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.