Speaker 1: Welcome to text Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio
Speaker 1: and I love all things tech and Back in March
Speaker 1: twenty twenty, which, according to my notes here was approximately
Speaker 1: a billion years ago, I did an episode about the
Speaker 1: video social media platform TikTok. Now, in case you have
Speaker 1: somehow missed out on the TikTok craze entirely, I'll explain
Speaker 1: what that is briefly. It's an online video sharing app
Speaker 1: that let's users create videos, typically stuff like lip sinking
Speaker 1: videos using an archive of sound clips. But they could
Speaker 1: also shoot very short, like you know, fifteen second long
Speaker 1: videos that can be anything from a stunt to a joke. Uh.
Speaker 1: They can even create really sophisticated editing tricks to make
Speaker 1: it look like you're doing you know, magic tricks and stuff.
Speaker 1: They could use reply feature to create a duet like
Speaker 1: experience where you can create a video that's sort of
Speaker 1: in response to a previous video and have them play
Speaker 1: side by side and create the appearance of an interaction
Speaker 1: between the two. It's pretty cool stuff. Lots of folks
Speaker 1: have used TikTok creatively, from making political or social commentary
Speaker 1: to you know, doing those kind of cool special effects
Speaker 1: sort of videos. I've seen some really clever ones, and
Speaker 1: there's good stuff, and of course there's plenty of bad
Speaker 1: stuff on there too. And by bad, I don't just
Speaker 1: mean folks who haven't mastered the skills of creating videos,
Speaker 1: but also people just you know, behaving badly, spreading misinformation
Speaker 1: or disinformation, or being hateful. In other words, it's a
Speaker 1: microco some of the Internet at large. TikTok was already
Speaker 1: in the news back in March. Now it's August twenty twenty.
Speaker 1: I had to look to make sure and uh, TikTok
Speaker 1: is popping up in headlines again, and enough has happened
Speaker 1: since that March episode that I kind of needed to
Speaker 1: do another episode about this. Part of that is because
Speaker 1: the President of the United States has a bit of
Speaker 1: a vendetta against the service. Now, as I record this,
Speaker 1: he has signed an executive order to impose sanctions against TikTok.
Speaker 1: But by the time you hear this episode, I'll expect
Speaker 1: we'll understand a little more regarding how those sanctions will
Speaker 1: play out. We've got some hints right now, but it's
Speaker 1: still kind of vague. The assumption right now is that
Speaker 1: American companies will be banned from advertising on TikTok, you know,
Speaker 1: advertising is kind of where TikTok gets its revenue, and
Speaker 1: that companies like Apple and Google will remove TikTok from
Speaker 1: their app store, respectively. Trump also stated that the sanctions
Speaker 1: will hit unless the company agrees to a deal where
Speaker 1: some US company will acquire it. In other words, it
Speaker 1: will move from the hands of ownership it currently sits
Speaker 1: in to new ownership. Now, I'll get back to some
Speaker 1: of the reasons that the Trump campaign and administration may
Speaker 1: have to pursue a campaign against TikTok beyond the you know,
Speaker 1: stated reasons. They don't all have to do with trade
Speaker 1: wars and national security in other words, but we'll get
Speaker 1: to that towards the end. Now, another reason TikTok is
Speaker 1: in the news is because Microsoft is making a move
Speaker 1: to purchase some or perhaps all of TikTok. It all
Speaker 1: depends on the reports you read and believe, and whether
Speaker 1: or not it's it talks to acquire some of it
Speaker 1: or the whole ding dang durn thing. I mean, at
Speaker 1: the time I'm recording this. Microsoft disputes that it's after
Speaker 1: the whole company. Part of it has to do with
Speaker 1: an ongoing discussion about whether or not TikTok stands as
Speaker 1: a threat to national security in the United States, because again,
Speaker 1: the parent company for TikTok is a Chinese company called
Speaker 1: byte Dance. So when Trump is saying an American entity
Speaker 1: must buy TikTok, the current candidate to do just that
Speaker 1: happens to be Microsoft. But what I really want to
Speaker 1: focus on for much of this episode is what Microsoft
Speaker 1: and the US government are kind of using as a
Speaker 1: justification to rest ownership of TikTok away from byte Dance,
Speaker 1: at least in some parts of the world. And that's
Speaker 1: the Committee on Foreign Investment in the United States or
Speaker 1: c f i u S. Because whether you care about
Speaker 1: TikTok or not, this committee has played a big part
Speaker 1: in several big moves in the tech industry, or in
Speaker 1: some cases prevented big moves from ever happening. So let's
Speaker 1: trace the history of this committee, because until recently, I
Speaker 1: don't think a lot of people had heard about it.
Speaker 1: Even out you may not have heard about it unless
Speaker 1: you were specifically looking into news stories about all this stuff,
Speaker 1: but the Committee has been active for a while and
Speaker 1: has been instrumental in some major deals, and yet tends
Speaker 1: to kind of get overlooked. By the end of this episode,
Speaker 1: I'll talk more about what's specifically going on with TikTok,
Speaker 1: as well as my own sort of complicated thoughts on
Speaker 1: the whole thing, because this is one of those situations
Speaker 1: where I really don't know what the right move is. Now.
Speaker 1: Like a lot of historical stories, it can be tricky
Speaker 1: to figure out just where I should begin with this one.
Speaker 1: I mean, you can cite a specific law or action,
Speaker 1: but chances are whatever you site will have a precedent.
Speaker 1: And I don't want to trace this all the way
Speaker 1: back to the founding of the United States or even
Speaker 1: further back than that. But really we need to focus
Speaker 1: on the modern industrial age. So for that reason, I'm
Speaker 1: going to talk first about the War Powers Act of
Speaker 1: World War Two. Nineteen forty one, Japanese forces attacked the
Speaker 1: US at Pearl Harbor in Hawaii. Two weeks later, the U.
