Digital Business Deal TikTok #5

Taken from nytimes.com 's article August 24, 2020

TikTok Sues U.S. Government Over Trump Ban

The suit escalates a bitter back-and-forth between the popular video app and American officials.

TikTok sued the U.S. government on Monday, accusing the Trump administration of depriving it of due process when President Trump used his emergency economic powers to issue an executive order that will block the app from operating in the country.

The suit is TikTok’s most direct challenge to the White House and escalates an increasingly bitter back-and-forth between the popular video app and American officials.

Mr. Trump has repeatedly said TikTok, which is owned by ByteDance, poses a national security threat because of its Chinese ties. On Aug. 6, he issued twin executive orders banning transactions with TikTok and the Chinese social media app WeChat within 45 days. A week later, he issued a separate executive order giving ByteDance 90 days to divest from its American assets and any data that TikTok had gathered in the United States.

Relations between the US and China have soured in recent months over rifts in geopolitics, technology and trade. The campaign has been partly provoked by China’s more assertive posture, but also Mr. Trump’s desire to convince voters that he is tough on China.

As part of that, Mr. Trump’s advisers have zeroed in on technology companies that they say are beholden to the Chinese government through security laws, including ByteDance, the Chinese telecom equipment maker Huawei and the internet company Tencent, the owner of WeChat.

Mr. Trump’s first executive order against TikTok draws its legal authority from the International Emergency Economic Powers Act, which allows the president to regulate economic transactions in a national emergency. Past administrations have used it to punish foreign governments, as well as drug kingpins and hackers, but have never used it against a global technology company.

A partner at the law firm Alston & Bird, said courts would probably be reluctant to challenge the president on national security grounds. But if a court does decide to rule against Mr. Trump, that could end up curtailing the powers of the presidency.

TikTok explaining the grounds for its lawsuit that the Trump administration “failed to follow due process and act in good faith, neither providing evidence that TikTok was an actual threat, nor justification for its punitive actions.” The company also claimed that the purported national security threat identified by the Committee on Foreign Investment in the United States was based on “outdated news articles” and did not address the documentation provided by TikTok demonstrating the security of user data.

One of the Trump administration’s chief concerns has been the storage of American user data on foreign servers. But in its complaint, TikTok said it had taken “extraordinary measures to protect the privacy and security of TikTok’s U.S. user data,” which included storing American users’ data outside China on servers in the United States and Singapore. The company said it had also erected “software barriers” that stored U.S. user data separately from the data kept on other products and companies owned by ByteDance.

The company also said many of its top personnel — including its chief executive, general counsel and global chief security officer — were all in the United States and were not subject to Chinese law. And further, content moderation across the TikTok app is led by a team based in the United States, operating independently from China.

The Justice Department declined to comment on the suit.

The president’s move to ban WeChat, a social media app used widely by people of Chinese descent in the United States, is also facing legal challenges. A nonprofit group calling itself the WeChat Users Alliance filed a separate suit in a federal court in San Francisco arguing that the president’s attempt to ban WeChat violated various constitutional protections, including the First Amendment, and seeking an injunction against the move.

The executive orders against TikTok have led ByteDance to explore a sale of the popular video app, which is used by millions of teenagers and influencers. The company is in talks with multiple American firms, including Microsoft and Oracle, for a sale of at least parts of its business. TikTok is continuing to negotiate a potential sale while it fights the U.S. government in court.

Such a deal would require the company to move American user accounts over to the acquirer’s servers, a stipulation required by the White House. Microsoft is largely seen as the front-runner in the negotiations.

Another Chinese tech company that the Trump administration has targeted as part of its clampdown is Huawei, the giant maker of smartphones and telecommunications equipment. Huawei has also tried to use the American legal system to push back, though not always successfully.

The company sued the U.S. government over a spending law that prohibited federal agencies and contractors from using Huawei equipment, and sued the Federal Communications Commission after the agency barred American mobile carriers from using government subsidies to buy the company’s gear. 

Digital Business Deal TikTok #4

Taken from DealBook's article August 24, 2020 TikTok is taking the U.S. to court

The Chinese-owned video app plans to sue the Trump administration as soon as today over its order to force a sale. It faces long odds, pressure from rivals and unrest within its ranks.

