Speaker 1: Hello, and welcome to the Votes and Verdicts podcast hosted
Speaker 1: by Bloomberg Intelligence, Bloomberg LP's investment research platform. In this
Speaker 1: podcast series, we talk about the intersection of business policy
Speaker 1: and law. My name is Matt Schuttenhelm. I'm an analyst
Speaker 1: with Bloomberg Intelligence covering litigation and policy in the TMT space,
Speaker 1: with TikTok filing a lawsuit to challenge Congress's recent divest
Speaker 1: or ban law. In today's episode, we feature our April
Speaker 1: twenty ninth I analyst briefing TikTok countdown to shutdown. In it,
Speaker 1: I'm joined by my Bloomberg Intelligence colleagues Hamlin Basin and
Speaker 1: Mandeep Singh to discuss what's at stake for TikTok and
Speaker 1: its competitors and what's next in Congress, the courts, and
Speaker 1: the EU. Please enjoy it. That's a title we phrased
Speaker 1: as a question because after recent events in the US Congress,
Speaker 1: the company is facing serious risks of an effective ban,
Speaker 1: and what we hope to do over the next couple
Speaker 1: of minutes is give you an overview of those recent
Speaker 1: events and then focus our analysis on what's next for
Speaker 1: the company in courts. In the EU and with respect
Speaker 1: to a potential divestiture. So a couple housekeeping notes before
Speaker 1: we begin. First, this presentation will be recorded and it's
Speaker 1: available for playback. You can ask ask a question by
Speaker 1: submitting one in the Q and a box at the
Speaker 1: bottom of your screen. And after the webinar, the three
Speaker 1: of us are available to answer further questions. Just reach
Speaker 1: out to us on the Bloomberg terminal. A brief note
Speaker 1: about who we are. Bloomberg Intelligence BI Research delives an
Speaker 1: independent perspective, interactive data and investment research on companies, industries
Speaker 1: and global markets. Our team of three hundred and fifty
Speaker 1: professionals helps our clients make informed decisions and we cover
Speaker 1: these companies, industries and markets from the perspectives of strategy, equity, credit, ESG, government,
Speaker 1: and litigation. My name is Matt Schuttenhelm. I'm a litigation
Speaker 1: and policy analyst with the I focused on the TMT sector.
Speaker 1: I'm joined today by my colleagues Tamlin Basin, our TMT
Speaker 1: analyst and the EU, and man Deep singh Our, our
Speaker 1: TMT global team leader. So, good morning, good afternoon, guys. Hi.
Speaker 1: So we wanted the structure today's briefing as a conversation
Speaker 1: more of an exchange of questions and answers between the
Speaker 1: three of us, and I wanted to toss it to you, Tamlin,
Speaker 1: to sort of get it started.
Speaker 2: Yeah. Sure, thanks, thanks Matt, and thanks joining us everybody.
Speaker 2: So I guess it's certainly been an eventful couple of
Speaker 2: weeks for TikTok, But I think, really, if you take
Speaker 2: a step back, a lot of these issues really have
Speaker 2: been simmering for some time, for a number of years,
Speaker 2: I think, going back certainly to the Trump administration. So
Speaker 2: I get Matt, maybe you can walk us through sort
Speaker 2: of a basic overview of how things stand now after
Speaker 2: some of the recent actions from Congress a few days ago.
Speaker 1: Yeah. Sure, there's been a lot of coverage of this,
Speaker 1: but let's just give the cliff notes version. Yeah, this
Speaker 1: really does go back to that, to the Trump administration.
Speaker 1: President Trump adopted an executive order that would have banned TikTok.
Speaker 1: He since now reversed his position on that. President Biden,
Speaker 1: at the beginning of his term reverse President Trump on that.
Speaker 1: And so that was the status quo for most of
Speaker 1: these four years of President Biden's term until March of
Speaker 1: last year, when when suddenly TikTok found itself in the spotlight.