Speaker 1: S Government put into place the War Powers Act of
Speaker 1: nineteen forty one. This act expanded the federal government's powers
Speaker 1: and authority, giving the Executive Branch. For those who are
Speaker 1: not familiar, that would be the branch that the president
Speaker 1: is in. Gave that branch a great deal of flexibility
Speaker 1: to reshape the government to focus efforts on all things
Speaker 1: related to war. Then you had the War Powers Act
Speaker 1: of nineteen forty two. That one gave US military branches
Speaker 1: the authority to seize US land for the purposes of
Speaker 1: establishing and expanding bases, among other things, and it also
Speaker 1: allowed the government to fast track the research and development
Speaker 1: of atomic weapons, leading to the Manhattan Project. The president
Speaker 1: here was that in times of national emergency, the federal
Speaker 1: government could expand powers beyond what would normally be acceptable
Speaker 1: in the United States. By nineteen fifty, the US was
Speaker 1: in a post World War to boom period. But that
Speaker 1: year the Korean War started and the US got involved.
Speaker 1: While the central conflict was in Korea. For the US,
Speaker 1: this was part of an ongoing power struggle with the
Speaker 1: then Soviet Union. The US government passed a law called
Speaker 1: the Defense Production Act of nineteen fifty. This law granted
Speaker 1: powers to the US president to influence domestic businesses for
Speaker 1: the purposes of national defense. The ideas that, again, in
Speaker 1: a time of crisis, the president can command industry in
Speaker 1: this country to provide what is deemed quote essential materials
Speaker 1: and goods end quote for the purposes of boosting national defense.
Speaker 1: So now the powers of the government were again expanded
Speaker 1: and president was set in which a U. S President
Speaker 1: could issue directives to private industry. By the way, if
Speaker 1: you are so inclined, that act is available for free
Speaker 1: on the internet. You can read the whole darn thing
Speaker 1: if you like. It's more than a little dry, if
Speaker 1: I'm being honest. This brings us up to nineteen seventy. Coincidentally,
Speaker 1: the year I was born. Gerald Ford, who had served
Speaker 1: as vice president to Richard Nixon, was president at this point.
Speaker 1: After Nixon had resigned due to the Watergate scandal, Ford
Speaker 1: issued an executive order, Executive Order number one one eight
Speaker 1: five eight to be precise, titled quote foreign investment in
Speaker 1: the United States in the quote, and this executive order
Speaker 1: cited section seven twenty one of the Defense Production Act
Speaker 1: of nineteen fifty. So there's a lot that we have
Speaker 1: to unpack here. First, What exactly is an executive order? Well,
Speaker 1: it's an official directive from the President of the United States.
Speaker 1: The commands some action of the federal government. Every president
Speaker 1: in US history has signed at least one executive order.
Speaker 1: George W. Bush signed two d ninety one of them
Speaker 1: during his two terms. That made him the president who
Speaker 1: issued the most executive orders in history. Executive orders are
Speaker 1: legal documents and typically instruct various government powers to take
Speaker 1: specific actions. They're not always straightforward legal documents, and they
Speaker 1: are sometimes controversial, and occasionally they end up being challenged
Speaker 1: or even ignored. Okay, So what was Section seven twenty
Speaker 1: one of the Defense Production Act of nineteen fifty as amended?
Speaker 1: Because the Act has been amended since it was first
Speaker 1: issued in nineteen fiftyes, so that's how we refer to
Speaker 1: it now. Well, Section seven twenty one falls under the
Speaker 1: General Provisions under Title seven of the Act, and the
Speaker 1: title of that section is quote Authority to review certain mergers, acquisitions,
Speaker 1: and takeovers end quote. Now, essentially, this part of the
Speaker 1: Act established the authority of the federal government to investigate
Speaker 1: any planned major changes in ownership among certain companies. Certain
Speaker 1: doesn't really get defined, but the implication is companies that
Speaker 1: are important to the welfare of the United States. So
Speaker 1: the idea here is that some companies might be vitally
Speaker 1: important to the US and for national security, and so
Speaker 1: the ownership of those companies is a matter of national interest.
Speaker 1: It's also important if you want to avoid situations such
Speaker 1: as monopolies, where a single company or really a small
Speaker 1: group of companies dominates an industry to a point that
Speaker 1: it hurts citizens and it discourages competition. The Act expressly
Speaker 1: gives the President authority to quote take such action for
Speaker 1: such time as the President considers appropriate, to suspend or
Speaker 1: prohibit any covered transaction that threatens to impair the national
Speaker 1: security of the United States end quote. Covered transaction just
Speaker 1: means that certain types of transactions like mergers and acquisitions
Speaker 1: are specifically covered by the section. The big, big time stuff.
Speaker 1: Not like this company has gone into a limited partnership
Speaker 1: with this other company for the purposes of this one
Speaker 1: and only thing that would probably fall outside of covered transactions.
Speaker 1: So the US President may halt any covered company transaction
Speaker 1: that could stand as a threat to US security. Now
Speaker 1: there's a lot more nuanced to this, but there's not
Speaker 1: much point in going through it all in this podcast.
Speaker 1: It would get bogged down super fast. Ford's executive order
Speaker 1: officially established the Committee on Foreign investment, which was first
Speaker 1: outlined in that nineteen fifty Act and the original Acts
Speaker 1: stated that the membership of this committee would include the
Speaker 1: following US officials Secretary of the Treasury, Secretary of Homeland Security,
Speaker 1: Secretary of Commerce, Secretary of Defense, Secretary of State, the
Speaker 1: Attorney General of the United States, the Secretary of Energy.
Speaker 1: And then there were two non voting members of the committee,
Speaker 1: the Secretary of Labor and the Director of National Intelligence.
