By John D. McKinnon and Georgia Wells
TikTok and its Chinese parent company are asking a federal
appeals court in Washington, D.C., for additional time to work out
a potential divestiture of the popular video-sharing app, amid
signs that the company is settling in for a longer fight with the
U.S. government.
With the Trump administration's Thursday deadline looming for a
restructuring or shutdown of TikTok, it appeared the government was
losing at least some of its leverage over the app's owner.
Already, a federal district court judge in Philadelphia has
enjoined enforcement of the shutdown option, taking away the
government's main weapon in forcing a divestiture.
The new suit, if it succeeds, broadens TikTok's legal assault by
asking the courts to overturn the government's legal basis for
ordering the divestiture as well. As of Wednesday afternoon,
administration officials hadn't yet clarified how they intend to
proceed.
The new petition, which TikTok and Chinese parent ByteDance Ltd.
filed late Tuesday in the U.S. Court of Appeals for the D.C.
Circuit, represents the latest in a series of legal challenges by
TikTok and its allies that seek to undermine the Trump
administration's crackdown campaign.
It says the U.S. government's decision to force a TikTok
divestiture deal was "arbitrary and capricious" and denied the
company due process under the law. It asks that the court vacate
and set aside the divestment order.
The company says in its filing that it had been in extensive
discussions with the Committee on Foreign Investment in the U.S.,
or CFIUS, to address its concerns. But it said that feedback from
U.S. officials had essentially stopped in recent weeks, even as the
Thursday deadline approached.
The U.S. has argued that it is trying to prevent data on
American TikTok users from being shared with China's authoritarian
government, which TikTok says it would never countenance.
President Trump issued an order in August stating that TikTok
would be banned in the U.S., but said he might approve a
divestiture to a U.S. company.
Under a preliminary deal that Mr. Trump approved in concept in
September, Oracle Corp. and Walmart Inc. would take a combined 20%
in TikTok Global, a new U.S.-based company that would run the
global service. Among the major sticking points in the ongoing
negotiations is the size of the stake that ByteDance would get to
keep in TikTok, according to people familiar with the matter.
TikTok said talks to finalize that deal are continuing.
"We remain committed to working with the administration -- as we
have all along -- to resolve the issues it has raised, but our
legal challenge today is a protection to ensure these discussions
can take place," a TikTok spokesperson said in a statement.
China's government must also approve the deal, and it is
weighing whether it will comply with recent restrictions it placed
on exports of data-processing technologies such as
content-recommendation algorithms, a move widely seen as aimed at
TikTok.
The new suit filed by TikTok asks the appeals court to review
the president's August divestiture order, as well as related
actions by CFIUS. The suit argues that the government's efforts to
compel a divestiture of TikTok amount to an unlawful taking under
the U.S. Constitution, and also exceed the government's authority
under the law governing CFIUS reviews.
The suit says the administration action came on the heels of
reports that TikTok had been used to coordinate efforts to depress
attendance at a Trump rally in Tulsa, Okla., in June. It contends
that the administration departed from CFIUS rules in seeking to
force the divestiture.
The suit says TikTok and ByteDance "remain committed to reaching
a negotiated mitigation solution." They said they intend to file a
motion to stay enforcement of the divestiture order "only if
discussions reach an impasse and the government indicates an intent
to take action to enforce the order."
The divestiture deadline has been set for Thursday. But the
government's separate shutdown order -- the principal means of
enforcing the divestiture order -- has already been put on hold by
the federal district court ruling in Philadelphia, and so far the
administration hasn't appealed that injunction.
CFIUS is a panel of national security experts that has taken a
higher profile in recent years on heightened concerns that China
was trying to acquire strategic U.S. technology via business
acquisitions by Chinese companies.
The Commerce Department, which is responsible for implementing
the executive order on TikTok, didn't immediately respond to a
request for comment. The Treasury Department, which coordinates
CFIUS, also didn't immediately respond.
Previous cases brought by TikTok and a TikTok user group have
focused more on regulatory actions taken by the Trump
administration to try to shut down the popular app by Thursday if
no deal has been reached.
In one of those cases, U.S. Judge District Court Judge Carl
Nichols is now considering TikTok's request for an injunction that
would prevent the U.S. government from barring U.S. companies from
providing web-hosting or content delivery services under a Commerce
Department order set to take effect Thursday.
Judge Nichols, who was appointed to the bench by President
Trump, previously granted a preliminary injunction against a
Commerce Department curb on TikTok downloads and mobile app updates
that was set to take effect Sept. 27.
In oral arguments before the judge last week, lawyers for TikTok
argued that the Commerce order set for Thursday would have the
effect of shutting down personal communications and informational
materials, an impermissible use of the International Economic
Emergency Powers Act, the law relied on by the Trump
administration.
Lawyers for the government argued that the executive action was
aimed at preventing China from obtaining data on Americans via the
app, not at blocking communications.
U.S. District Judge Wendy Beetlestone in Philadelphia previously
granted a preliminary injunction against the shutdown order in a
suit brought by three TikTok stars: comedian Douglas Marland,
fashion guru Cosette Rinab and musician Alex Chambers.
In a court filing last week, TikTok said it still wants a ruling
from Judge Nichols on its own request for an injunction because the
Philadelphia case concerned different plaintiffs with different
interests, and because the preliminary injunction in that case "is,
by definition, temporary" and could be lifted or vacated on appeal,
"leaving TikTok's entire business in jeopardy."
The government responded by noting that the TikTok case seeks
the same enjoining of the shutdown that Judge Beetlestone had
already granted in the Marland case.
"Because a separate court has already provided Plaintiffs with
the exact same relief that they seek here, there is necessarily no
irreparable harm warranting a duplicative preliminary injunction
here," the government said in a court filing.
Mr. Trump's defeat in the Nov. 3 election adds more uncertainty
to TikTok's future. It remains unknown whether the incoming Biden
administration would maintain the Trump administration's efforts to
shut down or restructure Chinese-owned social media apps such as
TikTok.
Many members of Congress in both parties, however, share the
Trump administration's concern about potential Chinese
data-gathering and surveillance in the U.S.
--Kate Davidson contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com and Georgia
Wells at Georgia.Wells@wsj.com
(END) Dow Jones Newswires
November 11, 2020 15:52 ET (20:52 GMT)
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