Speaker 1: And you might remember that very very difficult hearing that
Speaker 1: that showed you Ceo TikTok CEO had before the House
Speaker 1: of Representatives when you really got torn into by you know,
Speaker 1: on a bipartisan basis about concerns about data privacy and
Speaker 1: potential propaganda from the company. But then after that hearing,
Speaker 1: there was you know, as as often happens in Congress,
Speaker 1: very little nothing, nothing happens. That all changed thought sort
Speaker 1: of suddenly this year in March March seventh, the House
Speaker 1: Committee focused on this passed a bill by a fifty
Speaker 1: to zero vote. That just doesn't happen in Congress. But
Speaker 1: then you know, there was a real question of whether
Speaker 1: President Biden wanted to sign a TikTok ban during an
Speaker 1: election year, and the Democrats control the Senate, so it
Speaker 1: really looked to me like this was going to slow
Speaker 1: down and be something that where you see potential action
Speaker 1: after the US selection. Well that changed in you know,
Speaker 1: a couple of weeks ago, about nine days ago, when
Speaker 1: House Speaker Mike Johnson decided to attach this bill to
Speaker 1: the Ukraine aid package, the Foreign Aid package and tie
Speaker 1: them all into one package that was effectively must pass
Speaker 1: for the Democrats. So suddenly all the positive signals that
Speaker 1: President Biden had given about this, he really had no
Speaker 1: choice but to support this because he needed this foreign
Speaker 1: aid to get through. So it cleared the House again
Speaker 1: on April twentieth by three hundred and sixty to fifty
Speaker 1: eight vote, and then the Senate cleared it seventy nine
Speaker 1: to eighteen on April twenty third, less than a week ago.
Speaker 1: April twenty fourth, President Biden signed the bill into law.
Speaker 1: So that's where we are. After a lot of noise
Speaker 1: around the issue and then what looked like nothing, all
Speaker 1: of a sudden, we've reached the end of the road
Speaker 1: here in the US in terms of passing. It's now
Speaker 1: become law.
Speaker 2: So what exactly does the law do? Can you give
Speaker 2: some sort of.
Speaker 1: Yea, let's give just an overview of that. So it's
Speaker 1: called the Protecting Americans from Foreign Adversary Controlled Applications APT
Speaker 1: And the basic way this operates is that it says
Speaker 1: that companies can't provide services to distribute, maintain, or update
Speaker 1: what a defined term a foreign adversary controlled app and
Speaker 1: that means you can't put it in your app store,
Speaker 1: for updates, for maintenance, for distribution, you can't web host
Speaker 1: it anymore. And for any of these foreign adversary controlled apps,
Speaker 1: and that is in part defined to be any app
Speaker 1: that is controlled indirectly or directly by byte Dance or TikTok.
Speaker 1: And so if a company were to keep the app
Speaker 1: and its web store or to host it after the
Speaker 1: deadlines in this law, they're at risk of severe financial penalties.
Speaker 1: The math adds up very quickly if the company were
Speaker 1: to take on that risk. So the key deadlines are
Speaker 1: two hundred and seventy days from passage, which takes us
Speaker 1: to January nineteenth, the day before the inauguration as it is.
Speaker 1: And then if there's progress made to it for a
Speaker 1: divestiture basically TikTok or selling it to someone else, the
Speaker 1: president can give another ninety days for those negotiations to
Speaker 1: play out for a divestiture to be complete. Okay, So
Speaker 1: that's the basic position the company finds itself in now.
Speaker 1: If TikTok doesn't divest by January nineteenth, or maybe April nineteenth,
Speaker 1: if they get that extension, we effectively have a ban.
Speaker 1: No company can can web host it or carry it
Speaker 1: in its app store to make it available for users.
Speaker 1: So TikTok now has two paths going forward. One you
Speaker 1: can try to get that law overturned in court, or
Speaker 1: it can affect a divestiture. So I'm going to dive
Speaker 1: into both of those two options in a minute. But
Speaker 1: before we do, since we're laying out the legal risks
Speaker 1: and we've done it on the US side, Tamlin, I
Speaker 1: want to turn to you to talk about the legal
Speaker 1: risks in the EU. Is there any movement to ban
Speaker 1: TikTok in Europe? And if not, why not?
Speaker 2: Yeah, sure, Matt so, and short answer is that there
Speaker 2: does not currently seem to be any movements in the
Speaker 2: EU to ban TikTok. That's not to say that regulators
Speaker 2: are really thrilled with the app. In fact, it's not
Speaker 2: allowed on the work devices of European Commission employees. So
Speaker 2: clearly some of the concerns that are I think motivating
Speaker 2: that movement in the US are also relevant here. So
Speaker 2: I think the reason the regulators don't see them on
Speaker 2: board with a ban is that, unlike in the US,
Speaker 2: the EU does have regulations impact that, if wielded aggressively,
Speaker 2: could really curb a lot of those potential negative impacts
Speaker 2: of the app. So I'll focus on three. So the
Speaker 2: first is the Digital Services Act of the DSA. Now,
Speaker 2: this is a new content moderation on regulation aimed at
Speaker 2: social media that took effect last August. Now, some of
Speaker 2: the new rules that large platforms, and TikTok has been
Speaker 2: designated a large platform subject to these rules. Now, some
Speaker 2: of the things that they must comply with are with
Speaker 2: respect to risk assessments and risk integation measures. So, for instance,
Speaker 2: TikTok needs to do an annual assessment to determine what
Speaker 2: are some of the risks of people using the app.