Speaker 1: Now these are mostly appointed offices, meaning the President appoints
Speaker 1: those officers. Some of them require confirmation from the Senate
Speaker 1: before that can happen. But you could argue that this
Speaker 1: deck is kind of stacked in the favor of the
Speaker 1: executive branch because the President is the one who's appointing
Speaker 1: all these individuals. Ford's Executive Order in nineteen added two
Speaker 1: new members to this committee, and that would be the
Speaker 1: United States Trade Representative and the Director of the Office
Speaker 1: of Science and Technology Policy. Plus both the nineteen fifty
Speaker 1: Act and the nineteen seventy Executive Order made allowances for
Speaker 1: the President to appoint any other heads of agencies or
Speaker 1: offices to the committee on a case by case basis.
Speaker 1: The U s Secretary of the Treasury acts as chairperson
Speaker 1: for this committee, and the rules by which the Committee
Speaker 1: may review transactions gets fairly complex and they're often open
Speaker 1: to interpretation. Not all transactions fall under the purview of
Speaker 1: this group, as I mentioned, and moreover, deciding which proposed
Speaker 1: transactions could impact national security isn't really cut and dried either,
Speaker 1: So in some respects you could say that the Committee
Speaker 1: defines whether or not an individual case is a potential
Speaker 1: national security matter, case by case. So it's frustrating because
Speaker 1: there's not like a clear and dry set of rules
Speaker 1: that you could look at and say, all right, well
Speaker 1: this falls outside of that, so everything's okay or no,
Speaker 1: that rule covers this particular case, so we've gotta adjust things.
Speaker 1: It's a little more free form than that. Back in
Speaker 1: when Ford really got the Committee into action, much of
Speaker 1: the needs that were under scrutiny fell into the energy sector.
Speaker 1: The world was going through an oil crisis, more countries
Speaker 1: were industrializing, and their need for resources was on the rise.
Speaker 1: Industrialized countries got industrialized er, which isn't a word, but
Speaker 1: by that I mean they grew more complex and their
Speaker 1: need for energy resources was growing as well. Moreover, here
Speaker 1: in the US, we were depending heavily on oil from
Speaker 1: foreign countries. We weren't producing enough domestically to meet all
Speaker 1: our needs. So this was truly a matter of national security.
Speaker 1: As the oil crisis taught us, is that if that
Speaker 1: supply gets cut off, then we find ourselves in trouble
Speaker 1: pretty quickly. So energy power and national security are very
Speaker 1: clearly tied together, pretty tightly. The tech sector, on the
Speaker 1: other hand, was generally ignored at this time. Now their
Speaker 1: works options. There was the time where the US government
Speaker 1: accused a group of Japanese companies of colluding to sell
Speaker 1: electronics here in the US at below market prices, all
Speaker 1: in an effort to undermine the tech industry in the
Speaker 1: United States and to undermine American companies. And that was
Speaker 1: totally happening, and moreover, ultimately the US failed to really
Speaker 1: do anything about it, but tech companies largely fell outside
Speaker 1: the scope of this committee. However, tech has changed significantly
Speaker 1: over the past forty years. Major tech companies are now
Speaker 1: global entities. The shift to cloud services means that data
Speaker 1: isn't just stored in one data center on domestic territory.
Speaker 1: You've got data centers around the world, and that's a
Speaker 1: necessary component if you want to provide a global service
Speaker 1: and you know, not have terrible latency when people are
Speaker 1: far from those domestic data centers. You've also got hardware
Speaker 1: and software interacting with one another. They're exchanging information, creating
Speaker 1: new ways for data to power various services. But that
Speaker 1: also means that the data is passing through numerous hands.
Speaker 1: Data is powerful stuff. I mean, it's really the currency
Speaker 1: of the technological age. The more data you have at
Speaker 1: your disposal, the more influence you've got, and the more
Speaker 1: money you make, the more catastrophic an event you could cause,
Speaker 1: either by accident or we're on purpose. By the twenty tens,
Speaker 1: we started seeing the aggressive startup company culture that dominates
Speaker 1: the tech world today, and founders would launch a company
Speaker 1: typically around you know, like an app of some sort,
Speaker 1: and then they would seek out investment. The ideas that
Speaker 1: we're really compelling would get a ton of money behind them.
Speaker 1: For a lot of tech company founders, the goal was
Speaker 1: never necessarily to build a working, profitable app as a
Speaker 1: sustainable business, but rather to create an idea that is
Speaker 1: so interesting ing that some other more established entity, like
Speaker 1: an enormous company on the scale of Google, would sweep
Speaker 1: in and then purchase the whole ding ding during thing
Speaker 1: for like a ridiculous amount of money. Then as a founder,
Speaker 1: you could either go buy an island somewhere, or better yet,
Speaker 1: you do the whole dance again, only with a new idea.
Speaker 1: But investment can come from places other than US based
Speaker 1: companies like Google. It can come from venture capital firms
Speaker 1: or interested companies that might have their roots in other nations.
Speaker 1: Some of those nations might not have the friendliest perspective
Speaker 1: regarding the United States, and that was starting to look
Speaker 1: like a problem. I'll explain a little bit more after
Speaker 1: we take this short break. So there was a growing
Speaker 1: realization towards the end of the twenty tens that, you know,
Speaker 1: maybe data is impoor it. Well, I should say there
Speaker 1: was a growing realization within the US government. The tech
Speaker 1: world had long had a deep understanding about this. Google, Facebook,
Speaker 1: and other companies didn't become multibillion dollar global corporations by chance.
