By Christopher R. Taylor
On August 6th, President Trump issued Executive Order 13,942 (“TikTok Prohibition Order”) prohibiting transactions with ByteDance Ltd. (“ByteDance”), TikTok’s parent company, because of the company’s data collection practices regarding U.S. users and its close relationship with the Peoples Republic of China (“PRC”).[1] Eight days later President Trump issued a subsequent order (“Disinvestment Order”) calling for ByteDance to disinvest from Musical.ly, an application that was acquired by ByteDance and later merged with TikTok’s application.[2] TikTok is now engulfed in a legal battle against the Trump administration fighting both of these orders and was recently partially granted a preliminary injunction from the TikTok Prohibition Order.[3] However, the question remains—how successful will TikTok be in stopping the orders and what effect does this have on future cross-border transactions?
The foundation for President Trump’s TikTok orders was laid over a year earlier with Executive Order 13,873.[4] This order declared a national emergency under the International Emergency Economic Power Act (“IEEPA”) because of the “unusual and extraordinary threat” of “foreign adversaries . . . exploiting vulnerabilities in information and communication technology services.”[5] This national emergency was renewed for another year on May 13th, 2020.[6] Shortly after this renewal, the Trump administration issued both TikTok orders.
The TikTok Prohibition Order delegated to the Secretary of the Department of Commerce the task of defining specific prohibited transactions with ByteDance within 45 days of the execution of the order.[7] Following the president’s directive, the Secretary issued five phased prohibitions on transactions with TikTok, all with the stated purpose of limiting TikTok’s spread of U.S. users’ sensitive personal information to the PRC.[8] The Department of Commence implemented these prohibitions based primarily on two threats: (1) TikTok would share U.S. users’ personal data with the PRC to further efforts of espionage on the U.S. government, U.S. corporations, and U.S. persons and (2) TikTok would use censorship on the application to shape U.S. users’ perspective of the PRC.[9]
While the Trump administration was at work attempting to remove or substantially change TikTok’s U.S. presence, TikTok did not stand by idly. Instead, TikTok and ByteDance initiated an action challenging the Trump administration’s authority under the Administrative Procedure Act (“APA”) and the U.S. Constitution.[10] After filing the action in the U.S. District Court for the District of Columbia, TikTok moved for a preliminary injunction.[11] On September 29th, the court partially granted the preliminary injunction.[12]
Among the various arguments presented for the preliminary injunction, TikTok’s strongest argument was that the Trump administration’s actions violated APA § 706(2)(C) by exceeding its statutory authority under the IEEPA.[13] The IEEPA prohibits the President from “directly or indirectly” regulating “personal communication, which does not involve a transfer of anything of value” or the importation or exportation of “information or information materials.”[14] The IEEPA does not define “information materials,” however, it does provide examples, which include photographs, films, artworks, and news wire feeds.[15]
TikTok argued both of these exceptions applied, making the Trump administration’s prohibitions unlawful.[16] First, TikTok argued that the information exchanged by its global users includes art, films, photographs, and news.[17] Therefore, the information exchanged on TikTok fits within the definition of information materials.[18] Second, TikTok argued most of the communications exchanged on the application are among friends, and thus do not involve anything of value.[19]
The government countered by arguing that neither exception applied, contending for a narrower interpretation of the IEEPA exceptions.[20] First, the government argued the information materials exception did not apply because the TikTok prohibitions only regulate “business-to-business economic transactions,” and does not regulate the exchange of “information materials” by TikTok users themselves.[21] In the alternative, the government asserted Congress did not intend to create such a broad exception that would allow foreign adversaries to control data services.[22] Second, the government argued that some communications on TikTok are of value to users and, even if all communications are not of value to all users, they are of value to TikTok itself.[23] The government asserted that the use of the application alone provides value to TikTok making the exchanged communications fall outside of the IEEPA exception.[24]
In partially granting TikTok’s preliminary injunction, the court found both exceptions applied to TikTok.[25] First, the court held the content on TikTok’s application constitutes “information materials.”[26] Although the government only regulates economic transactions, the prohibitions still indirectly regulate the exchange of “information materials.”[27] Thus, the Trump administration’s actions directly fit within the IEEPA exception barring indirect regulation of information materials.[28]
Turning to the second exception on value, the court recognized some information on TikTok was of value.[29] However, it found the majority of the information provided no value to users.[30] Furthermore, the government’s argument regarding the value of communications to TikTok was at odds with Congressional intent.[31] The court found if Congress meant to look at the value provided to the company, as opposed to the value provided to users, the exception would be read out of existence.[32]
After finding that both exceptions applied, the court found irreparable harm to TikTok and equity supported partially granting the preliminary injunction.[33] However, the court refused to grant an injunction blocking the whole TikTok Prohibition Order because only one of the prohibitions was an imminent threat to TikTok.[34] The injunction only blocked the prohibition on TikTok downloads and updates from online application stores and marketplaces, leaving the remaining four prohibitions unaffected.[35]
While it appears TikTok has won the first round of this legal dispute, this fight is likely far from over. In response to the grant of the partial preliminary injunction, the Department of Commerce explained it is prepared to “vigorously defend the . . . [Executive order] and the Secretary’s implementation efforts from legal challenges.”[36] Based on this strong reaction, the dispute seems fertile for further quarrels regarding the merits of both executive orders.