Speaker 2: And also it's probably worth noting that sort of addictive uses,
Speaker 2: especially for younger users, is definitely qualifies as a risk.
Speaker 2: And then it's going to have to show that it's
Speaker 2: putting in place in NEGA nation measures to assess these risks.
Speaker 2: And if it doesn't do so in a manner that
Speaker 2: regulators regulators think is appropriate, then maximum fines can be
Speaker 2: six percent of byteedances animal revenue. Now GDPR is another overhang. Now,
Speaker 2: the General Data Production Regulator regulation actually took effect back
Speaker 2: in twenty eighteen, but it wasn't until September of last
Speaker 2: year that TikTok got its first taste of enforcement. I
Speaker 2: mean that came with a three hundred and forty five
Speaker 2: million euro fine there was in relation to Howard's handling
Speaker 2: data and again mostly data of younger users. There's still
Speaker 2: pending investigations under GDPR related to TikTok's data practices, and
Speaker 2: I think a particular one to know here is looking
Speaker 2: at whether it is sending user data to China. Now,
Speaker 2: ultimately this could result and ruling forbidding TikTok from transferring
Speaker 2: on user EU user data outside of to China, and
Speaker 2: this could result in a significant pine of four percent
Speaker 2: of revenues. Now, the Digital Markets Act is the last one.
Speaker 2: Now TikTok has been named the gatekeeper under the DNA,
Speaker 2: which is sweeping new competition law that took effect in March. Now.
Speaker 2: I don't think the DMA itself poses a significant risk
Speaker 2: to TikTok, at least not on the level of DSA
Speaker 2: or GDPR. But what it is is the potential overcame
Speaker 2: overhang for any company that might be interested in buying
Speaker 2: the app if Bits does decide to divest. I think
Speaker 2: this is particularly true for any other d M a gatekeeper,
Speaker 2: and a list of those gatekeepers includes Apple, Amazon, Meta Alphabet,
Speaker 2: and Microsoft. So I think for now politicians in the
Speaker 2: EU are at least cautiously optimistic that there's this regulatory
Speaker 2: scheme in place that can counter TikTok's influence without needing
Speaker 2: to resort to a band.
Speaker 1: Yeah, that makes sense. It's definitely a very different legal
Speaker 1: environment there since since the US hasn't been able to
Speaker 1: pass any of the laws that the EU has. There
Speaker 1: was news the other day of a potential ban in
Speaker 1: on a reward system associated with TikTok Light, and any
Speaker 1: color on what that is about and resolution there.
Speaker 2: Yeah, sure, yeah.
Speaker 1: So.
Speaker 2: TikTok Light was a service that TikTok launched a few
Speaker 2: weeks ago in some markets in the including in Spain
Speaker 2: and France. Now, the service allowed users to earn points
Speaker 2: for performing certain tasks on TikTok, so for instance, by
Speaker 2: watching videos or engaging with content or inviting prints of
Speaker 2: the app. Now, the European Commission pretty quickly sounded the alarm.
Speaker 2: I'm particularly a concern over the potential addictiveness given that
Speaker 2: the rewards were being offered, and how this might encourage
Speaker 2: younger users again to use the app. So I asked
Speaker 2: TikTok for TikTok's pre launch risk assessment and risk mitigation reports.
Speaker 2: So it asked for that, and then on April twenty second,
Speaker 2: it launched a formal probe into TikTok Light, and just
Speaker 2: a few days later on TikTok said it was going
Speaker 2: to withdraw tick tout Light from those markets. So I
Speaker 2: think we really did have swift resolution on that, and
Speaker 2: I think you regulators will probably a bit small gap
Speaker 2: for that, okay.
Speaker 1: So a lot of the concern in the US has
Speaker 1: been that TikTok's owner, byte Dance, could be forced to
Speaker 1: turn over sensitive user data if it was requested to
Speaker 1: do so by the Chinese government, since byt Dance is
Speaker 1: located in China, and obviously Europe is even more cautious
Speaker 1: about sensitive user data than the US has been. Can more,
Speaker 1: Can you give us more color on how that is
Speaker 1: being handled over there?
Speaker 3: Yeah?