Speaker 1: They did it by realizing how valuable data is, including
Speaker 1: but not limited to the personal data of their user
Speaker 1: basis you know, you and me. People and companies will
Speaker 1: pay for data, or for access to data, or for
Speaker 1: ways to leverage data, but governments tend to be a
Speaker 1: little more slow on the uptake, particularly when it comes
Speaker 1: to technology. It's not uncommon for us in the United
Speaker 1: States to see governments only address issues revolving around tech
Speaker 1: after those issues have grown to become potential or actual threats.
Speaker 1: Even in an era of data breaches, security leaks, and
Speaker 1: predatory business practices, it takes a while for the government
Speaker 1: to come up with a response beyond pulling a tech
Speaker 1: leader into a special hearing in Congress and then, you know,
Speaker 1: not really doing anything else about it. I mean, sometimes
Speaker 1: they might impose a fine on these companies, and sometimes
Speaker 1: that could be in the range of hundreds of millions
Speaker 1: of dollars, which, don't get me wrong, that's a lot
Speaker 1: of money. But the crazy thing is these companies deal
Speaker 1: in the billions of dollars, and so a hundred million
Speaker 1: dollars that's unimaginable to me. That's so much money, But
Speaker 1: it would just show up as a relatively minor blip
Speaker 1: on some of these companies ledgers. Moreover, I would say
Speaker 1: that the guiding spirit of technological development in the Internet
Speaker 1: age has been one of optimism, perhaps even to the
Speaker 1: point of naivete. When you read up on how the
Speaker 1: architects of the Internet and the Web viewed their work.
Speaker 1: You tend to see ideas like how information wants to
Speaker 1: be free, and that the ability to exchange ideas freely
Speaker 1: leads to better outcomes and better communication. The ideals are admirable,
Speaker 1: but because information has value, and because that means you
Speaker 1: can use information to create an advantage, either economically or
Speaker 1: strategically or in some other way, it just hasn't really
Speaker 1: panned out to be a data utopia. You probably you
Speaker 1: probably have noticed this yourself. So while the design of
Speaker 1: the web and the Internet mostly orbited this general point
Speaker 1: of view that data should be able to move effortlessly
Speaker 1: across networks, that doesn't line up with how entities like
Speaker 1: governments tend to view information. To a government, information can
Speaker 1: be an asset, something that could give the respective country
Speaker 1: a leg up on other countries. Governments typically are not
Speaker 1: in favor of giving advantages. Certainly the US government is
Speaker 1: not keen on that idea. So when you start viewing
Speaker 1: data as another national asset, it becomes imperative that you
Speaker 1: figure out ways to protect that asset. You don't want
Speaker 1: it to flow freely. And there's one major component I
Speaker 1: haven't really talked about yet when it comes to this
Speaker 1: whole situation, and that's the specific role of China, not
Speaker 1: just a foreign country in general, but China in particular.
Speaker 1: Over the past decade, Chinese companies have become far more
Speaker 1: active in the tech space, making significant investments in numerous
Speaker 1: tech companies. This ranges from social media platforms to game companies,
Speaker 1: to communications companies and everything in between, and that has
Speaker 1: raised concerns in some other nations, particularly in the United States.
Speaker 1: A big reason for this is that China and the
Speaker 1: US frequently find themselves on unfriendly terms. It's not quite
Speaker 1: a full on Cold War status like the United States
Speaker 1: had with a good old U. S. S R. But
Speaker 1: it's not buddy buddy. The US and China depend heavily
Speaker 1: on one another economically, and that makes things particularly tricky.
Speaker 1: At times. One country will attempt to put leverage on
Speaker 1: the other through various trade restrictions or sanctions or levies
Speaker 1: or whatever. We've seen that quite a few times over
Speaker 1: the last couple of years. But there's a concern in
Speaker 1: the US that if China gets much more influential, it
Speaker 1: will become the leading world power and possibly extend its
Speaker 1: influence beyond its own borders and beyond economic influence. China's
Speaker 1: government is very different from the United States. The country
Speaker 1: has a lot of state backed companies, meaning the Chinese
Speaker 1: government will actively support certain companies and give them a
Speaker 1: huge boost in capability or limit any competition that they
Speaker 1: might face from foreign competitors. By the way, there's a
Speaker 1: whole discussion we can have about how in the United
Speaker 1: States companies can sometimes get similar benefits, but that's a
Speaker 1: topic for another show. And a huge issue for the
Speaker 1: United States is that the Chinese government is effectively dominated
Speaker 1: by the Chinese Communist Party. This party is involved, sometimes
Speaker 1: at very intrinsic levels, in pretty much every aspect of
Speaker 1: life in China, including business. The government requires companies operating
Speaker 1: in China to reserve a spot in their committees for
Speaker 1: representatives of the Communist Party. This pretty much fundamentally goes
Speaker 1: against the economic philosophy of the United States, which typically
Speaker 1: condemns the government getting involved in any sort of decision
Speaker 1: making capacity for an individual company. Another big kicker is
Speaker 1: that back on June two thousand and seventeen, the Chinese
Speaker 1: government passed a law which the world at large generally
Speaker 1: refers to as China's National Intelligence Law. The law created
Speaker 1: obligations for Chinese companies and citizens and to certain foreign
Speaker 1: individuals operating within China. As Murray Scott Tanner, writing for
Speaker 1: the website lawfare blog dot com puts it, the law
Speaker 1: quote repeatedly obliges individuals, organizations, and institutions to assist public
Speaker 1: security and state security officials in carrying out a wide
Speaker 1: array of intelligence work end quote. This blog, which I
Speaker 1: highly recommend, by the way, breaks this down into segments.
