TikTok Download Ban Is Blocked by Judge

(WSJ) A federal judge blocked the Trump administration’s attempt to ban TikTok downloads in the U.S., giving the Chinese-owned app a short-term victory as it scrambles to ensure its future while caught in a battle of brinkmanship between global superpowers.

The ruling by Judge Carl Nichols of the U.S. District Court in Washington, D.C., gives TikTok owner ByteDance Ltd. more time to get approval from U.S. and Chinese authorities for a pending deal that includes Oracle Corp. and Walmart Inc. 

The court drama on Sunday, with the ruling landing less than four hours before the ban was to take effect, was a new chapter in a protracted saga still without a clear ending. 

President Trump earlier this month gave the deal his preliminary blessing as a way to address his administration’s national security concerns. The U.S. Committee on Foreign Investment still must approve the particulars, including the sticky question of who would have majority ownership. The Chinese government could also nix it. 

The specter of a future U.S. government ban also remains. The U.S. Commerce Department plans Nov. 12 to implement a full ban rendering the app unusable for U.S. users if an American deal for TikTok isn’t completed by then.

The courts could also ultimately side with the government and allow the ban to move forward. Judge Nichols, who was nominated by President Trump last year, on Sunday asked both sides to propose a timeline for more detailed arguments. He didn’t immediately explain the ruling to block the ban indefinitely.

TikTok has become hugely popular over the past year, particularly among young people, and its downloads have climbed through the pandemic as users find respite in its feed of frothy and silly videos. TikTok says the app has more than 50 million daily active U.S. users, and 100 million monthly users.

A spokeswoman for TikTok said in a statement late Sunday that it was pleased the court agreed with its legal arguments to halt the ban. “We will continue defending our rights for the benefit of our community and employees,” she said.

TikTok also plans to continue its discussion with the U.S. government to reach an agreement, she said.

The Commerce Department said in a statement Sunday that it will comply with the injunction but plans to vigorously defend its implementation efforts from other legal challenges.

The ruling marked the second time in a week that the U.S. courts struck down attempts by the Trump administration to block Americans’ access to Chinese-owned apps. Last week, a U.S. magistrate judge stopped a ban on the popular messaging app WeChat after a group of the apps’ users sued the government. 

Governments in both countries are actively reviewing ByteDance’s proposed resolution to the standoff. They are driven by competing interests. In China, officials are worried about ByteDance losing control of the popular app and its underlying technology, and about the precedent that would be set by U.S. owners taking over a China-based company’s intellectual property. 

In the U.S., officials have said they are reviewing any deal with an eye toward meeting their own goal: wresting control of TikTok from Chinese owners over concerns that the data TikTok collects from U.S. consumers could be shared with the Chinese government, threatening U.S. national security. TikTok has said it operates independently of the Chinese government and that it wouldn’t turn over its data if pressured.

ByteDance’s proposed deal with Oracle and Walmart is designed to address concerns on both sides of the Pacific Ocean.

Under a preliminary deal that Mr. Trump approved in concept, Oracle and Walmart would take a combined 20% in TikTok Global, a new U.S.-based company that would run the global service. Details of the structure are still in flux, people involved with the deal talks have said, as the companies try to ensure that it will win final approval from both governments.

One point of confusion has been the exact ownership breakdown, with the TikTok side and Oracle having issued contradictory messages since the preliminary deal was announced. A spokesman for ByteDance has said that it would directly hold an 80% share of TikTok Global, while Oracle has said publicly that Americans will be the majority owners and ByteDance will have no ownership in TikTok Global.

One way those claims could square, according to some people familiar with the talks, is to have ByteDance initially own its majority stake in TikTok when the deal is completed, and then have it reduced soon afterward. That could come by distributing ByteDance’s stake to existing shareholders, many of whom are U.S. investors, and through a fundraising round ahead of a U.S. initial public offering that deal participants have said would come within a year.

But another person close to the situation disputed that theory and said Americans will be the majority owners as soon as the new company is formed.

With the deal reviews continuing, TikTok argued in court Sunday that the ban on downloads would harm its business. “This is just punitive,” TikTok lawyer John Hall said during Sunday morning’s arguments. “This is just a blunt way to whack the company now while doing nothing to achieve the stated objective of the prohibitions.”

Justice Department lawyer Daniel Schwei defended the federal government’s intent to protect TikTok users’ personal data and stop new users from potentially putting even more data at risk.

Commerce Secretary Wilbur Ross is entitled “to address the most important, immediate threat to national security, which is new users continuing to sign up and making their data vulnerable to the Chinese government,” Mr. Schwei said.

In a memo filed with the court on Friday, the U.S. government said one reason for concern is a “high level” of activity between U.S.-based TikTok users and IP addresses located in China and owned by a Chinese company. The memo also said that before February 2019, TikTok stored its U.S. user data in China. TikTok has said it hasn’t and wouldn’t share information about U.S. users with the Chinese government.

Before Sunday’s hearing, other tech companies weighed in on TikTok’s side. “There is no previous example in U.S. history of a complete ban of a media platform that directly deprives a quarter of the U.S. population access to information on that platform,” NetChoice, a trade group that represents online giants such as Amazon.com Inc., Facebook Inc. and Google, said in a court filing.

The group also warned that the Trump administration’s ban could provide other governments “with new justifications for preventing American technology businesses from accessing foreign markets.” It said the U.S. government hasn’t provided “evidence that China’s Communist Party or military have acquired data on TikTok’s users in the United States,” adding that the government could address its concerns in other ways, such as data security safeguards.

Vanessa Pappas, TikTok’s interim head, had previously encouraged other tech companies to support TikTok’s litigation.

Source: Wall Street Journal by Katy Stech Ferek and Georgia Wells

TikTok Download Ban Is Blocked by Judge TikTok Download Ban Is Blocked by Judge Reviewed by TechCO on 9/28/2020 Rating: 5

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