Speaker 2: Absolutely, And this goes back to the GDPR which I
Speaker 2: mentioned earlier now and now under GVR. Under GDPR there
Speaker 2: are really tight rules on where EU user data can
Speaker 2: be transferred, and essentially any country that the data does
Speaker 2: go to has to be able to demonstrate that it
Speaker 2: has the equivalent data protection of an EU member state.
Speaker 2: I mean, I think it's worth noting here that the
Speaker 2: US actually cannot meet that standard, and that's why every
Speaker 2: few years we have this scramble looking for a new
Speaker 2: policy that's going to allow that that uninterrupted trans atlantic
Speaker 2: data flows despite the US inadequacy here. Now that that
Speaker 2: pending inquiry into TikTok's potential transfer of China could result
Speaker 2: in something similar to what we've seen there now. First part,
Speaker 2: TikTok has been heavily investing in building data centers in
Speaker 2: Europe so that it wouldn't need to transfer any use
Speaker 2: EU user data abroad, and it also proactively says that
Speaker 2: it's not going to let employees located in China have
Speaker 2: access to EU user data. I think the question is
Speaker 2: going to come down to whether data privacy regulators are
Speaker 2: going to take that promise at base value when there's
Speaker 2: this sort of existing Chinese law that my allow them
Speaker 2: access to it. I think there's definitely a reason to
Speaker 2: be skeptical that that that argument is going to hold,
Speaker 2: But I think we we are going to have to
Speaker 2: wait and see how that develops.
Speaker 3: Got it.
Speaker 1: Yeah, So so it sounds like for now, before we
Speaker 1: bring man deep into this, it does sound like EU
Speaker 1: would would like to stick with with the regulatory path
Speaker 1: if they can, rather than a ban, although you know,
Speaker 1: it's it's easy to imagine sort of just to follow on. Okay,
Speaker 1: you ban, we ban, you know, follow on and any
Speaker 1: any sense you could see that that changing.
Speaker 2: Yeah, so I think going back to that TikTok light episode,
Speaker 2: I think it's kind of on this scores that the
Speaker 2: EU is in a different position than the e US. Now,
Speaker 2: regulators here again have done the legwork to enact those
Speaker 2: measures that can and I think will be used as
Speaker 2: a cudgel against TikTok. Now, a ban on TikTok would certainly,
Speaker 2: I think be a political had a peg and then
Speaker 2: you have to take an account. But I think younger
Speaker 2: voters in Europe can go to the polls a little
Speaker 2: bit more frequently than younger voters in the US. So
Speaker 2: I think as of now, EU lawmakers will sort of
Speaker 2: do everything they can to avoid taking the drastic action
Speaker 2: of the ban unless it's really the only possibility. Yeah.
Speaker 2: So that's I guess how things are currently setting out.
Speaker 2: But I want to bring men deep in here to
Speaker 2: talk sort of the business side. So, Mandy, if a
Speaker 2: US ban were to happen, who do you think benefits
Speaker 2: the most and why?
Speaker 1: Yeah.
Speaker 3: So, one of the things that's very obvious with the
Speaker 3: way social media time split is in the US is,
Speaker 3: you know, with TikTok, especially when it comes to short
Speaker 3: form video content, the average daily user time spend is
Speaker 3: close to ninety four minutes. And you contrast that with
Speaker 3: you two around seventy nine minutes and Instagram close to
Speaker 3: fifty four, and then Snap and others. It's there are
Speaker 3: only four or five places you could go to consume
Speaker 3: social media content. And from that perspective, I mean, all
Speaker 3: these companies will stand to benefit. I don't think there
Speaker 3: is like one company where all the users will end
Speaker 3: up moving to. And you have to remember with a TikTok,
Speaker 3: a lot of the original content starts there and then
Speaker 3: it shows up on Instagram and other platforms, YouTube shorts,
Speaker 3: and so the real question is where do the creators go.
Speaker 3: You know, if TikTok is banned, which platform do they
Speaker 3: curate this content on? And then what is the policy
Speaker 3: of that platform in terms of you know, letting that
Speaker 3: content flow through to their competitive So that is TBD
Speaker 3: because clearly that is still operating in a lot of
Speaker 3: the creators that are on the platform are still finding
Speaker 3: a ton of engagement on TikTok and then on other
Speaker 3: platforms as the content flows through. So I answer a question,
Speaker 3: all the others will stand to benefit, notably Snapchat because
Speaker 3: of its size. So you know, when you think about
Speaker 3: two to five minutes a day per user, it will
Speaker 3: be the percentage stems the impact would be the most
Speaker 3: noticeable on a platform like.