Speaker 1: It explains that the law includes language giving Chinese intelligence
Speaker 1: agents the authority to go so far as to not
Speaker 1: just demand cooperation from companies and citizens, but even go
Speaker 1: to the limits of uh common deering the communications equipment, transportation, buildings,
Speaker 1: and other facilities of individuals as well as organizations and
Speaker 1: government organs. Now Tanner points out that the vague language
Speaker 1: of the act means that Chinese officials can take a
Speaker 1: fairly broad approach to interpreting and executing upon it, which
Speaker 1: was probably by design. An earlier draft of the law
Speaker 1: specifically mentioned enterprises and companies, but the government struck that
Speaker 1: language from the law before they passed it and made
Speaker 1: it more general, with words like organizations, which leaves room
Speaker 1: for interpretation as to whether the government would assume authority
Speaker 1: to compel a company to cooperate with intelligence demands. Could
Speaker 1: this mean that a company operating in China would be
Speaker 1: obligated to hand over data to the Chinese government if
Speaker 1: intelligence agents demanded it. There are a lot of foreign
Speaker 1: companies that are operating in China, Google, Apple, Disney, A
Speaker 1: T and T, Blkan Sony. All of these have branches
Speaker 1: in China, which makes sense. The Chinese population represents an
Speaker 1: enormous market and expanding there is a no brainer from
Speaker 1: a revenue standpoint. At some point you're going to find
Speaker 1: it hard to continue to grow in a saturated market,
Speaker 1: So getting into a relatively new market is incredibly valuable.
Speaker 1: It's like discovering a new continent and going on a
Speaker 1: land grab. Moreover, what about companies that aren't in China
Speaker 1: but end up being acquired by Chinese companies or investors.
Speaker 1: For example, the Chinese company ten Cent has spent billions
Speaker 1: of dollars investing in numerous video game developer and publisher
Speaker 1: companies around the world. Tencent outright owns the company Riot Games,
Speaker 1: which produces the game League of Legends, Tencent has a
Speaker 1: four d percent share of Epic Games, which makes Fortnite,
Speaker 1: and not too long ago, Epic Games launched the Epic
Speaker 1: Games Store, a competitor to Valve's Steam platform. Tincent also
Speaker 1: owns five percent of Ubisoft, a company that has recently
Speaker 1: been in the news for some pretty awful stuff. I
Speaker 1: may have to do a full episode on that in
Speaker 1: the future, though. I should point out that Tencent's stake
Speaker 1: in Ubisoft came with certain conditions, among them that Tensent
Speaker 1: wouldn't be allowed to purchase more ownership in the company
Speaker 1: or more voting rights in the company. But since Tencent
Speaker 1: is a Chinese company, does that mean that the obligations
Speaker 1: Tencent has to the Chinese government extend to the properties
Speaker 1: that aren't actually in China. If an intelligence agent from
Speaker 1: the Chinese government went up to Tencent executives and said, hey,
Speaker 1: you have to hand over all the data you have
Speaker 1: on League of Legends players, would that mean that Riot
Speaker 1: Games would be forced to do that. That's a troubling question,
Speaker 1: and the US government felt that the country needed a
Speaker 1: new approach to protect itself. The Committee for Foreign Investment
Speaker 1: in the United States didn't really have resdiction over tech
Speaker 1: company transactions. But this was a growing concern because of
Speaker 1: foreign investment in those companies and the world's growing reliance
Speaker 1: on tech companies in general, and so in ten, the
Speaker 1: government passed the Foreign Risk Review Modernization Act or FIRMA
Speaker 1: f i R r m A. This was, to use
Speaker 1: a video game term, a power up for the Committee,
Speaker 1: giving it more powers to investigate proposed tech company transactions
Speaker 1: and potentially intervene in them. To quote a summary of
Speaker 1: the act quote the Foreign Investment Risk Review Modernization Act
Speaker 1: of eighteen FIRMA expands the jurisdiction of the Committee on
Speaker 1: Foreign Investment in the United States to address growing national
Speaker 1: security concerns over foreign exploitation of certain investment structures, which
Speaker 1: traditionally have fallen outside of c f i U S jurisdiction. Additionally,
Speaker 1: FIRMA modernizes cf I U S S processes to better
Speaker 1: enable timely and effective reviews of covered transactions. End quote.
Speaker 1: And again, the term covered transactions referred to typically really
Speaker 1: big corporate moves like acquisitions and mergers, but firm expanded
Speaker 1: that to some other categories, such as the quote purchase, lease,
Speaker 1: or concession by or to a foreign person of real
Speaker 1: estate located in proximity to sensitive government facilities end quote.
Speaker 1: So if you had a startup company, tech or otherwise,
Speaker 1: and it happened to be in an office campus that
Speaker 1: also included, say, government office with sensitive files, your business
Speaker 1: could potentially fall under this category, and any investment from
Speaker 1: a foreign individual or a company could come under its scrutiny,
Speaker 1: the idea being that maybe that investing party is really
Speaker 1: more interested in getting close to those sensitive files and
Speaker 1: doesn't really care about the company at all. It's more
Speaker 1: about opportunity. Now. This also included any transaction that would
Speaker 1: allow foreigners access to quote non public technical information end quote,
Speaker 1: other than what is available to you know, any shareholder
Speaker 1: who holds stake in the business. It also expanded the
Speaker 1: parameters of the committee's powers to cover any change in
Speaker 1: a company's structure that would result in foreign control of
Speaker 1: a US business. FIRMA boosted the amount of time the
Speaker 1: Committee has to investigate a proposed company transaction. Before FIRMA,
Speaker 1: the committee had a deadline of thirty days, but now
Speaker 1: it's forty five days, plus an option for a fifteen
Speaker 1: day extension and quote extraordinary circumstances end quote. Now I'm
Speaker 1: not certain what merits qualification as an extraordinary circumstance. The
Speaker 1: Act doesn't really give any indication of what that means,
Speaker 1: and I suspect that circumstances can get really extraordinary pretty
Speaker 1: quickly due to allow pack of clarity around that isn't
Speaker 1: the law fun See this is why I love covering tech.
