TikTok Ban: US Appeals Court Upholds Law Forcing Its Sale Ahead of Deadline

A U.S. federal appeals court on Friday upheld a law requiring Chinese-based ByteDance to divest its popular short video app TikTok in the United States by early next year or face a ban.

The decision is a major win for the Justice Department and opponents of the Chinese-owned app and a devastating blow to TikTok parent ByteDance. It significantly raises the prospects of an unprecedented ban in just six weeks on a social media app used by 170 million Americans.

TikTok plans to appeal the decision to the Supreme Court.

In detailing their support of the law, the appeals court noted it was the result of Republicans and Democrats working together, as well as two presidents, as "part of a broader effort to counter a well-substantiated national security threat posed by the PRC (People's Republic of China)."

The Justice Department says under Chinese ownership, TikTok poses a threat because of its access to vast personal data of Americans, asserting China can covertly manipulate information that Americans consume via TikTok.

Attorney General Merrick Garland called the decision "an important step in blocking the Chinese government from weaponizing TikTok.”

But the Chinese Embassy in Washington called the law "a blatant act of commercial robbery" and warned the United States "must handle this case in a prudent manner to avoid harming the mutual trust between the two countries and the development of bilateral relations."

The ruling comes amid growing trade tensions between the world's two biggest economies after the administration of President Joe Biden placed new restrictions on China's chip industry and Beijing responded by imposing an outright ban on exports of gallium, germanium and antimony to the United States.

U.S. appeals court Judges Sri Srinivasan, Neomi Rao and Douglas Ginsburg rejected legal challenges brought by TikTok and users against the law, which gives ByteDance until Jan. 19 to sell or divest TikTok's U.S. assets or face a ban.

Free Speech

"While today's news is disappointing, rest assured we will continue the fight to protect free speech on our platform," TikTok CEO Shou Zi Chew said in an email to staff seen by Reuters.

Free speech advocates quickly criticized the ruling. The American Civil Liberties Union said, "Banning TikTok blatantly violates the First Amendment rights of millions of Americans who use this app to express themselves and communicate with people around the world."

In its analysis, the court said China, through its relationship with TikTok parent ByteDance, threatened to distort U.S. speech through TikTok and "manipulate public discourse."

China's "ability to do so is at odds with free speech fundamentals. Indeed, the First Amendment precludes a domestic government from exercising comparable control over a social media company in the United States."

The decision -- unless the Supreme Court reverses it -- puts TikTok's fate in the hands of first President Biden on whether to grant a 90-day extension of the Jan. 19 deadline to force a sale and then President-elect Donald Trump, who takes office on Jan. 20. But it's not clear whether ByteDance could meet the heavy burden to show it had made significant progress toward a divestiture needed to trigger the extension -- or if the Chinese government would approve any sale.

Trump, who unsuccessfully tried to ban TikTok during his first term in 2020, said before the November presidential election he would not allow the TikTok ban.

Friday's decision upholds the law giving the U.S. government sweeping powers to ban other foreign-owned apps that could raise concerns about collection of Americans' data -- and could open the door to a future crackdown on many other foreign owned apps. In 2020, Trump also tried to ban Tencent-owned WeChat, but was blocked by the courts.

TikTok Ban Looms

If banned, TikTok advertisers would seek new social media venues to buy ads. As a result, shares of Meta Platforms, which competes against TikTok in online ads, hit an intraday record high following the ruling and closed up 2.4%. Google parent Alphabet, whose YouTube video platform also competes with TikTok, closed up 1.25%.

The court opinion - which was written by Ginsburg, an appointee of President Ronald Reagan, and joined by Rao, who was named to the bench by Trump, and Srinivasan, an appointee of President Barack Obama - acknowledged its decision would lead to TikTok's ban on Jan. 19 without an extension from Biden.

ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic, among others, was valued at $268 billion in December 2023 when it offered to buy back around $5 billion worth of shares from investors, Reuters reported then.

The law prohibits app stores like Apple and Alphabet's Google from offering TikTok and bars internet hosting services from supporting TikTok unless ByteDance divests TikTok by the deadline.

Google declined comment while Apple did not respond to a request for comment.

In a concurring opinion, Srinivasan acknowledged the decision will have major impacts, noting "170 million Americans use TikTok to create and view all sorts of free expression and engage with one another and the world. And yet, in part precisely because of the platform's expansive reach, Congress and multiple Presidents determined that divesting it from (China's) control is essential to protect our national security."

© Thomson Reuters 2024

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