TikTok vs the U.S.A. | A Ticking Clock | 4

0:08It's April 24th, 2024 in Los Angeles. A TikTok employee files into a conference room in the company's U.S. headquarters. Several other employees follow behind him. He nods to a co-worker. Terrible day. Awful. I feel like I'm walking toward the guillotines. Just hours ago, President Biden signed a law that gives TikTok's parent company, ByteDance, approximately nine months to sell, or the app will be banned in the United States. TikTok CEO Shozi Chu has called an all-hands meeting to discuss what the law means. To many employees, this feels like the culmination of a long battle. For years, politicians in Washington have railed against the app, calling it a danger to national security.

0:56And Congress passed this new law by a wide margin. The employee has already been working on his resume. Originally from China, he's in the United States on a work visa. If TikTok gets banned and he loses his job, he'll only have two months to find a new job or his visa will be revoked. And a deal to sell TikTok would be complicated and difficult to complete within the mandated 270 days. The Chinese government has said it will block a sale of TikTok's recommendation algorithm, which is seen as TikTok's secret sauce and central to its success. All this makes the employee fairly certain a sale won't go through and the app will be banned, putting him out of a job.

1:42The employee takes a seat. Chu and other executives, including Michael Beckerman, VP and head of public policy in the U.S., appear on the screen at the front of the room. Thank you all for joining us on such short notice. Even though we knew this day was coming, I understand it's still a shock. But I want to reassure you that this ban is not going to go into effect. The employee casts a glance at his co-worker sitting next to him. It's not? We're going to fight this all the way to the Supreme Court if we have to. And I am confident that we will prevail. The employee slumps in his seat. He's glad Chu is going to fight this, but Chu can't actually guarantee that they will win.

2:25This feels like an empty promise. Look, one day they're going to make a movie about this. Michael, who do you think will play you? Beckerman laughs and shrugs. I think Bradley Cooper. Maybe Matt Damon. I'll take either one. They both have great heads of hair. He runs a hand over his receding hairline. Chew laughs. But for everyone else in the conference room, the mood is grim. The employee's co-worker turns to him, an annoyed look on her face. I'm glad they're so optimistic. But aren't these the same people who said Project Texas was going to solve all our problems with the government? And clearly, that didn't turn out to be true.

3:08Yeah, we've dodged a lot of bullets over the years, but this time I think we're toast. It's like they think they're a normal American tech company, like Google or Meta. But they're not American. They're Chinese. And the U.S. government will never get over it. The male employee slumps in his seat. He tries to ignore his co-worker and soak up some of Chew's optimism. Maybe TikTok has one more trick left up its sleeve, and it will escape death yet again.

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5:46From Wondering, I'm David Brown, and this is Business Wars.

6:16By 2024, TikTok had amassed an estimated 170 million users in the United States and become a household name, creating bona fide stars like Charlie D 'Amelio and Addison Rae. It employed approximately 8 ,000 workers in the country. And according to a report TikTok commission, it contributed over$24 billion to the United States' gross domestic product. But tensions with the U.S. government persisted. For years, TikTok worked to develop a data security plan that would enact a strong firewall between American user data and the Chinese government. Several TikTok executives, including CEO Shozi Chu, testified before Congress, swearing under oath that American data was safe.

7:01It wasn't enough to convince skeptical lawmakers. And in April 2024, President Biden signed a bill that gives ByteDance until January 19th, 2025, to sell TikTok, or the app would be banned in the United States. Now, TikTok has 270 days to fight the law and save itself. They tried to win over lawmakers with lobbyists and pleas from creators themselves. It's time to change tack. It's time to bring in the lawyers. This is Episode 4, A Ticking Clock.

7:42It's spring 2024 in Washington, D.C. Lawyer Alexander Berengow stands at the front of a conference room. A team of associates are seated, their laptops open, staring up at him. Berengow represents TikTok. His team is preparing to sue the U.S. government to stop the ban. This is high-stakes litigation, and Berengow wants to make sure everyone's on the same page, and they're not missing any part of the argument. Okay, let's get into this. I think our argument is two-pronged. Since it's not feasible for a sale to go through in the given time frame under the current conditions from China, this law should be considered a ban.

8:22And second, a ban is a violation of First Amendment rights, both for TikTok itself and for its American users. So, let's get into how we're going to make these arguments. An associate with curly hair nods her head. Right. So I think we have a couple of ways to argue that selling the app is not possible. First, from a technological point of view, it's not possible to move TikTok's underlying code to a new owner. And they would need access to bite-down software to keep TikTok running, which this law doesn't allow. Right. And the heart of TikTok is the recommendation algorithm, which the Chinese government has repeatedly said that it won't allow to be sold to a company outside of China.