Speaker 2: Snap Okay, great, thanks for that. And then I guess
Speaker 2: a kind of related question is you have any thoughts
Speaker 2: on valuation if there might be sort of potential bios
Speaker 2: And I guess, going back to that ninety four minutes,
Speaker 2: I would think a lot of that might be driven
Speaker 2: by that algorithm. In my understanding, is good by Dancers
Speaker 2: mooted the idea of maybe selling without algorithm, So there's
Speaker 2: any way to assess valuation with and maybe without the algorithm.
Speaker 3: Yeah, So, I mean you have to look at what
Speaker 3: has transpired in the last two years. And I think
Speaker 3: when TikTok's testimony started in the Congress, they kept saying that,
Speaker 3: you know, we have this project Texas, which was in
Speaker 3: that decoupling the US operations from the parent and so
Speaker 3: all the data and the algorithm should be decoupled. But
Speaker 3: that's not what it seems to be. I mean, given
Speaker 3: what we have heard so far from the parent company,
Speaker 3: one they don't like the idea of divesting the aset,
Speaker 3: and the other it sounds like the decoupling didn't take
Speaker 3: place in Folk. So when you think about that aspect
Speaker 3: that you know, the operations aren't fully decoupled. And for
Speaker 3: a prospective buyer to buy this asset just for the
Speaker 3: app and you know, the current data and not knowing
Speaker 3: how to recommend content or what else could be there,
Speaker 3: that is you know, very important for the data day operations.
Speaker 3: You have to apply a discount to the market multiples,
Speaker 3: And the closest comp I would say is the Twitter
Speaker 3: deal elon Mask acquisition at forty four billion, and that
Speaker 3: was probably at the high end in terms of multiple
Speaker 3: almost you know, seven times forward sales tv DO sales.
Speaker 3: So if you were to apply something like that to TikTok,
Speaker 3: based on our estimates, TikTok's revenue is less than ten
Speaker 3: billion and it's less than ten percent of the overall
Speaker 3: by dance revenue. So with that kind of discount, our
Speaker 3: original valuation was around forty billion, but then we kept
Speaker 3: lowering it because of the chance that you know, the
Speaker 3: app may be ban and any prospective buyer may not
Speaker 3: be able to retain that sort of engagement that they
Speaker 3: currently have because the algorithm goes away. So when you
Speaker 3: apply that discount, you come closer to more around thirty
Speaker 3: billion in value, and you can actually undo the maths
Speaker 3: using ev per user based on where the current market
Speaker 3: multiples are for slamp interest in you know, some of
Speaker 3: the competitors. I mean, obviously for Meta it's much higher
Speaker 3: than the others, But if you were to look at
Speaker 3: the ev per user for the other competitors and use
Speaker 3: the media and you would come close to the thirty
Speaker 3: billion number that I mentioned. So that's evaluation minus the algorithm.
Speaker 3: Obviously you can apply a steeper discount, but that's the
Speaker 3: framework we've been using.
Speaker 1: Got it? Got it? Mandy's help? Well, and can can
Speaker 1: you say a little bit more on potential buyers that
Speaker 1: you would think would be most likely to take a look.
Speaker 3: I mean, look the ones that would make the best
Speaker 3: use of the app or your Internet platforms the walled
Speaker 3: garden companies that currently have the you know, the dominant share,
Speaker 3: whether it's your Amazon, your Meta, your Google, and probably
Speaker 3: more so for the companies that currently don't have a
Speaker 3: social media asset. So a microsoftware in Amazon may uh
Speaker 3: look a lot better from that sense than a Meta
Speaker 3: or for the matter, in Alphabet and uh, you know,
Speaker 3: a company like Oracle or Salesforce, even if they end
Speaker 3: up buying it at a steep discount, you could argue
Speaker 3: because it's not core to their overall business. Like, an
Speaker 3: acquisition of this size always puts a lot of pressure
Speaker 3: in terms of you know, ROI and what you can
Speaker 3: show around revenue synergies. And I think it will be
Speaker 3: hard for them to justify it to their shoulders spending
Speaker 3: something off the order of this for buying a very
Speaker 3: unique asset. But given the complications around the algorithm and
Speaker 3: the data, I think it's still a pretty large acquisition
Speaker 3: for them.
Speaker 2: Got it Yeah, Yeah, I guess this is a bit
Speaker 2: of an anti trust concern, But there's also a separate
Speaker 2: legal review of a got such a Do you look
Speaker 2: at that as a distinct risk?