Speaker 1: Tech typically either works or it doesn't work. If it works,
Speaker 1: you can get to the bottom of how and why
Speaker 1: it works, and if it doesn't work, you can look
Speaker 1: at it to see where the problem is, whether it's
Speaker 1: a faulty part or a faulty process, or maybe the
Speaker 1: whole technology is based on something fundamentally unsound from a
Speaker 1: scientific perspective. Sarah nos. But law man, that stuff gets
Speaker 1: all lucy goosey, and the specifics will only play out
Speaker 1: after many years and typically many lawsuits to refine it
Speaker 1: so that we have a better understanding of the laws,
Speaker 1: scope and limitations. Now, when we come back, I'll talk
Speaker 1: a bit more about the process. C f i U
Speaker 1: S follows when it reviews these transactions, and will explore
Speaker 1: the TikTok story a little bit more in detail. First,
Speaker 1: let's take another quick break. I think it's pretty safe
Speaker 1: to say that the major reason the U S Government
Speaker 1: passed FIRMA was China's growing involvement in the US economy
Speaker 1: and the tech sector in particular. Not that the laws
Speaker 1: only cover Chinese involvement, but I'm pretty certain that was
Speaker 1: the impetus to pass these laws. So what's the actual
Speaker 1: process for the committee to get involved. Well, usually the
Speaker 1: parties that are interested in having one of these covered
Speaker 1: transactions will actually bring the case to see f I
Speaker 1: U S for review. The purpose of this is to
Speaker 1: identify any potential hurdles and address any concerns so that
Speaker 1: the transaction can go through. Otherwise, the parties might get
Speaker 1: deeply involved in a process that ultimately the US government
Speaker 1: stops somewhere down the line or reverses, and that can
Speaker 1: mean billions of dollars lost in the process. So, rather
Speaker 1: than risk failure down the road, these companies will voluntarily
Speaker 1: bring their proposed transactions to the committee for consideration and
Speaker 1: best case scenario, the committee says, we have no response
Speaker 1: to this, it's fine and everything can go through. But
Speaker 1: the committee has forty five days without that fifteen day
Speaker 1: extension that is to review the parameters of the deal,
Speaker 1: and the committee looks at a really long list of
Speaker 1: potential issues, including how much influence, if any, the foreign
Speaker 1: entity will have over the business, operations, and assets of
Speaker 1: the US based company. In some cases, like an acquisition
Speaker 1: or merger, this could be pretty clear and the Committee
Speaker 1: could come to a decision fairly quickly, But in other cases,
Speaker 1: such as when Tencent took that five percent stake in Ubisoft,
Speaker 1: it could be a little more fuzzy. The Committee can
Speaker 1: still intervene if the investing entity isn't taking full control
Speaker 1: of the U S company. If the Committee finds that
Speaker 1: the investor would have significant influence on a company or
Speaker 1: access to its assets, that could be enough for the
Speaker 1: Committee to step in and start making demands. So if
Speaker 1: the Committee chooses to act, or can do so in
Speaker 1: one of many ways. Now. In the most extreme cases,
Speaker 1: the Committee might simply prevent this transaction entirely, saying we're
Speaker 1: not going to allow it. But in other cases, the
Speaker 1: Committee could propose requirements that both parties have to agree
Speaker 1: to before a transaction can take place. That can include
Speaker 1: things like making certain the foreign entity doesn't have decision
Speaker 1: making authority on the company or access to the company's assets,
Speaker 1: particularly it's data and in those cases the arrangement would
Speaker 1: be essentially purely financial. The foreign entity would benefit from
Speaker 1: the transaction economically, but not be able to actually control stuff.
Speaker 1: In very rare cases, the committee can just send decisions
Speaker 1: all the way up to the President for considering sation,
Speaker 1: and that gives the President the potential to wield significant
Speaker 1: power when it comes to corporate transactions, something that makes
Speaker 1: some groups in the United States fairly uneasy. For example,
Speaker 1: in twenty eighteen, President Trump blocked a proposed acquisition in
Speaker 1: which a company called broad Calm would purchase the semiconductor
Speaker 1: company qual Calm for one hundred seventeen billion dollars. Now
Speaker 1: this particular story gets confusing because if you look up
Speaker 1: broad Calm, you'll see it is apparently an American company,
Speaker 1: and you look up qual Calm, and that's an American
Speaker 1: company too. So if they're both domestic companies, why did
Speaker 1: c f I U S get involved? That's all about
Speaker 1: foreign investment. Well, the whole story is complicated, But operations
Speaker 1: for broad Colm had moved to Singapore until two thousand seventeen,
Speaker 1: and that's when the company legally relocated the home address
Speaker 1: from Singapore to the US. Ironically, They did this specifically,
Speaker 1: or at least largely, to avoid c f i U
Speaker 1: S issues because they would become a domestic company. However,
Speaker 1: ownership of the company is still rooted in Asia, so
Speaker 1: while the company has a US address, that apparently was
Speaker 1: not enough to satisfy c f i U S or Trump,
Speaker 1: and so the proposed acquisition got the acts. The Committee
Speaker 1: can also force companies to reverse transactions well after they've
Speaker 1: already happened. C f i U S ordered Chinese investors
Speaker 1: to divest from Patients Like Me, which was a healthcare startup.
Speaker 1: The investors had already poured money into this startup venture,
Speaker 1: and the same thing would happen with Grinder dating app
Speaker 1: for the l g B t Q community. Chinese investors
Speaker 1: board money into that too. So both startups deal with
Speaker 1: a lot of very sensitive information healthcare information, location, data preferences,
Speaker 1: all this kind of stuff that is really important to
Speaker 1: individuals and could pose as a security threat in general.
