President Trump's threatened Executive Order "banning" TikTok, a social media application, prompted Microsoft Corp. ("Microsoft") to announce that it would "continue discussions to explore a purchase of TikTok in the United States." Microsoft promised that, as part of any acquisition, it would take steps to protect the private data of TikTok's American users by ensuring that all such data is transferred to and remains in the United States.

On July 31, 2020, President Trump informed reporters that he intended to sign an Executive Order aimed at "banning" the availability of the popular video-sharing social networking app. TikTok, a subsidiary of Chinese internet technology company ByteDance Ltd. ("ByteDance"), became available for download in the United States in August 2018, when it merged with Chinese Internet start-up Musical.ly, which ByteDance had previously acquired in late 2017. The President stated that he would "ban" TikTok by September 15, 2020 unless ByteDance found an American buyer.

The President's statements followed comments made by Secretary of State Mike Pompeo, who indicated in early July that the United States government was looking at ways to ban or limit TikTok's operations in the United States in light of concerns that TikTok was sharing the private data of American users with the Chinese government. For similar reasons, ByteDance's acquisition of Musical.ly has been under investigation since late 2019 by the Committee on Foreign Investment in the United States ("CFIUS"). ByteDance consistently has denied the allegation that it shares data with the Chinese government.

CFIUS reportedly gave the parties 45 days (i.e., until September 15, 2020) to finalize a deal.

Commentary

ByteDance and Musical.ly did not voluntarily file with CFIUS at the time of their transaction in 2017. While both companies were Chinese-owned, CFIUS's jurisdiction extends to any acquisition by a foreign person (here, ByteDance) of a U.S. business, the definition of which in CFIUS's regulations likely is broad enough to encompass Musical.ly's U.S. operations. At the time of the acquisition, U.S. government concerns regarding the national security implications of the collection of sensitive personal data of Americans by foreign - and especially Chinese - companies had not fully crystalized. But with the passage of FIRRMA in 2018, Congress made clear that this would be a top issue for CFIUS. As such, the revelation that CFIUS was reviewing the acquisition did not come as a surprise. It is not clear whether CFIUS has been unable to negotiate sufficiently strong mitigation measures to address concerns regarding data sharing short of divestment of the U.S. business involved or if senior policy-makers wanted Chinese ownership gone altogether.

The possible divestment of TikTok's U.S. operations is another reminder to parties to transactions that may be within CFIUS's purview that they must pay close attention to foreign policy trends and developments, as ultimately national security determinations by CFIUS - and the President - cannot be fully divorced from foreign policy considerations. In fact, transactions could become subject to CFIUS scrutiny years after completion if policy and alliances change.

Primary Sources

  1. Microsoft Blog Post: Microsoft to Continue Discussions on Potential TikTok Purchase in the United States

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