TikTok is still in talks with potential bidders, including Microsoft and Oracle. There were discussions with other would-be suitors, but some appear to have dropped out: Bloomberg reports that Alphabet, the parent of Google, quit talks to join a group bid for TikTok.

It is fending off Facebook on multiple fronts. The Silicon Valley giant has rolled out new products that clone many of TikTok’s main features. And last fall, Mark Zuckerberg reportedly told U.S. lawmakers behind closed doors that Chinese internet companies like TikTok were threatening their American counterparts, according to The Wall Street Journal. It is trying to reassure its American employees. In virtual town halls, employees are asking whether they’ll still be paid if the service is forced to shut down, according to Bloomberg. And internally, Sept. 15 — when one of the Trump executive orders is set to take effect — is reportedly referred to as “D-Day.” Deal Professor: What TikTok wants Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he considers the prospects for TikTok’s legal challenge against the White House. TikTok’s lawsuit is a delaying tactic, at best. President Trump has issued two executive orders targeting ByteDance, TikTok’s Beijing-based parent company. The first, issued on Aug. 6, cites powers under the International Emergency Economic Powers Act and the National Emergencies Act to bar any U.S. person from transacting with TikTok, starting 45 days after the announcement. The second, issued on Aug. 14, ordered ByteDance to sell TikTok to a U.S. owner within 45 days. It relies on the Exon-Florio Amendment of the Defense Production Act, which allows the president to order a foreign company to divest U.S. assets if their purchase is perceived to have hurt national security. (The transaction in question here is ByteDance’s acquisition of Musical.ly, TikTok’s predecessor, in 2017.) On the Exon-Florio order, there is one previous case to go on: President Barack Obama’s order requiring Ralls, a Chinese-owned firm, to sell a wind farm it had bought that was deemed too close to a U.S. military base. Ralls sued, and a federal court ruled that while a foreign company was entitled to due process rights, like being able to examine the unclassified information used in the order, the substance of the decision is not challengeable. Ultimately, Ralls still had to dispose of the wind farm, but with more leeway to choose the buyer. In the case of the Emergency Powers Act, ByteDance could make a similar argument about due process. Foreign states and organizations have challenged such orders over the years, and due-process rights have been held to apply. TikTok thus has precedents for a legal challenge — but it would merely delay the inevitable. It cannot challenge the substance of the divestiture order. And although Mr. Trump appears to stretch the legal boundaries of his emergency powers, courts are unlikely to interfere. Still, TikTok could extend time for a deal by persuading a court to delay the application of the orders. This is what the lawsuit is about: avoiding a fire sale. More time could help it fetch a higher price or better sales terms, but by this time next year TikTok will almost certainly be under new, American ownership.

Digital Business Deal TikTok #3

Taken from Reuters article August 20, 2020

Unusual for U.S. Treasury to get a cut of any TikTok sale: White House aide

WASHINGTON (Reuters) - President Donald Trump wants to deny China some of the proceeds from the sale of ByteDance’s U.S. operations of its video-sharing app TikTok, White House economic adviser Larry Kudlow said on Wednesday, but it would be unusual for any company that acquires TikTok to provide funds to the U.S. Treasury.

“Well he’s said that,” Kudlow told CNBC when asked about Trump’s demand that part of the proceeds from the TikTok sale he has ordered go to the U.S. Treasury.

“I acknowledge that it’s unusual. The president has his own mind on some of these things,” Kudlow said.

“I don’t know whether that will end up being the case when the Treasury gets its bids in from potential bidders. But the president has said that. I think he probably would like to deny China some of the proceeds of the TikTok sale,” Kudlow added.

Trump ordered ByteDance last week to divest TikTok’s U.S. operations within 90 days, the latest effort to ramp up pressure on the Chinese company over concerns about the safety of the personal data it handles.

Trump has said he would support an effort by Microsoft Corp to buy TikTok’s American operations if the U.S. government gets a “substantial portion” of the proceeds, but has also said there are other interested potential buyers.

Oracle Corp has joined some of the investors of TikTok’s Chinese owner ByteDance in pursuing a bid for the app’s operations in North America, Australia and New Zealand, according to people familiar with the matter.

