TMT update (TikTok)

Recent/upcoming developments… The Supreme Court heard oral arguments on Friday regarding TikTok’s challenge to a law mandating its U.S.-based operations be banned unless they are divested to a third-party company not controlled by a foreign adversary.

* As previously noted, the “divest-or-ban” provisions were enacted on a bipartisan basis in April.  The bill stipulates that the company has 270-days from the date of enactment to engage in a so-called “qualified divestiture” (i.e., sold to a company not controlled by a foreign adversary) – technically, 1/19/25, at the earliest, with the President able to invoke an additional 90 day extension.

* TikTok has argued that the “divest or ban” requirement is unlawful as it violates the First Amendment’s free speech protections (abridges the free speech rights of TikTok as a company and of its users), represents an unconstitutional bill of attainder (a legislative act which inflicts punishment for retrospective conduct without a trial), is a violation of the equal protection requirement under the Fifth Amendment (singles out TikTok for “adverse treatment without any reason for doing so”), and is a violation of the Fifth Amendment’s takings clause (forces TikTok to sell under “under fire-sale circumstances”).  In December, the U.S. Circuit Court of Appeals for D.C. unanimously upheld the law, rejecting TikTok’s various arguments.

* During oral arguments, many Supreme Court justices signaled a strong inclination to uphold the TikTok ban.  Chief Justice Roberts raised questions about ByteDance’s ties to the Chinese government, suggesting skepticism about TikTok’s independence.  Justice Thomas highlighted the potential national security risks posed by foreign ownership of a platform widely used by Americans.  And Justice Kavanaugh called the national security arguments “strong,” suggesting they outweigh First Amendment challenges.  Among the liberal justices, Justice Kagan expressed apprehension about the potential for Chinese government influence on TikTok.  At the same time, Justice Brown Jackson argued that the ban targets ownership, not speech, and TikTok could operate if it severed ties with ByteDance.

* For his part, Trump has been more assertive in his support of TikTok than we had anticipated.  In addition to his various social media posts claiming he would “save” TikTok and asserting that the “other side” wants to “close TikTok,” his nominee for Solicitor General (John Sauer) took the unusual step of filing an amicus brief with the Supreme Court on behalf of Trump ahead of the oral arguments, arguing the Court should delay implementation of the law as Trump has the “dealmaking expertise… and the political will to negotiate a resolution to save the platform while addressing the national security concerns expressed by the government.”

* China has criticized the divest/ban legislation and signaled that it would not give up the TikTok algorithm.  This significantly inhibits sale of the U.S. operations in a form that would allow TikTok to function as it does today.

Our outlook… The Supreme Court appears likely to uphold the law and allow the ban to take effect this Sunday.  And given that many justices appear aligned, we believe it is likely the court will render a final verdict this week (as opposed to placing an injunction on the law and rendering a decision later in the term, which would be more likely if there was disagreement amongst the justices).  If this occurs, we expect Trump – who is putting an unusual level of emphasis on the situation as he and his team have proactively weighed in – will invoke the 90-day extension of the deadline soon after being inaugurated, which would push the deadline for divestment to 4/19/25.  During that time, we expect he will attempt to broker a deal to divest, as he will want to claim he “saved” voters’ access to TikTok.  If a sale does not occur, Trump could attempt to stymie implementation (i.e., directing the Attorney General not the enforce the law), though in that case, we believe the industry is likely to be conservative and comply with the law (i.e., implementation happens organically as the app stores/device makers remove TikTok, ISPs block access, etc.).

Watch for these developments… Assuming Trump extends the divestiture deadline, we’re watching for comments as to how he might broker a deal that overcomes Chinese opposition to a sale and the Chinese response to those overtures, as this will inform whether a deal can actually be reached.  We are also watching for statements from Trump outlining in more detail how he might exercise enforcement discretion regarding the ban (if a deal cannot be achieved by ~April), as this will clarify for industry the level of risk they face for noncompliance.  Numerous Congressional Republicans have continued to support the divest/ban legislation, despite Trump’s effort to “save” TikTok, so they do not appear to be influencing his view of the situation.  But, if Trump begins to come under criticism that his support of TikTok means he’s “weak on China,” it’s possible his posture shifts and he becomes less active in seeking resolution prior to a ban.