TikTok Sale-or-Ban Law Spurs Promise of Legal Fight: Explained

President Joe Biden signed into law a bill this week that requires Chinese ByteDance Ltd., TikTok Inc.‘s parent company, to sell the app in less than a year or face a ban in the US. The action sets up a likely legal battle between the app—which has vowed to fight the policy in court—and the US government.

The ban comes in response to concerns that the Chinese government could peddle propaganda to TikTok’s reported 170 million US users through its powerful algorithm, or access sensitive US user data collected by the app. The Committee on Foreign Investment in the United States opened an investigation into the app in 2019, triggering four years of negotiations that ultimately failed to curb lawmakers’ efforts to force the company to sell or be banned.

Now, TikTok has less than 270 days to broker a sale to an approved buyer before the Biden administration ban’s the app. The new federal divestiture law requires TikTok to file a legal challenge to the act to be filed directly to the US Court of Appeals for the District of Columbia Circuit within 165 days of the bill’s enactment or 90 days of a finding that the company must divest.

“This unconstitutional law is a TikTok ban, and we will challenge it in court,” TikTok said in a news release Tuesday. “We believe the facts and the law are clearly on our side, and we will ultimately prevail.”

ByteDance said it does not have any plan to sell TikTok, according to an April 25 statement on a Chinese-language social media platform the company owns. The company announced on April 26 its US-based general counsel Erich Andersen stepped down from that role to serve as special counsel where he’ll focus on trying to overturn the ban, the company said.

1. How will TikTok pursue its promised legal challenge?

TikTok will likely reprise the same First Amendment arguments it’s used to temporarily halt a statewide ban in Montana. The company and a group of US users have argued the state’s ban infringed rights to free expression. Users have a right to share and access speech, and the company has a right to operate a platform that hosts speech, TikTok’s claimed.

As in Montana, TikTok will likely argue that the new law is a targeted attack on the app and its users free-speech, and is not neutral to the app’s content as some lawmakers have suggested. The First Amendment’s strict scrutiny standard requires the government in cases where its targeting speech based on content to show it’s using the least restrictive means available to further government aims.

The federal government will likely argue that the forced divestiture is different from an outright ban on the app, but may need to convince a court that forcing a sale of TikTok was the only way to protect Americans’ national security interest. TikTok wouldn’t be the first Chinese-owned app to face a forced divestiture: in 2020, a US investor group purchased the LGBTQ dating app Grindr after CFIUS ordered an earlier Chinese buyer to offload the app, citing data-privacy concerns.

2. How have similar app bans played out?

In Montana, US District Judge Donald Molloy found that state’s ban law didn’t meet a standard requiring speech restrictions to be “narrowly drawn” under what’s known as intermediate scrutiny—a less stringent legal standard than strict scrutiny.

“The Legislature used an axe to solve its professed concerns when it should have used a constitutional scalpel,” Molloy wrote in his Nov. 30 ruling granting TikTok’s preliminary injunction.

Montana appealed the ruling to the Ninth Circuit, where the case is still pending.

A 2020 Trump administration ban on the app WeChat was stayed by a judge until Biden rescinded it and a separate order banning TikTok. In the WeChat case a U.S. judge found the ban unconstitutional.

3. Who might support TikTok in court?

TikTok could have some notable supporters in court. The Knight First Amendment Institute at Columbia University and the American Civil Liberties Union have called the forced-sale law unconstitutional. The ACLU and Electronic Frontier Foundation filed a friend of the court brief in the Montana case.

The non-profits could support TikTok’s free speech claims, arguing that national security is not an exception to the First Amendment.

“This bill is unconstitutional,” Jameel Jaffer, executive director of the Knight Institute, said in a statement. “The First Amendment means that the government can’t restrict Americans’ access to ideas, information, or media from abroad without a very good reason for it—and no such reason exists here.”

4. What are TikTok’s options if the law is upheld?

ByteDance and TikTok’s public statements have all asserted confidence that they’ll remain in the US after prevailing in court. TikTok’s CEO Shou Chou posted a video on TikTok this week arguing, “the facts and the Constitution are on our side.

But if the Biden Administration wins, ByteDance could be forced to consider some complicated options.

One factor that could complicate any sale is TikTok’s mountain of intellectual property in the U.S., said Jonathan Lazarow of corporate and IP boutique Ambrose, Mills & Lazarow. The company’s added more than 900 patents to its portfolio since 2020, according to an analysis by Bloomberg Law.

Key to those patents is technology essential to TikTok’s algorithm, credited with keeping users scrolling on the platform.

As a whole, TikTok could be worth up to $100 billion, Wedbush Securities analyst Dan Ives told CBS Moneywatch this week. But if it’s stripped down for its parts and sold without the algorithm, the company could be worth billions less, said Ives.

But withdrawing from the US market outright would surely roil investors, who may push for a sale if they view the alternative as losing access to the US market.

“Will the owners, ByteDance, and the private equity funds and venture capitalists who funded ByteDance say, ‘Look, we need you to sell this because the risk is you get nothing for the work. All of a sudden you’re just a Chinese company and that’s not what we signed up for,’” Lazarow said.