Executive Order against China-Owned TikTok Faces Legal Challenges

Aug. 31, 2020

Last week, the mobile phone application TikTok announced that it would be suing the Trump administration for the national security executive order issued by the President imposing sanctions against Tik Tok’s Chinese parent, ByteDance. The order prohibits anyone subject to United States’ jurisdiction from engaging in transactions with ByteDance or subsidiary companies, as well as restricts transactions with the company that involve property under U.S. jurisdiction. The exact transactions that will be prohibited under the order have yet to be defined.

President Trump issued the sanctions principally pursuant to his authority under the International Emergency Economic Powers Act (IEEPA). A declaration of national emergency is a prerequisite to any action taken by a President under the IEEPA. The August order cited ByteDance’s privacy practices, misinformation, and censorship as threats to national security. The order also expanded on the national emergency that was declared on May 15, 2019, which set out a framework for broadly regulating transactions involving information and communications technology where the transaction involves a “foreign adversary.” In the suit against the Trump Administration, TikTok primarily contests whether the President’s characterization of the company’s activities as national security concerns is a legitimate “national emergency” for purposes of the IEEPA.

While the TikTok executive order takes the standard form of U.S. economic-sanction actions, there are several unusual aspects of the order. . First, the executive order has delegated the authority to identify and administer the sanctions against ByteDance to the Secretary of Commerce. Traditionally, IEEPA-based economic sanctions are administered by the Secretary of Treasury or State while the Secretary of Commerce oversees export controls, which is an entirely different regulatory structure. This means the agency currently charged with oversight of the TikTok  order lacks the regulatory framework to administer the sanctions. Further, the subject of the order—U.S. persons’ transactions with China-owned social media apps—is not the sort of item or activity that typically (or naturally) is encompassed by the Department of Commerce’s existing export control programs.

Second, the language of the order is quite broad and thus unpredictable. Specifically, the order’s authorization to prohibit transactions involving property subject to U.S. jurisdiction means that it is possible that transactions by non-U.S. companies that involve U.S.-based services, like computing, banking, or advising, may also be prohibited. The hope of many stakeholders in these companies is that the Commerce Department will explicitly limit the order’s language in implementation or provide for general licenses within implementation that permit activities that otherwise come under the sanctions’ program. While many of the unknowns regarding the order should be clarified in September when Commerce releases implementation instructions, we can also expect that more uncertainty in these actions will be generated because of TikTok’s lawsuit.

Should you have any questions or concerns about the latest executive order banning TikTok or sanctions programs generally, don’t hesitate to reach out to any attorney at Barnes, Richardson and Colburn , LLP.