Oracle : TikTok Asks Court to Put Off U.S. Order to Divest -- 2nd Update

By John D. McKinnon and Georgia Wells

TikTok and its Chinese parent company are asking a federal appeals court in Washington, D.C., for additional time to work out a potential divestiture of the popular video-sharing app, in the midst of signs that the company is settling in for a longer fight with the U.S. government.

With the Trump administration's Thursday deadline looming for a restructuring or shutdown of TikTok, it appeared the government was losing at least some of its leverage over the app's owner.

Already, a federal district court judge in Philadelphia has enjoined enforcement of the shutdown option, taking away the government's main weapon in forcing a divestiture.

The new suit, if it succeeds, broadens the legal assault by TikTok and parent company ByteDance Ltd. by asking the courts to overturn the government's legal basis for ordering the divestiture as well.

"The Treasury Department remains focused on reaching a resolution of the national security risks" from TikTok, department spokeswoman Monica Crowley said in a statement late Wednesday. "We have been clear with ByteDance regarding the steps necessary to achieve that resolution."

The new petition, which TikTok and ByteDance filed late Tuesday in the U.S. Court of Appeals for the D.C. Circuit, represents the latest in a series of legal challenges by TikTok and its allies that seek to undermine the Trump administration's crackdown campaign.

It says the U.S. government's decision to force a TikTok divestiture deal was "arbitrary and capricious" and denied the company due process under the law. It asks that the court vacate and set aside the divestment order.

ByteDance says in its filing that it had been in extensive discussions with the Committee on Foreign Investment in the U.S., or Cfius for short, to address its concerns. But it said that feedback from U.S. officials had essentially stopped in recent weeks, even as the Thursday deadline approached.

The U.S. has argued that it is trying to prevent data on American TikTok users from being shared with China's authoritarian government, which TikTok says it would never countenance.

President Trump issued an order in August stating that TikTok would be banned in the U.S., but said he might approve a divestiture to a U.S. company.

Under a preliminary deal that Mr. Trump approved in concept in September, Oracle Corp. and Walmart Inc. would take a combined 20% in TikTok Global, a new U.S.-based company that would run the global service. Among the major sticking points in the ongoing negotiations is the size of the stake that ByteDance would get to keep in TikTok, according to people familiar with the matter.

TikTok said talks to finalize that deal are continuing.

"We remain committed to working with the administration -- as we have all along -- to resolve the issues it has raised, but our legal challenge today is a protection to ensure these discussions can take place," a TikTok spokesperson said in a statement.

China's government must also approve the deal, and it is weighing whether the arrangement would comply with recent restrictions it placed on exports of data-processing technologies such as content-recommendation algorithms, a move widely seen as aimed at TikTok.

The new suit filed by TikTok asks the appeals court to review the president's August divestiture order, as well as related actions by Cfius. The suit argues that the government's efforts to compel a divestiture of TikTok amount to an unlawful taking under the U.S. Constitution, and also exceed the government's authority under the law governing Cfius reviews.

The suit says the administration action came on the heels of reports that TikTok had been used to coordinate efforts to depress attendance at a Trump rally in Tulsa, Okla., in June. It contends that the administration departed from Cfius rules in seeking to force the divestiture.

The suit says TikTok and ByteDance "remain committed to reaching a negotiated mitigation solution." They said they intend to file a motion to stay enforcement of the divestiture order "only if discussions reach an impasse and the government indicates an intent to take action to enforce the order."

The divestiture deadline has been set for Thursday. But the government's separate shutdown order -- the principal means of enforcing the divestiture order -- has already been put on hold by the federal district court ruling in Philadelphia, and so far the administration hasn't appealed that injunction.

Cfius is a panel of national-security experts that has taken a higher profile in recent years on heightened concern that China was trying to acquire strategic U.S. technology through business acquisitions by Chinese companies.

The Commerce Department, which is responsible for implementing the executive order on TikTok, didn't immediately respond to a request for comment.

Previous cases brought by TikTok and a TikTok user group have focused more on regulatory actions taken by the Trump administration to try to shut down the popular app by Thursday if no deal has been reached.

In one of those cases, U.S. District Judge Carl Nichols in Washington is now considering TikTok's request for an injunction that would prevent the U.S. government from barring U.S. companies from providing web-hosting or content- delivery services under a Commerce Department order set to take effect Thursday.

Judge Nichols, who was appointed to the bench by President Trump, previously granted a preliminary injunction against a Commerce Department curb on TikTok downloads and mobile app updates that was set to take effect Sept. 27.

In oral arguments before the judge last week, lawyers for TikTok argued that the Commerce order set for Thursday would have the effect of shutting down personal communications and informational materials, which they said constitutes an impermissible use of the International Emergency Economic Powers Act, the law relied on by the Trump administration.

Lawyers for the government argued that the executive action was aimed at preventing China from obtaining data on Americans via the app, not at blocking communications.

U.S. District Judge Wendy Beetlestone in Philadelphia previously granted a preliminary injunction against the shutdown order in a suit brought by three TikTok stars: comedian Douglas Marland, fashion guru Cosette Rinab and musician Alex Chambers.

In a court filing last week, TikTok said it still wants a ruling from Judge Nichols on its own request for an injunction because the Philadelphia case concerned different plaintiffs with different interests, and because the preliminary injunction in that case "is, by definition, temporary" and could be lifted or vacated on appeal, "leaving TikTok's entire business in jeopardy."

The government responded by noting that the TikTok case seeks the same enjoining of the shutdown that Judge Beetlestone had already granted in the case brought by the three TikTok stars.

"Because a separate court has already provided Plaintiffs with the exact same relief that they seek here, there is necessarily no irreparable harm warranting a duplicative preliminary injunction here," the government said in a court filing.

Mr. Trump's defeat in the Nov. 3 election adds more uncertainty to TikTok's future. It remains unknown whether the incoming Biden administration would maintain the Trump administration's efforts to shut down or restructure Chinese-owned social media apps such as TikTok.

Many members of Congress in both parties, however, share the Trump administration's concern about potential Chinese data-gathering and surveillance in the U.S.

--Kate Davidson contributed to this article.

Write to John D. McKinnon at [e-mail] and Georgia Wells at [e-mail]

(END) Dow Jones Newswires

11-11-20 2047ET