by The Senate voted 79-18 on Tuesday afternoon to advance a landmark bill that gives China’s ByteDance up to a year to divest TikTok or face a US ban on the app.
Next stop is the desk of President Joe Biden, who has promised to sign it.
The long-debated measure has political implications for the 2024 election and will also set in motion a complex series of steps over the next 12 months that are likely to play out in boardrooms and courtrooms.
The bill itself gives the company 270 days to sell but the president can extend the deadline by up to a year. The process could end with a ban on an app currently used by more than 170 million monthly users in the United States.
“This is another front in the ongoing trade war between the US and China that started during the Trump administration,” Georgetown business professor Stephen Weymouth said in an interview this week.
He notes that the aggressive law is likely to soon provoke reactions from many quarters – including possible retaliation from the Chinese government. Previously “Congress has had a fairly laissez-faire approach to technology regulation overall,” he said.
The effort comes after lawmakers and the Biden administration have repeatedly charged that TikTok poses an urgent national security threat because the Chinese government could force the company to share its data.
There are also concerns about the ability of the Chinese government to use the app to influence American public opinion by adjusting what millions of users see when they open the app.
“We hope that TikTok will continue under new ownership, American or otherwise,” Senator Mark Warner said on the Senate floor during closing debate. The Virginia Democrat, who is one of the champions of the effort, added: “It just needs to be controlled no longer by an enemy.”
The bill previously passed the US House 360-58 and is now headed to the White House, where President Biden has promised to sign it. The TikTok provision is part of a larger package of aid bills that will also send new funds to support Ukraine, Israel and the Indo-Pacific.
The main question: Will Bytedance try to sell?
TikTok itself has denied the Biden administration’s charges and insists it would never share US data. He has responded to this week’s action on Capitol Hill by charging that the soon-to-be law is a “prohibition bill that would trample on the free speech rights of 170 million Americans.”
TikTok and ByteDance also said they have no intention of trying to sell, saying in a recent statement that the takeover would have the effect of “shutting down a platform that contributes $24 billion to the U.S. economy, annually.”
But it’s unclear if the company will change tack and begin actively seeking buyers once the law is on the books. By its own accounting, ByteDance is 60% owned by institutional investors who would have a powerful financial incentive to keep the app in front of the American market one way or another.
And there are potential buyers. Steven Mnuchin, who was Donald Trump’s Treasury secretary, has expressed interest publicly and says he was putting together a group of investors with the goal of making an offer.
What is unclear is whether Mnuchin or anyone else would have the ability to raise the necessary funds. Dan Ives, managing director at Wedbush Securities, has said the app could be worth “$100 billion plus” if the underlying algorithm is taken into account.
Furthermore, even if the money and willingness to sell is there it is still an open question whether ByteDance could sell the algorithm even if it wanted to.
In recent years, China has exerted more control by adding content-recommendation algorithms to its export-control lists. And China’s Ministry of Commerce has already said it is “firmly opposed” to the idea of a sale and that any deal would have to “seek government approval,” according to a Wall Street Journal translation.
Without the underlying algorithm—often called TikTok’s “secret sauce”—the value of the app could quickly drop and buyer interest could quickly dry up.
“I don’t imagine a buyer would be interested without some of that intellectual property,” says Professor Weymouth, adding “the brand is unlikely to sell.”
Another key front: the courts
The issue will surely end up in the courts as well. ByteDance has indicated that it would sue to challenge the lawsuit, arguing that it could be overturned on multiple legal grounds.
One legal dispute could be based on the first amendment.
A recent analysis by the Economist Intelligence Unit predicted that free speech groups could challenge the law all the way to the US Supreme Court and easily lead to its overturning, taking noted that the high court is “increasingly the final decider of technology. policy for the US.”
Others agree. Congressman Ro Khanna of California – an opponent of the bill – told ABC recently “I don’t think the scrutiny of the first amendment will pass because I think there are less restrictive options.”
He also recalled that a similar attempt by then-President Trump to ban the app was also struck down in court.
“I doubt it survives scrutiny,” he said.
Another area that is likely to be the subject of litigation is whether the bill is unfairly targeted at one company.
The final bill appears to have redacted the company’s direct references but still names TikTok and ByteDance directly in the legislation itself.
The bill calls the app a “foreign conflict-controlled application,” an unusual move that could lead to legal challenges under the legal concept of a “bill of attainder.” The concept prevents a party from being found guilty of an offense without first going through the trial process.
“That’s a problem,” Mark MacCarthy of the Brookings Institutions noted in a recent interview before the bill’s passage, saying precedent has been established against “a legal consequence based on anything other than your name.”
Ben Werschkul is the Washington correspondent for Yahoo Finance.
Click here for political news related to business and money
Read the latest financial and business news from Yahoo Finance
