Legal Challenges and the Debate on Restricting TikTok

Welcome everyone to another edition of my China Tech Law Newsletter. I was recently a guest on one of my favorite podcasts, called Embargoed with host Tim O'Toole of Miller & Chevalier Chartered in Washington, DC. Here is the link on Apple Podcasts , but you can search "Embargoed!" on any major podcast platform to find it.

We tried to cover the recent speculation of the potential forced sale of TikTok in the US, and also some of the new legislation being proposed that might result in a ban.

We focused on what we knew best, the legal basis for how this could take place. As many of you probably know, this time in 2023 would not be the first time the US tried to ban TikTok. Back at the tail end of his administration, President Trump attempted to ban TikTok by essentially declaring a "national emergency" under IEEPA. IEEPA is the International Emergency Economic Powers Act, which as Tim explains is the basis for most economic sanctions in the US. And how that effort was too directed at one company (hello, old school constitutional Bill of Attainder rules!), short on due process, and critically, was struck down on IEEPA First Amendment exception grounds.

Tim then takes the audience through newly proposed legislation aimed at overcoming the deficiencies of that prior attempt under Trump. As well as the advantages and disadvantages of using CFIUS tools to tackle the TikTok issue or at least as a point of leverage in discussions with TikTok.

The depth of Tim's experience comes through in this episode, and I won't summarize his key points here because that's precisely why you should listen to the podcast!

Let me talk about a couple points I was trying to make below.

To start, the First Amendment free speech argument is not getting enough attention and still strikes me as a major challenge to legislation that bans TikTok as being deemed unconstitutional. While protecting data on national security grounds might lower the judicial review level from "strict scrutiny" over control of the type of speech/expressive content to an easier (but still difficult) "intermediate scrutiny" standard for legislation that only incidentally impacts the manner of how speech/expressive can be delivered...note that even in the depths of the Cold War 1965 in Lamont v. Postmaster General, the Court struck down legislation that restricted the postal service from delivering communist propaganda to individual American citizens, with the Court concluding:

"If the government wants to withdraw a subsidy (of the postal service for mailing Communist propaganda) [because the government sending it] themselves have no equivalent guarantees (i.e. of certain Constitutional rights) only highlights the cherished values of our constitutional framework, it can never justify emulating the practice of restrictive regimes in the name of expediency."

This is not the place to get into a debate about the nature of different governments or the merits of proposed legislation, this is merely to cite the example that the Supreme Court sometimes thinks very differently from the Executive and Congressional branches when it comes to issues that even get close to touching First Amendment rights, and no matter how heated the political climate might be.

Second point is on the use of CFIUS to unwind the transaction. Its unclear how potentially unwinding Bytedance's 2017 acquisition of Musical.ly would work. As best I understand, the acquisition was merely as a means for TikTok to acquire users. In fact Bytedance's core product TikTok, which Musical.ly was folded into, likely uses little to no IP acquired from Musical.ly. The algorithms that drive TikTok (and its predecessor in China, Douyin) are the key technology that makes the product so addictively successful, and that technology has nothing to do with Musical.ly.

What would prevent Bytedance from simply cutting off the user accounts acquired from Musical.ly and having those people sign up next day for TikTok again? A horrible experience for the users, especially influencers that might have to start over again, but at least something that might be theoretically possible.

And if there was a forced sale of TikTok, who could afford to buy it? A strategic buyer like Facebook is already being looked at for anti-trust reasons. A consortium of private equity funds would likely have a hard time raising at least US$50 billion dollars in the high interest rate world we now live in.

And can TikTok even be separated without also owning the algorithm from Bytedance that drives its user acquisition and retention? It seems unlikely that algorithm technology would be for sale or even available to be licensed from Bytedance under any circumstances.

Semi-spoiler alert: Tim does see one avenue that might ultimately work here and could be enough to satisfy Congess as well, so again, please listen to the episode to hear that!

Regardless of what you think about TikTok, as I've written about before back in 2020 , they are essentially being asked to prove a negative on government interference or lack of it, which is pretty close to an impossible thing to do.

Finally, how can one look at all this and not think what a beautiful country and system we have where even a Chinese company can have its day in court and we can have a vibrant debate over whether legislation that would ban something in the name of national security might actually erode some of the freedoms which make our country so strong. Regardless of what you think the outcome should be, and regardless of the many flaws it has, that's still a great system of government we've had all these years and something to be very proud of.

OK, that's it for my latest China Tech Law Newsletter. Please subscribe if you have not done so already and I'll see you back here in 14 days!