U.S. Supreme Court Upholds TikTok Sale-or-Ban Law
Ban Set to Take Effect Jan. 19, with Implementation Left to President-Elect Trump
Highlights
- In a much-anticipated decision, the U.S. Supreme Court upheld the Protecting Americans from Foreign Adversary Controlled Applications Act, signed into law on April 24, 2024, requiring ByteDance, the TikTok app's Chinese parent company, to divest its interest in TikTok by Jan. 19, 2025, or face a nationwide ban.
- Without divestiture, penalties will prevent updates or distribution of TikTok via platforms such as Apple and Google, leading to the app's gradual degradation.
- This Holland & Knight alert reviews the decision and what it means going forward.
In a much-anticipated decision, the U.S. Supreme Court on Jan. 17, 2025, rejected TikTok's appeal and upheld the Protecting Americans from Foreign Adversary Controlled Applications Act (Act). The act, which was signed into law on April 24, 2024, gave ByteDance Ltd., the TikTok app's Chinese parent company, nine months to divest the popular U.S. company or be banned from operating in the U.S. ByteDance mounted a First Amendment challenge to the Act but was unsuccessful at the high court. Starting on Jan. 19, 2025, one day before the inauguration of President-Elect Donald Trump, the Act will effectively ban TikTok unless its U.S. operations are divested from ByteDance.
How Would the Sale-or-Ban of TikTok Operate?
The Act prohibits any company from distributing, maintaining or updating an entity classified as a foreign adversary-controlled application within the U.S. Such an application is defined as one operated by a company that's controlled by a foreign adversary and deemed by the president to pose a significant threat to U.S. national security. Violations of these restrictions can result in civil enforcement actions and significant monetary penalties.
The Act provides an exception for foreign adversary-controlled applications if they undergo a qualified divestiture. A qualified divestiture requires a presidential determination that the application is no longer under the control of a foreign adversary. Furthermore, the divestiture must ensure that no operational relationships remain between the U.S. operations of the application and any former entities affiliated with a foreign adversary.
In TikTok's case, as established by the Supreme Court's decision, the app is classified as a foreign adversary-controlled application due to its ownership and control by ByteDance. Accordingly, the Act bans the distribution, maintenance or updates of TikTok in the U.S. unless ByteDance completes a qualified divestiture. This divestiture would require ByteDance to relinquish all direct and indirect control over TikTok's U.S. operations, ensuring its operational independence and preventing any future ties with ByteDance or other entities designated as foreign adversaries.
Should ByteDance refuse to divest its holdings in TikTok, the app would face a nationwide ban. The ban would not result in the immediate removal of the app from users' devices. Instead, the ban would be enforced through penalties targeting companies that provide services to banned entities, such as internet hosting providers and app store operators such as Apple and Google. These companies would be prohibited from distributing or updating TikTok on their platforms, leading to a gradual degradation of the app. Over time, without updates or maintenance, TikTok would likely become obsolete and unusable.
Why Did the U.S. Enact a Sale-or-Ban Law Against TikTok?
The TikTok drama has been developing for a while. In recent years, U.S. government officials across the political divide have consistently taken measures to address national security concerns surrounding the relationship between TikTok and its Chinese parent company.
In 2020, then-President Donald Trump issued an executive order citing TikTok's ability to capture vast amounts of user data as a significant national security threat. The order sought to prohibit certain transactions involving ByteDance but was blocked by federal courts. Subsequently, the Trump Administration directed ByteDance to divest its U.S. TikTok operations and user data, but these efforts were stalled as negotiations with the Biden Administration aimed at a nondivestiture agreement failed to resolve the government's concerns. ByteDance's proposed national security agreement was ultimately deemed insufficient to mitigate risks posed by Chinese control. Against this backdrop, Congress enacted the sale-or-ban law, further targeting TikTok and similar applications.
According to the Supreme Court's finding, TikTok's ultimate parent company, ByteDance, is a privately held company that has operations in China. ByteDance owns TikTok's proprietary algorithm, which is developed and maintained in China. The company is subject to Chinese laws that require it to assist or cooperate with the Chinese government's intelligence work and to ensure that the Chinese government has the power to access and control private data that the company holds. Underscored in the decision, TikTok's extensive data collection from more than 170 million U.S. users could be exploited for surveillance, public influence campaigns or other harmful purposes that threaten national security. The Act and the holding reflect Congress' and the Supreme Court's efforts to address growing concerns over foreign adversary-controlled applications through the access to sensitive data of U.S. nationals and the resulting potential risks to U.S. national security.
President-Elect Trump Asked the Supreme Court to Delay TikTok Ban
President-Elect Trump filed an Amicus Curiae brief on Dec. 27, 2024. Although President-Elect Trump did not take a stance on the merits of the case, he argued that Congress' statutory mandate requiring TikTok's divestment by Jan. 19, 2025, just one day before his inauguration, unfairly limits the incoming administration's ability to address the issue diplomatically. He emphasized his belief that a political resolution negotiated under his leadership would better achieve the Act's objectives while respecting constitutional rights and preserving executive authority.
In the brief, President-Elect Trump called for a postponement of the statutory deadline to allow his administration more time to deliberate on the matter. However, as reflected in the Supreme Court's recent decision, this request was not granted. As of the publication of this alert, the ban is still set to take effect on the eve of President-Elect Trump's inauguration. President Joe Biden reportedly will not enforce the TikTok ban and will leave it to the Trump Administration to implement it.
The Act was signed with broad support from Republicans and Democrats. However, as reported by Reuters, lawmakers increasingly are urging President Biden to grant a reprieve to prevent TikTok from going dark in the U.S. as soon as Jan. 19.1 The TikTok ban has already resulted in a number of "TikTok refugees" who moved to another Chinese app, RedNote, short for "Little Red Book." RedNote became the most downloaded app in Apple's app store in the U.S. the week leading up to the Supreme Court's decision. If this trend continues, this "migration" to a similarly situated app might defeat the purpose of the Act. The TikTok ban illustrates how U.S. regulatory actions are designed to mitigate potential threats posed by foreign adversaries, significantly increasing compliance requirements for cross-border investments and technology operations. Particularly, the Supreme Court's decision upholding the TikTok ban underlines the trend of intensifying scrutiny of foreign-controlled entities that collect or handle sensitive data in the U.S.
For further insights on this decision or guidance on navigating these complex regulatory landscapes, please contact the authors or another member of Holland & Knight's International Trade Group or Data Strategy, Security & Privacy Team.
Notes
1 Reuters: "Senate Democrats ramp up pressure on Biden to delay TikTok ban" (Jan. 16, 2025).
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