Speaker 1: And the Committee deemed that this post as a potential
Speaker 1: threat not just a personal security but national security. And
Speaker 1: you might wonder, how is that even possible. Well, if
Speaker 1: you're someone who works for the government and you're using
Speaker 1: one of these apps and your location is being tracked
Speaker 1: through that app, that could potentially be a threat to
Speaker 1: national security. So that was sort of the logistics behind it,
Speaker 1: the reasoning behind it, And this brings us up to TikTok. Now,
Speaker 1: if you listen to my previous episode about TikTok, you
Speaker 1: know that one of the foundational components was an older
Speaker 1: service called musical dot Lee l Y. That is, Musical
Speaker 1: Lee launched in China and the United States and around
Speaker 1: the same time. But while it got a fairly enthusiastic
Speaker 1: reception in the US, it was largely ignored in China,
Speaker 1: and that convinced the team of Musical Lee to focus
Speaker 1: on the US market and it largely became essentially a
Speaker 1: US company. Byte Dance, another Chinese company, had a competing
Speaker 1: service that was similar to Musical Lee, and that one
Speaker 1: was very strong in the Chinese market. So Bye Dance
Speaker 1: then acquired Musical Lee in two thousand seventeen for an
Speaker 1: undisclosed amount of money, but I'm sure it was a
Speaker 1: lot of it. TikTok would grow out of this acquisition.
Speaker 1: The competing service that Byte Dance operates is actually still
Speaker 1: active in China, whereas TikTok is really not available in China,
Speaker 1: oddly enough, though perhaps maybe it's not that odd because
Speaker 1: access to TikTok would mean that Chinese citizens would get
Speaker 1: access to information that isn't state approved, and that's not
Speaker 1: really the way that China operates in general. But TikTok
Speaker 1: started as a Chinese company no matter how you trace
Speaker 1: its origins, whether it's to Bite It's or to Musical Lee,
Speaker 1: and the popularity of the app has grown significantly over
Speaker 1: the last couple of years, becoming a true phenomenon, particularly
Speaker 1: among young people. Now, the fact that, like all social networks,
Speaker 1: TikTok relies on user data to support its revenue model,
Speaker 1: which again is centered around advertising, well that makes it
Speaker 1: a concern for the US government. Military basis banned personnel
Speaker 1: from downloading the app. Uh It's not supposed to go
Speaker 1: on any government operated or owned phones, and the concern
Speaker 1: is that the app could siphon away critical information and
Speaker 1: send it on ultimately to a Chinese company. TikTok stated
Speaker 1: that all US data is actually stored in the US itself.
Speaker 1: It does have a backup in Singapore, but according to TikTok,
Speaker 1: the US based operations anyway, none of this data is
Speaker 1: subject to the Chinese intelligence laws, but that hasn't really
Speaker 1: quelled the criticism or a concern about TikTok. Now the
Speaker 1: President assigned an executive order barring transactions with byte Dance,
Speaker 1: essentially telling US companies that they can't do any business
Speaker 1: with byte Dance and by extension, TikTok since TikTok is
Speaker 1: owned by byte Dance. So that's why there's now pressure
Speaker 1: to remove TikTok from app stores like Apple or Google.
Speaker 1: And there's this discussion about the Committee stepping in to
Speaker 1: force byte Dance to divest itself of TikTok if the
Speaker 1: service is to operate in the United States. Thus the
Speaker 1: possibility of Microsoft coming in to purchase TikTok from byte Dance.
Speaker 1: Now there's still a lot of confusion around this situation.
Speaker 1: If Microsoft were to only purchase TikTok servers that are
Speaker 1: operating in the United States, Canada, Australia, and New Zealand,
Speaker 1: these are all countries that are closely aligned with one
Speaker 1: another on matters of intelligence, how would that affect the
Speaker 1: overall service. Because TikTok operates around the world and servers
Speaker 1: are located in different countries. So would this acquisition split
Speaker 1: TikTok into two separate apps, one owned by Microsoft and
Speaker 1: one that's not Would those two apps interoperate at all?
Speaker 1: It seems unlikely because the whole stated reason for going
Speaker 1: after TikTok in the first place is because the app
Speaker 1: could potentially be sending personal data about U. S citizens
Speaker 1: to a foreign countries government, So why would we allow
Speaker 1: it to interoperate with another service that could still be
Speaker 1: doing that. Now there have been a few other reports
Speaker 1: saying that Microsoft is considering a purchase of the global
Speaker 1: operations of TikTok, a report that Microsoft has disputed. The
Speaker 1: value of the deal will fluctuate depending upon which version
Speaker 1: of the deal you're looking at, but generally speaking, the
Speaker 1: reports I've seen have valued it at between ten and
Speaker 1: thirty billion dollars. It boggles my mind, but Microsoft, a
Speaker 1: company that has not traditionally performed terribly well younger customers,
Speaker 1: apart from maybe the Xbox division, I suppose, may want
Speaker 1: to go after TikTok to help secure its future with
Speaker 1: younger customers. Microsloft says, well, here's the way we get them.
Speaker 1: We buy something they really like. Already, we have to
Speaker 1: view this not just as an issue of national security, however,
Speaker 1: and we have to take into account the broader situation
Speaker 1: of global politics and trade agreements. One could look at
Speaker 1: the success of TikTok and see it as a point
Speaker 1: of power for a Chinese company and by extension, the
Speaker 1: Chinese government. So resting control of that app, even if
Speaker 1: it's just part of an app from China, would end
Speaker 1: up being a political loss for China and a political
Speaker 1: win for Trump. So complicating matters is that TikTok users,
Speaker 1: most of them younger, have become extremely active over the
Speaker 1: last several months during the global response to the COVID pandemic.
Speaker 1: In other words, what else is there to do? You
Speaker 1: might as well make a whole bunch of videos. But
Speaker 1: some that activity is political in nature. People have been
Speaker 1: using TikTok to kind of organize politically, and much of
Speaker 1: this action has been critical of the US President and
Speaker 1: the U s government's handling of the COVID nineteen crisis.
