federal court on Tuesday seeking to block a law signed by President Joe Biden that would force the divestiture of the short video app used by 170 million Americans or ban it.

The companies filed their lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit, arguing that the law violates the U.S. Constitution on a number of grounds including running afoul of First Amendment free speech protections. The law, signed by Biden on April 24, gives ByteDance until Jan. 19 to sell TikTok or face a ban.

"For the first time in history, Congress has enacted a law that subjects a single, named speech platform to a permanent, nationwide ban," the companies said in the lawsuit.

The lawsuit said the divestiture "is simply not possible: not commercially, not technologically, not legally. ... There is no question: the Act (law) will force a shutdown of TikTok by January 19, 2025, silencing the 170 million Americans who use the platform to communicate in ways that cannot be replicated elsewhere."

The White House has said it wants to see Chinese-based ownership ended on national security grounds but not a ban on TikTok. The White House and Justice Department declined to comment on the lawsuit.

The lawsuit is the latest move by TikTok to keep ahead of efforts to shut it down in the United States as companies such as Snap (SNAP.N), opens new tab and Meta look to capitalize on TikTok's political uncertainty to take away advertising dollars from their rival.

Driven by worries among U.S. lawmakers that China could access data on Americans or spy on them with the app, the measure was passed overwhelmingly in Congress just weeks after being introduced. TikTok has denied that it has or ever would share U.S. user data, accusing American lawmakers in the lawsuit of advancing "speculative" concerns.

Representative Raja Krishnamoorthi, top Democrat on a House committee on China, said the legislation is "the only way to address the national security threat posed by ByteDance’s ownership of apps like TikTok."

"Instead of continuing its deceptive tactics, it’s time for ByteDance to start the divestment process," he said.

The law prohibits app stores like Apple (AAPL.O), opens new tab and Alphabet's Google (GOOGL.O), opens new tab from offering TikTok and bars internet hosting services from supporting TikTok unless ByteDance divests TikTok by Jan. 19.

The suit said the Chinese government "has made clear that it would not permit a divestment of the recommendation engine that is a key to the success of TikTok in the United States." The companies asked the D.C. Circuit to block U.S. Attorney General Merrick Garland from enforcing the law and says "prospective injunctive relief" is warranted.

According to the suit, 58% of ByteDance is owned by global institutional investors including BlackRock, General Atlantic and Susquehanna International Group, 21% owned by the company's Chinese founder and 21% owned by employees - including about 7,000 Americans.

Tensions over Internet and Technology

The four-year battle over TikTok is a significant front in the ongoing conflict over the internet and technology between the United States and China. In April, Apple said China had ordered it to remove Meta Platforms' (META.O), opens new tab WhatsApp and Threads from its App Store in China over Chinese national security concerns.

TikTok has spent $2 billion to implement measures to protect the data of U.S. users and made additional commitments in a 90-page draft National Security Agreement developed through negotiations with the Committee on Foreign Investment in the United States (CFIUS), according to the lawsuit.

That pact included TikTok agreeing to a "shut-down option" that would give the U.S. government the authority to suspend TikTok in the United States if it violates some obligations, according to the suit.

In August 2022, according to the lawsuit, CFIUS stopped engaging in meaningful discussions about the agreement, and in March 2023 CFIUS "insisted that ByteDance would be required to divest the U.S. TikTok business." CFIUS is an interagency committee, chaired by the U.S. Treasury Department, that reviews foreign investments in American businesses and real estate that implicate national security concerns.

In 2020, then-President Donald Trump was blocked by the courts in his bid to ban TikTok and Chinese-owned WeChat, a unit of Tencent (0700.HK), opens new tab, in the United States. Trump, the Republican candidate challenging the Democrat Biden in the Nov. 5 U.S. election, has since reversed course, saying he does not support a ban but that security concerns need to be addressed.

Biden could extend the Jan. 19 deadline by three months if he determines ByteDance is making progress. The suit said the fact that Biden's presidential campaign continues to use TikTok "undermines the claim that the platform poses an actual threat to Americans." Trump's campaign does not use TikTok.

Many experts have questioned whether any potential buyer possesses the financial resources to buy TikTok and if China and U.S. government agencies would approve a sale.

To move the TikTok source code to the United States "would take years for an entirely new set of engineers to gain sufficient familiarity," according to the lawsuit.