Speaker 1: Yeah, I mean that's one of the most puzzling things
Speaker 1: from a legal perspective as you try to figure this
Speaker 1: out in terms of timing, as Mandeep walks through potential buyers,
Speaker 1: TikTok's not only going to have a legal case against this,
Speaker 1: that's one track, but there's also a legal review of
Speaker 1: that acquisition leaving uside China in the US itself, and
Speaker 1: a lot of these big tech names as potential acquirers
Speaker 1: are going to you know, raise concerns with anti trust
Speaker 1: regulators and that process. And we talked about this process.
Speaker 1: We have until January nineteenth is two hundred and seventy days.
Speaker 1: You know, that process by itself can can take at
Speaker 1: least that or longer in the typical scenario as the
Speaker 1: DOJ or the FTC looks to review these things. So
Speaker 1: that's one of the puzzles about how this fits together
Speaker 1: and whether they can get anti trust clearance within the
Speaker 1: within the timeline. And you know, probably the best way
Speaker 1: to do that is to avoid these sort of big
Speaker 1: tech names that would raise the most concerned with regulators.
Speaker 1: But it's still tight no matter what. And all that,
Speaker 1: as we said, is leaving aside kind of as in
Speaker 1: its potential m and a review and the fact that
Speaker 1: it may simply say no, at least with respect to
Speaker 1: the algorithm. So there's a real subct and kind of
Speaker 1: beyond what we can cover today without knowing the potential buyer.
Speaker 1: But there's a big difficult legal problem in terms of
Speaker 1: just getting the antitrust review in the US as well.
Speaker 2: Yeah, so if you outline that, and it looks like
Speaker 2: a kind of huge can of worms if you do divest.
Speaker 2: So if you're by dance, why not just if you're
Speaker 2: going to try your chances in core, why not just
Speaker 2: try your chances import and sue over the I guess
Speaker 2: legitimacy of this law. And I think they've they've said
Speaker 2: that they'll they'll sue. What are their chances and how's that.
Speaker 3: Going to look?
Speaker 1: Yeah, so I think that is going to be the
Speaker 1: main event for for the near term here is. I
Speaker 1: do think they have said that they're going to sue. Honestly,
Speaker 1: I'm a little bit surprised they have ensued yet, but
Speaker 1: I expected to see it. I expect to see it
Speaker 1: very soon. I would not be surprised at all to
Speaker 1: see it filed this week. We know where that lawsuit
Speaker 1: will be filed. They will be filed in the d
Speaker 1: C Circuit Court of Appeals because the law itself limits
Speaker 1: TikTok's options. It says, you can only this court has
Speaker 1: exclusive jurisdiction to challenges to this law, so we know
Speaker 1: where it's going. And in the DC Circuit is sometimes
Speaker 1: called the second most important court in the United States.
Speaker 1: It takes more cases challenging government action than any others,
Speaker 1: so they're they're very familiar with this sort of dispute,
Speaker 1: although it's rare that it's constitutional. Usually it's an agency
Speaker 1: looking at a record and deciding whether it was appropriate
Speaker 1: or not. But this is a court seven Democrat appointed
Speaker 1: active judges for Republican active judges. Sending it to the
Speaker 1: d C Circuit does make TikTok's case a little bit
Speaker 1: more difficult, I think, and I think we'll dive in
Speaker 1: a little bit more into the details of the case,
Speaker 1: but you know, I think TikTok starts as an underdog
Speaker 1: here before the d C's Circuit. It has a serious
Speaker 1: case from the First Amendment perspective, there's no question about that.
Speaker 1: But at the end of the day, I think there's
Speaker 1: there's ultimately going to be deference to the federal government
Speaker 1: on national security questions that is difficult for the company
Speaker 1: to overcome. And so with that and the potential even
Speaker 1: for a review to the Supreme Court that could also
Speaker 1: be deferential on questions of national security, I put it,
Speaker 1: you know, TikTok. TikTok's starting is the underdog in this court.
Speaker 1: The federal government wins most of the cases that go
Speaker 1: before it. As I said, about half of the DC's
Speaker 1: Circuit's cases involve the federal government. The federal government wins
Speaker 1: about about two thirds of those. So I start with
Speaker 1: TikTok is an underdog.
Speaker 2: Here, walk me through what that person in argument that
Speaker 2: you expected to make is going to be.
Speaker 1: Yep, yep. So that's going to be the you know,
Speaker 1: the the core argument is going to be both It's
Speaker 1: going to be presented by both TikTok and its users
Speaker 1: that this this really infringes our free speech rights here,
Speaker 1: this is effectively a ban. It's shutting down a platform,
Speaker 1: you know, one of the most important speech platforms in
Speaker 1: the United States today with it has you know, one
Speaker 1: hundred and fifty hundred and seventy million US users on it.
