U.S. Appeals Court Upholds Law Mandating ByteDance to Divest TikTok or Face Ban

A U.S. federal appeals court on Friday upheld a law that mandates Chinese-based ByteDance to sell its widely-used short video app TikTok in the U.S. by early next year or face a ban. This ruling marks a significant victory for the Justice Department and critics of the Chinese-owned app, presenting a severe setback for ByteDance. The decision raises the likelihood of an unprecedented ban on TikTok, which is used by 170 million Americans, in just six weeks.

In response to the ruling, TikTok has announced plans to appeal to the Supreme Court.

The appeals court’s support for the law highlights bipartisan backing, with both Republican and Democratic lawmakers and two U.S. presidents agreeing that the law is part of a larger effort to counter a national security threat posed by the People’s Republic of China (PRC). The Justice Department has expressed concerns that under Chinese ownership, TikTok could misuse its access to vast amounts of personal data of U.S. citizens and manipulate the content consumed by Americans.

Attorney General Merrick Garland stated that the decision is “an important step in blocking the Chinese government from weaponizing TikTok.”

On the other hand, the Chinese Embassy in Washington condemned the law as “a blatant act of commercial robbery” and cautioned the U.S. to handle the case with care to avoid damaging mutual trust between the two nations and harming bilateral relations.

The ruling comes amid escalating trade tensions between the U.S. and China. Recently, the Biden administration imposed new restrictions on China’s chip industry, and in retaliation, Beijing placed a ban on the export of gallium, germanium, and antimony to the U.S.

The decision by U.S. appeals court judges Sri Srinivasan, Neomi Rao, and Douglas Ginsburg rejected legal challenges from TikTok and its users. The law requires ByteDance to divest TikTok’s U.S. assets by January 19 or face a ban.

TikTok CEO Shou Zi Chew expressed disappointment over the ruling but affirmed the company’s commitment to defending free speech. “While today’s news is disappointing, rest assured we will continue the fight to protect free speech on our platform,” Chew said in an email to staff.

Free speech advocates were quick to criticize the court’s ruling. The American Civil Liberties Union (ACLU) decried the potential TikTok ban, stating, “Banning TikTok blatantly violates the First Amendment rights of millions of Americans who use this app to express themselves and communicate with people around the world.”

The court’s analysis highlighted concerns over China’s potential influence over U.S. public discourse through TikTok, emphasizing that China’s ability to manipulate information undermines fundamental free speech principles. The court argued that the First Amendment prevents the U.S. government from exercising similar control over social media platforms within its borders.

This decision, unless overturned by the Supreme Court, places TikTok’s future in the hands of President Joe Biden, who will need to decide whether to grant a 90-day extension for ByteDance to divest TikTok, a decision that will take effect before Donald Trump’s inauguration. However, it remains uncertain whether ByteDance could prove that it has made significant progress toward a sale, and whether the Chinese government would approve the transaction.

Trump, who attempted to ban TikTok during his first term in 2020, has already stated before the November presidential election that he would not allow a TikTok ban. The law also grants the U.S. government sweeping powers to ban other foreign-owned apps over concerns about the collection of Americans’ data, which could pave the way for further actions against other foreign social media platforms. In 2020, Trump also tried to ban Tencent-owned WeChat, but the courts blocked that attempt.

If TikTok is banned, advertisers would be forced to find alternative platforms for their ads. This prospect sent shares of Meta Platforms, a competitor to TikTok in the online ad space, to an intraday record high, closing up by 2.4%. Google’s parent company, Alphabet, which competes with TikTok through its YouTube platform, also saw a 1.25% increase in its stock price.

The ruling, penned by Judge Ginsburg, a Ronald Reagan appointee, and supported by Judges Rao, a Trump appointee, and Srinivasan, an Obama appointee, acknowledged the significant consequences of the decision. The court explained that its ruling would lead to TikTok’s ban on January 19 unless an extension is granted. ByteDance, valued at $268 billion in December 2023, has received backing from investors such as Sequoia Capital and KKR & Co. It recently offered to repurchase $5 billion worth of shares from investors.

The law also prohibits app stores like Apple and Google from offering TikTok, and bars internet hosting services from supporting the app unless ByteDance divests TikTok by the deadline.

Apple and Google declined to comment on the ruling, with Apple not responding to a request for comment.

Judge Srinivasan, in a concurring opinion, noted the profound impact of the ruling, especially considering TikTok’s extensive reach in the U.S. “170 million Americans use TikTok to create and view all sorts of free expression and engage with one another and the world,” Srinivasan wrote. “And yet, in part precisely because of the platform’s expansive reach, Congress and multiple Presidents determined that divesting it from China’s control is essential to protect our national security.”