Platform Deal Fortnite #2

Taken from DealBook Briefing August 18, 2020 

The Apple-Epic battle kicks up a notch

One of Silicon Valley’s most closely watched fights escalated yesterday, after Epic Games accused Apple of threatening to block it from important developer services — a move that could have repercussions beyond games like Fortnite, Epic’s marquee title.

Epic said that it could lose access to developer accounts and tools for iOS and Mac operating systems as a result of the company’s dispute with Apple over the 30 percent commission that software developers pay for sales made within iOS apps. Apple removed Fortnite, the hugely popular multiplayer game, from its app store after Epic urged players to pay it directly rather than via Apple. Losing Apple’s developer tools is a bigger deal than just blocking Fortnite on the App Store. Epic’s software platform, known as the Unreal Engine, underpins scores of other video games and apps (including software for training astronauts). Revoking its developer accounts would leave Epic unable to update that engine for iOS or Mac devices, meaning other developers’ games and apps that rely on it would eventually become unusable. • That could force developers to use other engines — not a small task — and could put a dent in Epic’s recently minted $17 billion valuation. Apple said in a statement that it was simply forcing Epic to comply with rules that apply to all developers on its platforms. Epic will be hoping to rally more companies to its cause. It has already tapped into growing frustration with Apple’s power over its App Store, which has become the subject of antitrust scrutiny in Washington and Brussels. And The Information reports that the game developer is trying to form a coalition of like-minded partners, including Spotify and Sonos.

Platform Deal Fortnite #1

Taken from DealBook Briefing August 14, 2020 

Fortnite picks a fight

Apple and Google have kicked Fortnite out of their app stores, making the wildly popular and hugely lucrative video game unavailable to many iPhone and Android device users. It follows moves by Epic Games, the maker of Fortnite, encouraging the game’s mobile-app users to pay it directly rather than going through the online stores, which take a cut of sales.

The tech giants insist on handling app payments and take a 30 percent commission on transactions via their stores. This gatekeeper policy is at the center of antitrust complaints against Apple and Google in the U.S. and Europe. After the Fortnite ban, Epic sued Apple and Google in federal court, with its C.E.O., Tim Sweeney, promising “a hell of a fight.”

• Epic’s argument: Apple and Google collectively dominate mobile platforms and cannot be trusted to charge “fair” prices. • Apple and Google’s argument: They built and maintain their platforms and should be allowed to charge whatever they want. In other words, they aren’t public utilities. It’s a gutsy gambit by Epic, and probably a losing one, at least in the short term. Neither Apple nor Google is likely to capitulate: If they did, they’d have to offer the same terms to everyone on their platforms. (“These guidelines create a level playing field for all developers and make the store safe for all users,” Apple said in a statement.) However, a protracted legal battle could put more pressure on the tech giants in Washington, Brussels and other places that are looking closely at their market power. If Epic rallies app developers to get behind its cause, that could be a problem for the platforms, too. • Since March 2018, Fortnite has been downloaded more than 130 million times on iPhones and iPads, generating about $360 million in revenue for Apple, according to Sensor Tower. It’s easier to download apps on Android devices outside Google’s store, so it has made less in commissions from sales of Fortnite, which has appeared in its online store only since April. Fortnite can also be played on other devices, computers and consoles, giving it leeway to lose iPhone and Android users without going completely dark. This is not a genuine negotiation. For Epic Games, it is as much a public relations event as anything else. Within minutes of Fortnite’s being banned by Apple — something that Epic clearly anticipated — it released a slickly produced video parody of Apple’s famous “1984” ad. Mr. Sweeney, the game maker’s chief, framed the dispute as no less than “critical to the future of humanity,” citing the risk of submission to “corporations who control all commerce and all speech.” • Spotify, which has waged a similar battle with Apple, issued a statement in support of Epic and against what it called Apple’s “unfair practices.” • It’s worth noting that Epic brought out its own app store in 2018. It charges developers a 12 percent commission, which it says is still comfortably profitable. Which is worse for Apple: No Fortnite or no WeChat? Losing the mostly young fans of Fortnite is bad, but the Trump administration’s threat to ban U.S. companies from doing business with China’s WeChat could affect vast numbers of iPhone users. Whatever the case, the longer these disputes endure, the bigger the risk that people who feel they can’t live without a certain game or messaging app will think twice about buying Apple devices.