Speaker 1: And if it's a serves as effectively a band, that's
Speaker 1: a major disruption in free speech rights. So they're going
Speaker 1: to make that case. They're also going to bring in
Speaker 1: a bill of a tainder argument, I suspect, and that
Speaker 1: is because the lawn specifically singles out Byte Dance and
Speaker 1: Take Tucking names them in this legislation. And so you know,
Speaker 1: there there is this clause in the constitution that's rarely
Speaker 1: used because companies are rarely named in federal laws. But
Speaker 1: but basically it says you can't single out a company
Speaker 1: for punishment without giving them due process. And so generally
Speaker 1: laws are written, you know, broadly to apply across an industry,
Speaker 1: for example, not to single out a company and say,
Speaker 1: you know, we're going after you. And so I think
Speaker 1: I think that that will be the second challenge they'll bring.
Speaker 2: I don't remember a single delved tender case from my
Speaker 2: com law class, So let's focus on that first amendment side.
Speaker 2: So that's I think most likely going to be the
Speaker 2: strongest argument. And what work kind of specifically, how are
Speaker 2: they can raise that they're going to be in a
Speaker 2: position put themselves in the shoes of the users?
Speaker 1: Yep, I think it's going to be both. You know,
Speaker 1: TikTok's voice itself is being silenced. TikTok is a US company,
Speaker 1: Byteedances is the one that's located in China, and TikTok
Speaker 1: itself is being shut you know, it's you can't own
Speaker 1: this app, you can't speak through this app anymore. So
Speaker 1: there's a direct impact on the US company, there's a
Speaker 1: direct impact on the users. And I, you know, I
Speaker 1: think the government might come in and say, look, this
Speaker 1: is all we're regulating conduct, just ownership of the app.
Speaker 1: It's like broadcast licenses can't be owned by foreign companies.
Speaker 1: It's not speech at all. I don't think that will work.
Speaker 1: When you look at some of the president here, Montana's
Speaker 1: TikTok ban, they the government tried tried to make a
Speaker 1: similar argument, and the Court said, no, this is a
Speaker 1: serious First Amendment issue. We have to look at it
Speaker 1: as a First Amendment concern. When President Trump banned we
Speaker 1: chat because again of national security concerns, again the court
Speaker 1: reached the First Amendment questions and said, look, this is
Speaker 1: it's basically going to ask whether there is an important
Speaker 1: governmental interest to do that, and whether this regulation is
Speaker 1: tailored properly to serve that interest. Does it burden substantially
Speaker 1: more speech than necessary. And I think if the US
Speaker 1: has a vulnerability, it's there that this this passed so
Speaker 1: quickly that Congress really didn't have a lot of time
Speaker 1: to build a record analyzing alternatives and and and really
Speaker 1: building the record of the risk here. And so there
Speaker 1: is some vulnerability there. This court is is what its
Speaker 1: core mission is, is really asking did the government look
Speaker 1: at the evidence properly? And and and here you know,
Speaker 1: there's not that much evidence that's public, and there's not
Speaker 1: much evidence of of looking at at balancing it. So
Speaker 1: I think there's some vulnerability there. But at the end
Speaker 1: of the day, this is Congress acting. This isn't just
Speaker 1: the president trying to fit within some old laws to
Speaker 1: try to do it. This isn't an agency trying to
Speaker 1: squeeze power in the authority, you know, in pre existing authority.
Speaker 1: This is Congress directly looking at a national security risk
Speaker 1: and saying we need to make a predictive judgment that
Speaker 1: there's risk here. That's a really hard thing for three
Speaker 1: unelected judges who don't know anything about national security to
Speaker 1: second guests. And I think you need to see a
Speaker 1: really compelling First Amendment argument to overcome that. As a
Speaker 1: practical matter, and so I'm not sure that that TikTok
Speaker 1: can get there.
Speaker 2: I guess, just backing up a little bit, how is
Speaker 2: this going to be following for? Is this going to
Speaker 2: be a trol Are they going to be taking a
Speaker 2: preliminary injunction? How's TikTok and canons?
Speaker 1: Yeah, so it's a great question. I mean, the timing
Speaker 1: is sort of the China we referred to it earlier
Speaker 1: on the anti trust side. The timing is so tight
Speaker 1: here January nineteenth, you know, the effective ban goes into place.
Speaker 1: The DC circuit typically takes more than a year to
Speaker 1: you know, get to a final decision. It takes one
Speaker 1: hundred and fifty days after argument typically to decide cases.