Speaker 1: I totally get it. Anyway, it's hard to get away
Speaker 1: from the feeling that some of the US government's response
Speaker 1: to TikTok might be backlash against a user base that
Speaker 1: has been outspoken about perceived failures in the US government,
Speaker 1: whether it's from COVID or the Black Lives Matter movement
Speaker 1: or many other social issues. So some say that maybe
Speaker 1: this is a move to try and quite quiet a
Speaker 1: voice that has been troublesome for the US government. Then
Speaker 1: we have the competing services that have started to spring
Speaker 1: up that are attempting to take advantage of this whole
Speaker 1: situation and to try and get some of the success
Speaker 1: that TikTok has enjoyed. The most famous of these, I
Speaker 1: think is Facebook introducing the feature called reels are e
Speaker 1: e l s on Instagram, And I don't think there's
Speaker 1: any way you could argue it wasn't inspired by TikTok.
Speaker 1: In fact, some people go so far as to say
Speaker 1: it's essentially a copy of TikTok. So what options are
Speaker 1: open right now? Where are we going to go next? Well,
Speaker 1: TikTok could remain under Byte Dances ownership, and it could
Speaker 1: even shift all operations back over to China or to
Speaker 1: other countries, and it would be very hard for the
Speaker 1: United States to block Americans from using an app. I mean,
Speaker 1: apps tend to just be apps, right they They aren't
Speaker 1: really you know, tied to a specific location. Generally speaking, now,
Speaker 1: presumably the US government could order internet service providers to
Speaker 1: block access to the app, to essentially say, don't allow
Speaker 1: packets to go from those servers to anyone in the
Speaker 1: United States. But as I am recording this, we don't
Speaker 1: even know if Google and Apple will actually remove TikTok
Speaker 1: from their online stores, and it seems likely that internet
Speaker 1: service providers would resist blocking off access to a specific
Speaker 1: service because it sets a dangerous precedent. It would mean
Speaker 1: the US would ironically operate more like China does. China
Speaker 1: has the Great Firewall, a barrier that effectively blocks most
Speaker 1: Internet content from getting to Chinese citizens. Now, as for
Speaker 1: what I think about all of this, um well, I mean, honestly,
Speaker 1: I'm conflicted. On the one hand, I do have concern
Speaker 1: about how private data can be gathered and then weaponized,
Speaker 1: but that concern stretches beyond China. I'm concerned with what
Speaker 1: Facebook does with our data, for example, or Twitter, or
Speaker 1: really any online platform we rely upon heavily. TikTok sticks
Speaker 1: out because of the possible connections to a foreign government
Speaker 1: that has a rather acrimonious relationship with the US government.
Speaker 1: China also has a terrible record with human rights violations,
Speaker 1: though let's be fair, the United States is no stranger
Speaker 1: to this either, so I think the TikTok case is
Speaker 1: kind of emotionally charged. However, I don't think we should
Speaker 1: consider it an outlier. Instead, we should really hold all
Speaker 1: online services up to scrutiny and get our better understanding
Speaker 1: of how are these services using the information we provide
Speaker 1: to them. That includes services that might share information with
Speaker 1: our own government, not just foreign governments. Data really is power,
Speaker 1: and we have to be careful to whom we entrust
Speaker 1: that power. For the last couple of decades, we haven't
Speaker 1: been careful at all. We have been freely giving away
Speaker 1: our location, our personal information, and giving links to other
Speaker 1: people in our lives. So there are entities out there
Speaker 1: that are gathering information about people who don't even you
Speaker 1: is the services because they're just kind of lumped in
Speaker 1: with the folks who are using them. So to me,
Speaker 1: that says we need to be careful across the board.
Speaker 1: TikTok is one example, but not the only one. Do
Speaker 1: I think it's a good idea to remove TikTok from
Speaker 1: Chinese hands? Well, I mean, I guess that really depends
Speaker 1: on where it goes to and how the new owner
Speaker 1: will handle the service, and whether the outcome is actually
Speaker 1: better for users or not. I know that TikTok is
Speaker 1: incredibly popular and that users are probably not just going
Speaker 1: to jump from TikTok to a competing service like reels,
Speaker 1: despite what Facebook would really like to see. I think
Speaker 1: it's far more likely we would see users migrate to
Speaker 1: an entirely new service rather than one that tries to
Speaker 1: replicate what TikTok was already doing. And I think we
Speaker 1: need to have some important conversations about stuff like what
Speaker 1: actually constitutes a threat to national stick curity, what does
Speaker 1: that really mean, what what is the real fear here?
Speaker 1: And what actions actually help improve things? How do how
Speaker 1: do we improve national security rather than just kind of
Speaker 1: shift stuff around. I'm not entirely certain we're on the
Speaker 1: right track as it stands right now, but that's a
Speaker 1: conversation that is huge and honestly requires people far more
Speaker 1: steeped in and policy than I am. I only know
Speaker 1: that if we just reduce this too we don't want
Speaker 1: that data going to China, we risk missing an important
Speaker 1: component that has just as strong a role in our
Speaker 1: lives as national security and that I think would be
Speaker 1: a huge mistake. I'm curious what you guys think and
Speaker 1: whether or not you have suggestions for future topics of
Speaker 1: tech stuff. Actually, if you don't have suggestions for future
Speaker 1: topics of tech stuff, you don't have to tell me that.
Speaker 1: That's fine. But if you do have suggestions, reach out
Speaker 1: to me. The Twitter address you should use to let
Speaker 1: me know what's going on is text stuff H s
Speaker 1: W and I'll talk to you again really soon. Text
Speaker 1: Stuff is an i Heart Radio production. For more podcasts
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