The current TikTok dispute and the Trump administration’s willingness to use the IEEPA will likely also have broader implications for cross-border transactions, especially those involving the Peoples Republic of China or personal data. Since its enactment in 1979, presidential use of the IEEPA has become more frequent and broader in scope.[37] Thus, it is likely presidential use of the IEEPA will continue to grow no matter the President. Furthermore, the Trump administration’s strong stance toward the PRC has exacerbated tensions and led to an uptick in investigations into cross-border deals with Chinese companies.[38] Therefore, in-depth looks at deals with Chinese companies will likely continue to be the norm, at least for the remainder of the Trump presidency. In an effort to avoid disputes similar to TikToks, business dealmakers should obtain clearance from the Committee on Foreign Investment in the United States before the completion of any cross-border transaction, especially those involving the PRC or personal data.[39]
[1] Exec. Order No. 13,942, 85 Fed. Reg. 48,637 (Aug. 6, 2020).
[2] Order on the Acquisition of Musical.ly by ByteDance Ltd, 2020 Daily Comp. Pres. Doc. 608 (Aug. 14, 2020).
[3] TikTok, Inc. v. Trump, No. 1:20-cv-02658, 2020 U.S. Dist. LEXIS 177250, at *11, *26 (D.D.C. Sept. 27, 2020).
[4] Exec. Order No. 13,873, 84 Fed. Reg. 22,689 (May 15, 2019).
[5] Id.
[6] Notice on Continuation of the National Emergency with Respect to Securing the Information and Communications Technology and Services Supply Chain, 2020 Daily Comp. Pres. Doc. 361 (May 13, 2020).
[7] Exec. Order 13,942, at 48,638.
[8] See Identification of Prohibited Transactions to Implement Executive Order 13942 and Address the Threat Posed by TikTok and the National Emergency with Respect to the Information and Communications Technology and Services Supply Chain, 85 Fed. Reg. 60,061 (Sept. 24, 2020) (prohibiting new downloads and updates from the app-store; servers supporting TikTok in the U.S.; content delivery services used by TikTok; internet transit or peering agreements; and the use of TikTok code, services or functions). The Secretary set up a phrased implementation of this order, making the app store ban effective September 20th, 2020, and the remaining four prohibitions effective November 12th, 2020. Id.
[9] Defendants’ Memorandum in Opposition to Plaintiffs’ Motion for a Preliminary Injunction at Ex. 1, TikTok, Inc. v. Trump, No. 1:20-cv-02658, 2020 U.S. Dist. LEXIS 177250 (D.D.C. Sept. 27, 2020).
[10] Complaint at 30–42, TikTok, Inc. v. Trump, No. 1:20-cv-02658, 2020 U.S. Dist. LEXIS 177250 (D.D.C. Sept. 27, 2020). The specific counts in the complaint include allegations of (1) violations of APA § 706(2)(A) and § 706(2)(E), (2) violations of the First Amendment’s Right to Free Speech, (3) violations of the Due Process Clause of Fifth Amendment, (4) ultra vires action under IEEPA because there is no national emergency, (5) ultra vires action because actions restrict personal communications and information violating IEEPA, (6) violation of Non-Delegation Doctrine of IEEPA, and (7) violation of Fifth Amendment Taking Clause. Id.
[11] TikTok, Inc. v. Trump, No. 1:20-cv-02658, 2020 U.S. Dist. LEXIS 177250, at *11–12 (D.D.C. Sept. 27, 2020).
[12] Id. at *26.
[13] See id. at *21.
[14] 50 U.S.C. § 1702(b)(1), (3).
[15] Id. § 1702(b)(3).
[16] TikTok, 2020 U.S. Dist. LEXIS 177250, at *14.
[17] Id. at *15–16.
[18] Id. at *15.
[19] See id. at *20.
[20] See id. at *16, *17–18, *20.
[21] Id. at *16.
[22] Id. at *17–18.
[23] Id. at *20. The government’s argument was that value is provided to TikTok simply by users’ presence on the application. Id.
[24] Id.
[25] See id. at *20–21 (“Plaintiffs have demonstrated that they are likely to succeed on their claim that the prohibitions constitute indirect regulation of ‘personal communication[s]’ or the exchange of ‘information or information materials.'”).
[26] Id. at *16
[27] Id. at *16–17.
[28] See id. at *17.
[29] See id. at *20.
[30] Id.
[31] Id.
[32] Id.
[33] Id. at *21–25.
[34] Id. at *26.
[35] Id. at *25–26.
[36] Commerce Department Statement on U.S. District Court Ruling on TikTok Preliminary Injunction, U.S. Dept. of Commerce (Sept. 27, 2020), https://www.commerce.gov/news/press-releases/2020/09/commerce-department-statement-us-district-court-ruling-tiktok.
[37] Christopher A. Casey et al., Cong. Rsch. Serv., R45618, The International Emergency Economic Powers Act: Origins, Evolution, and Use 17 (2020).
[38] See Julia Horowitz, Under Trump, the US Government Gives Many Foreign Deals a Closer Look, CNN (Mar. 16, 2018, 12:11 AM), https://money.cnn.com/2018/03/16/news/economy/trump-cfius-china-technology/index.html; Jeanne Whalen, TikTok was Just the Beginning: Trump Administration is Stepping Up Scrutiny of Past Chinese Tech Investments, Wash. Post. (Sept. 29, 2020, 3:12 PM), https://www.washingtonpost.com/technology/2020/09/29/cfius-review-past-chinese-investment/.
[39] See Adam O. Emmerich et al., Cross-Border M&A–2019 Checklist for Successful Acquisitions in the United States, Harv. L. Sch. F. on Corp. Governance (Jan. 30, 2019), https://corpgov.law.harvard.edu/2019/01/30/cross-border-ma-2019-checklist-for-successful-acquisitions-in-the-united-states/.