Speaker 1: So TikTok right now is huddled together trying to put
Speaker 1: together a strategy to get this reviewed, maybe to be
Speaker 1: able to go to the Supreme Court, all before January nineteenth.
Speaker 3: And so.
Speaker 1: The question, I think it has two options right now. Procedurally.
Speaker 1: One it could go in and say we need to
Speaker 1: stay or a preliminary injunction, We need you Court to
Speaker 1: hit pause on that January nineteenth date and make that
Speaker 1: not apply anymore. Or two they say we got to
Speaker 1: move fast. You got to go much faster than you
Speaker 1: typically do. You need to expedite this case, and we
Speaker 1: need a decision by I don't know, October or something
Speaker 1: like that, And so to me, I think that's the
Speaker 1: more likely scenario. The DC Circuit, when it grants stays
Speaker 1: or preliminary injunctions, it typically does it when there's like
Speaker 1: five days before a deadline, not when there's two hundred
Speaker 1: and seventy days before a deadline. So to me, I
Speaker 1: think a requesting a stay of Congress's timelines is going
Speaker 1: to be a heavy lift. And I don't know that
Speaker 1: they want to start with the loss right out of
Speaker 1: the gate on that. So if I were TikTok, I
Speaker 1: would probably try to go that route, but ask the
Speaker 1: court to expedite this. Let's set a briefing schedule that
Speaker 1: gives us still time to if we lose before the
Speaker 1: d C Circuit, go ahead and file with the Supreme
Speaker 1: Court and try to get some sort of check or
Speaker 1: a pause on it there. So that's what I think
Speaker 1: is most likely the reason. I think they probably haven't
Speaker 1: filed yet. And it's sort of surprising because there is
Speaker 1: such urgency here, But the DC Circuit every thirty days
Speaker 1: changes the motion panel that reviews these these preliminary requests,
Speaker 1: and you can kind of take a look at see
Speaker 1: who what three judges are deciding those. I suspect it
Speaker 1: could be that TikTok doesn't love the April panel that's
Speaker 1: deciding those right now and wants to wait and see, Okay,
Speaker 1: what are we going to get in May we might
Speaker 1: have a better set of three judges to look at
Speaker 1: our early requests there. So I expect as soon as
Speaker 1: you see them to file this lawsuit in probably in
Speaker 1: the next week. You're also going to see that separate
Speaker 1: procedural request that's going to give us a much better
Speaker 1: sense at the timing.
Speaker 2: I guess. Just actually one final question, Mayanda, and would
Speaker 2: TikTok's chances improve in your estimation if they were able
Speaker 2: to get to that the Supreme Court. You sort of
Speaker 2: noted the win record for the government at the DC Circuit,
Speaker 2: but yeah, for a little bit more favorable.
Speaker 1: To It's it's a great question, and it's it's hard
Speaker 1: to know. My inclination is I think if the DC
Speaker 1: Circuits were to rule for we're it's a rule for TikTok.
Speaker 1: I think it's almost certain that that the U. S.
Speaker 1: Supreme Court would take up the case. All Supreme Court
Speaker 1: review is discretionary. They could just say, no, we don't
Speaker 1: we like what you did below at the d C Circuit.
Speaker 1: We don't even need to take this case. I think
Speaker 1: it if the d C Circuit, you know, strikes down
Speaker 1: Congress's law on First Amendment grounds, we definitely have a
Speaker 1: Supreme Court battle. Then that's probably going to slow everything
Speaker 1: down for a couple of years, because that's going to
Speaker 1: effectively hit pause on all of this. If the d
Speaker 1: C Circuit rules for the federal government, as I think
Speaker 1: they will, I'm not sure that the Supreme Court is
Speaker 1: going to to feel the need to take it up.
Speaker 1: And so I think there's a real possibility that the
Speaker 1: d C Circuit by the end of this year upholds
Speaker 1: this law and the Supreme Court gets a chance to
Speaker 1: take a look and say do we take it or not.
Speaker 1: I'm not sure they would. I think they might say,
Speaker 1: look that that decision from the d C Circuit, you know,
Speaker 1: is reasonable, and we don't need to to take it
Speaker 1: up as well. So I think that's sort of the
Speaker 1: big picture on it. So I think with that, if
Speaker 1: there are no other questions. I think we can, I
Speaker 1: think we can lead it. There that gives an overview
Speaker 1: of where TikTok stands both in the in the U. S.
Speaker 3: And EU.
Speaker 1: Thank you for listening. If you want to read more
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Speaker 3: Thanks