A U.S. federal appeals court has upheld a law requiring ByteDance to divest TikTok in the U.S. by early next year or face a ban.
The decision is a win for the Justice Department and opponents of the Chinese-owned app.
At the same time, it is a devastating blow to Chinese internet company ByteDance which owns the short-form video hosting service, TikTok.
It increases the possibility of an unprecedented ban in just six weeks on a social media app used by 170 million Americans.
The ruling is expected to be appealed to the Supreme Court.
The Justice Department says under Chinese ownership, TikTok poses a serious national security threat.
This is because TikTok has access to vast personal data of Americans.
The department is of the view that China can covertly manipulate information that Americans consume via TikTok.
The appeals court noted the law was the result of Republicans and Democrats working together, and two presidents, as “part of a broader effort to counter a well-substantiated national security threat posed by the People’s Republic of China.”
But free speech advocates immediately criticized the decision.
The American Civil Liberties Union said it sets a “flawed and dangerous precedent.”
“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,” said Patrick Toomey, Deputy Director of the ACLU’s National Security Project.
TikTok said it expected the Supreme Court would reverse the appeals court decision on First Amendment grounds.
“The Supreme Court has an established historical record of protecting Americans’ right to free speech, and we expect they will do just that on this important constitutional issue,” TikTok stated.
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.”
Attorney General Merrick Garland made a similar point in his statement on the decision.
Garland called it “an important step in blocking the Chinese government from weaponizing TikTok to collect sensitive information about millions of Americans, to covertly manipulate the content delivered to American audiences, and to undermine our national security.”
U.S. appeals court Judges Sri Srinivasan, Neomi Rao and Douglas Ginsburg considered the legal challenges brought by TikTok and users against the law, which gives ByteDance until January 19 to sell or divest TikTok’s U.S. assets or face a ban.
The decision — unless the Supreme Court reverses it — puts TikTok’s fate in the hands of first President Joe Biden on whether to grant a 90-day extension of the January 19 deadline to force a sale and then President-elect Donald Trump, who takes office on January 20.
But it is not clear whether ByteDance could meet the heavy burden to show it had made significant progress toward a divestiture needed to trigger the extension.
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.
In 2020, Trump also tried to ban Tencent-owned WeChat, but was blocked by the courts.
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, last up over two per cent.
Google parent Alphabet, whose YouTube video platform also competes with TikTok, was up over 1%.
The court acknowledged its decision would lead to TikTok’s ban on January 19 without an extension from Biden.
“Consequently, TikTok’s millions of users will need to find alternative media of communication,” the court said.
This is because of China’s “hybrid commercial threat to U.S. national security, not to the U.S. Government, which engaged with TikTok through a multi-year process in an effort to find an alternative solution.
The opinion 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.
U.S. officials have also warned TikTok’s management is beholden to the Chinese government, which could compel the company to share the data of its American users.
TikTok has denied it has or ever would share U.S. user data, accusing American lawmakers in the lawsuit of advancing “speculative” concerns.
ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic,
among others, was valued at $268 billion in December 2023.
At that time, it offered to buy back around $5 billion worth of shares from investors.
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.
Apple and Google did not immediately respond to requests for comment.
In a concurring opinion, Srinivasan acknowledged the decision will have major impacts.
Srinivasan noted that “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.”
