The Senate voted 79-18 on Tuesday evening in favor of a landmark bill that would give China’s ByteDance a year to divest TikTok or the app would be banned by the US.
The next stop is the office of President Joe Biden, who has promised to sign it.
The long-discussed measure is fraught with political implications for the 2024 elections and will also kick off a complex set of steps over the next 12 months that will likely take place in boardrooms as well as courtrooms.
The bill itself gives the company 270 days to sell, but the president can extend the deadline up to a year. The lawsuit could end with a ban on an app currently used by more than 170 million monthly users in the US.
“This is a new front in the ongoing US-China trade war that began during the Trump administration,” Georgetown business professor Stephen Weymouth said in an interview this week.
He notes that the aggressive soon-to-come law will likely draw reactions from many fronts — including possible retaliation from the Chinese government. Previously, “Congress has had a relatively hands-off approach to tech regulation in general,” he said.
The effort comes after lawmakers and the Biden administration have repeatedly charged that TikTok poses an urgent national security threat because the Chinese government could force the company to share its data.
There are also concerns about the Chinese government’s ability to use the app to influence American public opinion by altering what millions of users see when they open the app.
“We hope that TikTok will continue to exist under new ownership, American or otherwise,” Senator Mark Warner said on the Senate floor during the final debate. The Virginia Democrat, one of the champions of the effort, added: “It just no longer needs to be controlled by an opponent.”
The bill previously passed the U.S. House 360-58 and now heads to the White House, where President Biden has pledged to sign it. The TikTok provision is part of a larger relief bill package that will also send new funds to support Ukraine, Israel and the Indo-Pacific.
The key question: will Bytedance try to sell?
TikTok itself has denied the Biden administration’s allegations and insists it would never share US data. She has responded to this week’s action on Capitol Hill by charging that the soon-to-be-released bill will be “a prohibitionist bill that would trample the freedom of speech of 170 million Americans.”
TikTok and ByteDance have also said they have no plans to try to sell, saying in a recent statement that the effect of the passage will be “to shut down a platform that contributes $24 billion annually to the U.S. economy.”
But it is unclear whether the company will change course and actively look for buyers once the law is on the books. ByteDance says it is 60% owned by institutional investors who would have a powerful financial incentive to somehow keep the app on the US market.
And there are potential buyers. Steven Mnuchin, Donald Trump’s Treasury Secretary, has publicly expressed interest, saying he was putting together an investor group with the aim of making a bid.
What is unclear is whether Mnuchin or anyone else would be able to raise the necessary funds. Dan Ives, managing director at Wedbush Securities, has said the app could be worth “over $100 billion” if the underlying algorithm is involved.
Furthermore, even if the money and willingness to sell are there, it remains an open question whether ByteDance could sell the algorithm even if it wanted to.
In recent years, China has exerted more control by adding content recommendation algorithms to its export control lists. And China’s Commerce Ministry has already said it “resolutely opposes” the idea of a sale and that any deal “requires government approval,” according to a Wall Street Journal translation.
Without the underlying algorithm — often described as TikTok’s “secret sauce” — the app’s value could drop dramatically and buyer interest could quickly dry up.
“I can’t imagine a buyer who would be interested without some of that intellectual property,” says Professor Weymouth, adding that “a sale of the brand doesn’t seem likely.”
Another important front: the courts
The issue will undoubtedly also end up in court. ByteDance has indicated it would file a lawsuit to challenge the law, arguing it could be overturned on multiple legal fronts.
One legal dispute could center around the First Amendment.
A recent analysis by the Economist Intelligence Unit predicted that on free speech grounds the law could be challenged all the way to the U.S. Supreme Court and could easily lead to its being overturned, noting that the Supreme Court “increasingly is the ultimate decision maker about technology’. policy for the US.”
Others agree. California Congressman Ro Khanna — an opponent of the bill — recently told ABC, “I don’t think it will pass First Amendment scrutiny because I think there are less restrictive alternatives.”
He also recalled that a similar attempt by then-President Trump to ban the app was also rejected by the court.
“I doubt it will survive scrutiny,” he added.
Another front likely to be the subject of litigation is whether the bill unfairly targets one company.
It appears that the final bill removed direct mentions of the company, but still mentions both TikTok and ByteDance directly in the legislation itself.
The bill calls the app a “foreign adversary-controlled application,” an unusual move that could open it up to legal challenges under the legal concept of a “bill.” The concept prohibits a party from being found guilty of a criminal offense without first going through the trial.
“That’s a problem,” Mark MacCarthy of the Brookings Institutions noted in a recent interview before the bill passed, saying there is precedent against having “legal consequences based on nothing other than your name.”
Ben Werschkul is Washington correspondent for Yahoo Finance.
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