Digital Business Deal TikTok #2

Taken from DealBook Briefing August 18, 2020 The race for TikTok gets (even more) interesting

As the Chinese-owned video app negotiates to sell itself to avoid being banned in the U.S., The Financial Times reports that a surprising new suitor has emerged: Oracle, the Silicon Valley giant better known for business software than for social networking.

Oracle has held preliminary talks with ByteDance, TikTok’s parent company, according to the FT. Its aim was to buy TikTok’s operations in the U.S., Canada, Australia and New Zealand, the same assets that Microsoft has publicly said it is negotiating to acquire. Like Microsoft and any other potential buyer, Oracle’s talks have included ByteDance investors such as Sequoia and General Atlantic.

• Oracle is only the latest company to express interest in buying TikTok after the Trump administration’s demand to transfer ownership of the app to an American company: Twitter had previously emerged as a suitor, and others are in the mix as well, DealBook’s Michael de la Merced hears. Oracle has an advantage: close ties to the White House. Both Larry Ellison, its co-founder, and Safra Catz, its C.E.O., are among the few prominent Trump supporters in Silicon Valley. It arguably has a better relationship with the Trump administration than even Microsoft, which has itself navigated the current Washington landscape more deftly than rivals like Alphabet and Facebook. • But Oracle also faces a question: What would it do with TikTok, given that it has little experience in the way of consumer-facing businesses? The White House is expanding its battle against the Chinese tech industry. The Commerce Department widened restrictions on Huawei, making it harder for the company to buy chips made or designed with American equipment and and software. The net effect of all these moves, The Times notes, is a potential splintering of the internet.

Digital Business Deal TikTok #1

Taken from DealBook Briefing August 17, 2020  TikTok isn’t standing still

As TikTok negotiates its potential sale, which must be completed within 90 days to prevent the Chinese-owned app from being shut down in the U.S., it is signing a different sort of deal.

TikTok is partnering with UnitedMasters, a music distribution company, to allow artists on the video-sharing platform to distribute their songs directly from the app to streaming services like Apple Music, Spotify and YouTube. UnitedMasters also arranges music deals with brands like ESPN and the N.B.A. The deal is expected to be announced today. It’s the first major transaction for Kevin Mayer, TikTok’s C.E.O., who joined the company in May after a long career at Disney. Much of his time has been spent reacting to geopolitics, with TikTok’s parent company, the Beijing-based ByteDance, ensnared in the tech cold war between the U.S. and China. Citing national security concerns, President Trump has ordered TikTok’s U.S. operations to be sold to an American owner — Microsoft is the most likely buyer — or shut down. • Despite the uncertainty of TikTok’s fate in the U.S., the UnitedMasters deal shows that the company is not standing still, even if the benefits of the new partnership will probably accrue to a new owner. It’s an effort to deepen relationships with influential artists who use the app. TikTok’s young and engaged audience has helped songs go viral, jump-starting the careers of musicians like Lil Nas X and BMW Kenny. Trying to keep these creators engaged with the app is particularly important as TikTok faces competition from deep-pocketed rivals like Facebook’s Instagram, which recently launched a TikTok clone called Reels. It’s a sign of the times for the music industry. Instead of selling their rights to a label, artists who sign with UnitedMasters keep 90 percent of their royalties, as well as ownership of the master recordings. UnitedMasters was founded in 2017 by the former label executive Steve Stoute and funded by the likes of Alphabet and Andreessen Horowitz. The deal, which creates a platform designed to circumvent the traditional music-label business model, is aimed at “tomorrow’s stars who will be famous, fiercely independent and wealthy,” said Mr. Stoute, a long-established tastemaker in the hip-hop industry. • In many ways, TikTok has already upended the music business: Scouts no longer go to bars and clubs to discover the hottest unsigned artists — they scroll through the app instead. By partnering with UnitedMasters, the app is aiming to bolster its appeal to independent-minded artists who operate outside the traditional industry machinery. But what about that other deal? TikTok would not comment on the state of the company’s takeover talks with Microsoft. The deal with UnitedMasters does not appear to be contingent upon that transaction, and is billed as a “global” partnership. However, if TikTok were to shut down in the U.S., it would clearly affect the reach of the music deal. Terms of the transaction were not disclosed.