On September 18, 2020, the U.S. Department of Commerce announced prohibitions on transactions relating to the mobile applications WeChat and TikTok in order to “safeguard the national security of the United States” that were to become effective on September 20 and November 12, 2020. This announcement followed President Trump’s August 6, 2020 executive orders declaring TikTok and WeChat national security threats and directing Commerce to define the scope of prohibited “transactions” by September 20, 2020. (For more information on these executive orders, see update of August 7, 2020.) However, the Federal Register notices that were meant to be published with respect to the TikTok and WeChat orders listing the scope of prohibited transactions were subsequently withdrawn by Commerce following the Walmart and Oracle deal with TikTok and the Northern District Court of California’s preliminary injunction order enjoining implementation of the August 6 executive order against WeChat. The next day, on September 19, 2020, Commerce announced that it would “delay the prohibition of identified transactions related to TikTok” that would have been effective on September 20, 2020 until September 27, 2020.
Commerce Actions on Hold
In the September 18 announcement, Commerce stated that it would no longer allow certain transactions between U.S. parties and the Chinese parent companies ByteDance Ltd. and Tencent Holdings or their subsidiaries. Specifically, as of September 20, 2020, the following transactions were to be prohibited:
- Any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the U.S.; and
- Any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the U.S.
Pursuant to the delay announcement on September 19 by Commerce, these prohibitions against TikTok will instead become effective on September 27, 2020. Additionally, as of September 20, 2020 for WeChat and as of November 12, 2020 for TikTok, the following transactions were to be prohibited:
- Any provision of internet hosting services enabling the functioning or optimization of the mobile application in the U.S.;
- Any provision of content delivery network services enabling the functioning or optimization of the mobile application in the U.S.;
- Any provision directly contracted or arranged internet transit or peering services enabling the function or optimization of the mobile application within the U.S.; and
- Any utilization of the mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the U.S.
CFIUS and the TikTok Deal
Commerce’s seven-day delay of the prohibitions against TikTok followed the September 19, 2020 announcements of Walmart and Oracle’s deal with TikTok to form a new entity called TikTok Global, which will be headquartered in the United States. This deal was given President Trump’s “blessing” at a White House news briefing. The new deal comes after a unanimous recommendation by the Committee on Foreign Investment in the United States (CFIUS) and President Trump’s August 14, 2020 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. This order directed 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. (For more information on the CFIUS action, see update of August 17, 2020.) Although a deal has been announced, there are likely many steps to be taken to finalize an agreement that will satisfy CFIUS’s national security concerns with respect to TikTok.
Commerce has been enjoined by a federal court in California from implementing these prohibitions against WeChat. On August 21, 2020, U.S. WeChat Users Alliance and other individual users of WeChat (“WeChat Plaintiffs”) filed a complaint in the Northern District of California seeking declaratory and injunctive relief against Trump, Secretary of Commerce Wilbur Ross and the Commerce Department in an effort to prevent the government from banning its mobile application pursuant to the August 6, 2020 Executive Order against WeChat. On September 19, 2020, the Northern District Court of California issued an order granting WeChat Plaintiffs’ motion for a nationwide preliminary injunction enjoining the implementation of the August 6 Executive Order against WeChat, including enforcement of Commerce’s September 18 list of prohibited transactions.
Like the WeChat Plaintiffs, on August 24, 2020, TikTok Inc. and its Chinese parent, ByteDance, Ltd., filed a separate complaint in the Central District of California against the same parties seeking the same relief in order to prevent the government from using the August 6, 2020 Executive Order against TikTok to ban its application. Following the Walmart and Oracle deal announcement, on September 20, 2020, the TikTok complaint was voluntarily dismissed without prejudice and on September 21, 2020, TikTok and ByteDance filed a similar complaint for injunctive and declaratory relief against Trump and Commerce in U.S. District Court for the District of Columbia alleging that the administration’s proposed ban on transactions violated due process rights and freedom of speech.