TikTok Stars Proved Key in Strategy to Fight U.S. Ban

(WSJ) In early September, a handful of TikTok stars, most of them in their early 20s, gathered on a Zoom call to tackle a weighty question: Should they take on the U.S. government?

After more discussions, Doug Marland, a 23-year-old comedian from New Jersey, raised his hand to join a lawsuit objecting to the Trump administration’s order to ban the app. Two others—musician Alec Chambers and fashion designer Cosette Rinab—also volunteered.

The three have a combined 7.4 million followers on TikTok and make their livings off the app. The suit argued that a ban would mean losing their income and limiting their ability to express themselves.

The lawsuit got little attention when it was filed in a Pennsylvania court. The TikTok stars ultimately prevailed—and the case has become central in creating a path for the app to maintain its foothold in the U.S., where it is now used by almost one in three Americans.

It looked like a grass-roots effort, but it was not. Behind the scenes, the legal action was orchestrated by TikTok and its Chinese parent company, ByteDance Ltd., according to people familiar with the matter. It lined up the influencers to be plaintiffs, connected them with a top First Amendment lawyer and helped create a legal strategy that was complementary to a separate lawsuit the company pursued under its own name, the people said.

It was an unexpected twist in a geopolitical business saga that began this summer, and continues with a preliminary deal still under negotiation that involves Oracle Corp. and Walmart Inc. taking stakes in TikTok. 

ByteDance and its potential U.S. partners are optimistic about completing a deal in the coming weeks, according to people familiar with their discussions and internal thinking. On Wednesday, the Trump administration granted ByteDance a one-week extension to complete a deal, putting the new deadline at Dec. 4.

In August, President Trump signed an order calling for TikTok to be shut down or, alternatively, sold to a U.S. company. The administration said it feared ByteDance could share information about U.S. users with the Chinese government, which the company said it would never do.

The first ruling in TikTok’s favor came with its own lawsuit, which argued that an initial Commerce Department ban on downloading or updating the app would harm the company’s business. On Sept. 27, Judge Carl Nichols in the U.S. District Court in Washington, D.C., determined that the government likely overstepped its authority under national-security law. The government appealed the decision, and the case is still ongoing.

On Oct. 30, Judge Wendy Beetlestone, in federal court for the Eastern District of Pennsylvania, ruled on the influencer lawsuit. She blocked Commerce Department restrictions that would have barred U.S. companies from listing TikTok in their app stores—a move that would effectively make it inoperable in the U.S.

“Without access to the TikTok app, Plaintiffs would lose access to all of these followers, as well as to the professional opportunities afforded by TikTok,” Judge Beetlestone said in her decision.

The U.S. government has appealed the ruling. The government called the plaintiffs’ claims meritless and argued their request to block the ban would “necessarily infringe on the President’s authority to block business-to-business economic transactions with a foreign entity in the midst of a declared national-security emergency.”

In a statement, TikTok’s interim head, Vanessa Pappas said: “We stand behind our community as they share their voices, and we are committed to providing a home for them to do so.”

One of ByteDance’s goals in recent months was to draw out the Trump administration’s assault, the people said, betting that key officials would likely become increasingly distracted as the election approached.

The TikTok review by the administration began with the U.S. Committee on Foreign Investment, which evaluates deals for national security risks. That committee has ordered ByteDance to divest its U.S. operations of TikTok, out of concern that user data could be shared with the Chinese government given regulations there that require companies to hand over huge swaths of information. ByteDance has said it would never share data with the Chinese government, though analysts and experts say companies generally have little choice but to comply if asked.

ByteDance’s legal efforts were designed to chip away at the more punitive efforts by the Trump administration, even while it pursued a deal that would satisfy the Cfius order, which also has bipartisan support in Washington. Any deal will ultimately require signoff from the U.S. president.

Although President-elect Biden has not made clear his position on TikTok, the committee’s divestiture order would still likely stand under new administration.

For now, an outright ban of TikTok appears off the table: On Nov. 12, the Commerce Department said it wouldn’t enforce the order that would have effectively forced TikTok to shut down, citing the ruling in the stars’ lawsuit, and the administration’s legal options are dwindling.

“It’s a big muddle because of these lawsuits,” said a senior administration official.

Ms. Rinab, a 21-year-old senior at the University of Southern California, said she started crying when she learned of the court victory. “I was so, so happy,” she said.

“This entire experience has been one I’ll never forget,” said Mr. Marland. “It taught me a lot about the country, the way laws work, and court procedures.”

While TikTok was aggressively pushing back on the proposed bans in the courts, it also pledged to work cooperatively with national-security regulators on the potential deal that would address the U.S. government’s data-security concerns.

In mid-September, the company announced it had chosen Oracle as its partner to secure its data in the U.S., with the software giant and Walmart Inc. taking ownership stakes in a new company that would run TikTok’s U.S. operations.

