On August 14, 2020, after an extensive review and unanimous recommendation by the Committee on Foreign Investment in the United States (CFIUS), President Donald Trump issued an Executive Order directing that the already completed transaction that resulted in the acquisition of Musical.ly, now known as TikTok, by the Chinese company ByteDance Ltd. be unwound. The 2017 acquisition of Musical.ly appears not to have been reviewed by CFIUS prior to completion. The order directs ByteDance to divest all interests and rights in any assets or property used to enable or support the operation of TikTok in the United States, and any data obtained or derived from TikTok or Musical.ly users in the United States. Specifically, the order directs that within 90 days, ByteDance, its subsidiaries, affiliates and Chinese shareholders, must divest all interests and rights in:
- any tangible or intangible assets or property, wherever located, used to enable or support ByteDance’s operation of the TikTok application in the United States; and
- any data obtained or derived from TikTok application or Musical.ly application users in the United States.
Upon its acquisition of Musical.ly in November 2017, ByteDance merged its TikTok application with Musical.ly’s social media application and created a single integrated social media application. In the Executive Order, President Trump stated that there was credible evidence that, through the acquisition, ByteDance “might take action that threatens to impair the national security of the United States.”
In completing a sale or transfer of its holdings, ByteDance must notify CFIUS of the intended recipient or buyer and allow CFIUS to review the proposed sale to determine: (i) if the recipient or buyer is a U.S. citizen or is owned by U.S. citizens; (ii) has or has had a direct or indirect contractual, financial, familial, employment, or other close and continuous relationship with ByteDance, or its officers, employees, or shareholders; and, (iii) can demonstrate a willingness and ability to support compliance with this divestment order. The Executive Order also allows CFIUS to take other measures it deems “necessary and appropriate to verify compliance with this order and to ensure that the operations of the TikTok application are carried out in such a manner as to ensure protection of the national security interests of the United States.” This includes authorization to audit TikTok’s accounting records and books; to inspect any information systems, networks, hardware, software and data; and to interview officers, employees or agents of ByteDance or TikTok Inc., or any subsidiaries, concerning any matter relating to this divestment order.
This action comes shortly after President Trump issued another Executive Order on August 6, 2020, effective September 20, prohibiting, to the extent permitted under applicable law, any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, related to TikTok with ByteDance and any of its subsidiaries. As described in our prior Update of August 7, 2020, the earlier Executive Order appears to have broad applicability on the functioning of TikTok in the United States.