A key sticking point that still needs to be ironed out is the size of the ownership stakes for ByteDance and its new U.S. investors, according to people familiar with the discussions and internal thinking.

The negotiations have already helped Walmart forge closer ties to TikTok, something that has motivated the retailer from the beginning, according to people familiar with the situation. Walmart is working toward partnering with TikTok on providing warehouse and shipment support for sales made through the app, and Walmart CEO Doug McMillon now has relationships with TikTok’s executive leadership, some of the people said.

Executives at Oracle, who see TikTok as a major customer for its cloud business, expect the deal to be completed before the end of the year, a person close to the company said.

ByteDance kept its lawsuits against the U.S. government active in part to ensure that the app didn’t face a shutdown as the negotiations took place. 

Mr. Trump would still prefer to get rid of TikTok in the U.S. altogether, though his attention has shifted to other matters, the senior administration official said. The official said that even though Mr. Trump gave his preliminary approval to a deal, he has never been fully sold on the idea because he doesn’t want a transaction that could be perceived as benefiting China.

Inside the Trump administration, Treasury Secretary Steven Mnuchin, Attorney General William Barr and White House economic adviser Larry Kudlow have all said in meetings at times that they believe a deal could work, while White House adviser and China hawk Peter Navarro has advised Mr. Trump to avoid a deal, according to the senior administration official.

TikTok believes it will still likely need to divest its American operations or face persistent questions about its handling of U.S. data, according to people familiar with the matter.

A deal must ultimately get signoff from the U.S. Committee on Foreign Investment and Mr. Trump, as well as the Chinese government.

The lawsuit was designed in part to put a human face on TikTok. Mr. Chambers, the musician, joined the app in late 2018, and a cover version of Halsey’s “Without Me” recorded in the basement studio at his parents’ house earned him thousands of early followers.

Now more than two million users follow his videos, many of which feature his own original music or his covers of radio hits. The 25-year-old from Connecticut has earned endorsement deals to promote Extra gum and Cinnamon Toast Crunch cereal.

“TikTok has allowed regular kids like me, who don’t have access to a lot of money or connections to people who are high up in the industry, to make a stamp in the music business,” he said. “I felt like I needed to fight” for TikTok.

Mr. Marland, the comedian, said he likewise amassed enough TikTok followers to quit his job waiting tables and drop out of school. He now supports himself with sponsorships from brands including Snickers and Reebok, and boasts three million followers.

As threats against the app grew through the summer, TikTok officials stayed in close touch with top performers on the app to reassure them that they had a plan to ensure survival and to dissuade them from switching to rival platforms, according to people familiar with the outreach. As part of those communications, the company stressed that the stars had rights of their own to defend, the people said.

In September, TikTok brought the high performers together to talk on a Zoom call about the U.S. government threats and what might be done about them. They answered questions about how TikTok had affected their lives, according to a person who attended the call. Eventually Mr. Chambers, Mr. Marland and Ms. Rinab volunteered to be plaintiffs in the lawsuit.

Ms. Rinab and Mr. Marland had met each other at industry events before, and they were familiar with Mr. Chambers’s work. In early September, the three began messaging each other daily in a group text chain about the suit.

Ambika Kumar Doran, the lawyer TikTok pointed them to, said she felt they had a strong case because she believed the Trump administration had overreached its authority. She was also aware they might find it intimidating to take on the U.S. government.

“It’s unprecedented for the government to shut down an entire forum for free speech, no matter what the reason,” said Ms. Doran, who focuses on free-speech issues and technology. She declined to discuss how the litigation came together or was financed.

She filed the lawsuit on their behalf on Sept. 18, two days before the Commerce Department was initially set to ban TikTok downloads. A judge in the parallel lawsuit on TikTok’s behalf blocked that ban hours before it was to go into effect.

While they waited for their own court hearing, the month of October was stressful, the plaintiffs said. Some days Mr. Marland refreshed the news and Twitter all day, hoping to hear a deal would save TikTok. 

Ms. Rinab, who posts about fashion and lifestyle and said she earns between $5,000 to $10,000 per video from endorsements, heard fellow stars discussing whether to transfer to other platforms such as YouTube.

On Oct. 28, Ms. Rinab set her laptop up in the kitchen, grabbed a coffee and sat down to testify via videoconference, wearing a button-down shirt and pajama pants. She and Mr. Marland answered a series of questions from lawyers on both sides, mostly about how TikTok works.

Two days later, Judge Beetlestone sided with the plaintiffs.

Ms. Doran texted the group: “We just won, check your emails.”

“Yes!!!” said Ms. Cosette. She says she dropped her phone and started screaming.

Source: Wall Street Journal by Georgia Wells

TikTok Stars Proved Key in Strategy to Fight U.S. Ban TikTok Stars Proved Key in Strategy to Fight U.S. Ban Reviewed by TechCO on 11/28/2020 Rating: 5

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