9:06Another associate in a bow tie lifts up his finger, indicating he wants to make a point. And furthermore, the time restraint of nine months for a deal of this scale is just too restrictive. Well, that's probably our weakest argument, since there is a provision that the president can delay the ban if there is significant progress toward a deal. But we should include that, too. He steps back and looks at the board. Okay, let's move on to the First Amendment argument. Well, all of the government's national security concerns are speculative at this point. They've never proven the Chinese government has accessed American user data or used the recommendation algorithm to push Chinese interests.

9:44And while there is precedent for impinging upon First Amendment rights to protect national security, the bar is high. Hypothetical national security concerns do not meet the threshold. Beringo nods. Absolutely. And the fact that President Biden's campaign, as well as several members of Congress, used the app undermines the entire national security argument. Yeah, 100%. I think we also need to mention Project Texas. TikTok has already invested billions of dollars to address the government's national security concerns. Project Texas was the proposal that was supposed to assuage lawmakers that data was being stored and protected on U.S.

10:25soil. Yeah, and I don't think the government has ever made it clear why Project Texas was insufficient. You're right. They didn't. I don't want to get ahead of ourselves, but I have to say, I think we have a good case here. The team figures out a plan of attack and gets to work. On May 7th, 2024, two weeks after President Biden signed the law into effect, TikTok sues the government in federal court. And a week after that, eight TikTok creators also sue the government for violating their First Amendment rights. The creators' legal fees for this suit are being paid by TikTok. The creators' lawsuit is part of the company's multi-pronged legal strategy to stop the law.

11:09The plan borrows heavily from the legal strategy TikTok used in 2020 to stop then-President Trump's executive order. But the landscape has shifted in the intervening four years. For the first time since it launched in the United States, TikTok's growth has seemingly stagnated. The app is still attracting new users, but existing users are leaving the platform at an equal rate. Some users have grown tired of the addictive nature of the recommendation algorithm. They were getting caught in a so-called doom scroll and letting hours pass by on the app. They feel like TikTok is harming their productivity at work and negatively affecting their relationships.

11:50Others are frustrated by how aggressively TikTok's algorithm has been pushing videos promoting products to buy in the TikTok shop, their e-commerce platform. And Meta is taking advantage of TikTok's slowing growth. Meta doesn't break out data for Reels, its short-form video feature. But on an earnings call in the spring of 2024, Meta credits Reels for its revenue growth. And Reels gets another boon when TikTok fails to reach a licensing deal with Universal Music Group. Universal wipes all its music from TikTok and transfers several promotional campaigns for artists from TikTok to Reels. Because both ByteDance and TikTok are private companies, they don't share their financial data.

12:36But industry analysts say that despite its popularity, TikTok still isn't profitable. And while they did hit their 2023 ad revenue target, they didn't exceed it. Between the constant threats from the government and its stagnating growth, the future of the company is cloudy, even if they win their legal battle. But in June 2024, TikTok gets a surprising new ally. While attending the Ultimate Fighting Championship 302 in New Jersey, former President Trump records a video with UFC President Dana White. He posts it to his brand new TikTok account. The president is now on TikTok. My honor. It's an abrupt about-face for the president who, in 2020, signed an executive order banning the app unless it was sold to a U.S.

13:27buyer. But the former president proves popular on the app. The video goes viral, amassing 22 million views within a few hours of posting. And by the next morning, Trump's account has over a million followers. And if there's any doubt about how Trump now feels about TikTok, he makes it clear in a video with conservative youth activist Charlie Kirk just a few days later. President, we're on TikTok. What is your message to younger voters right now? Well, the big message is vote for Trump. We're going to make our country greater than ever before. We had something going that was incredible. Thank you.

14:00And you'll never ban TikTok, that's for sure. I will never ban TikTok. Thank you. Observers cite two reasons for Trump's change of heart toward TikTok. First, they believe he recognizes that defending TikTok is a way of reaching young voters. Second, they speculate that he was influenced by billionaire Jeff Yass, a longtime Republican donor and major ByteDance investor. Yass has allegedly threatened to stop giving to the campaigns of any politician who supports banning the app. TikTok executives welcome the president's flip-flop and view a Trump victory as their best chance for staving off a ban.

14:38They think they might be able to work out a deal with Trump that would allow the app to remain operative without selling. But with polls showing a tight race between former President Trump and Vice President Kamala Harris, TikTok executives can't count on a Trump victory to bail them out. They still need to win their legal battle. On September 16th, 2024, TikTok's lawyers enter the District of Columbia Courthouse ready to make their argument to a panel of three federal judges. Legal analysts think that TikTok has a strong case. But no one really knows which way the judges are leaning.

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18:12Tick-tock lawyer Andrew Pinka sits at a table near the front of the courtroom, reviewing his notes. Outside, Tick-tock creators, including those who have brought their own suit against the law, gather to hold a press conference to show their opposition to the ban. Inside, the viewing area is full. This case has attracted a lot of attention from free speech advocates, as well as the press. Any second now, the judges will enter and the hearing will begin. Pincus has prepared for this argument extensively and knows his points backwards and forward. But he has no idea how receptive the judges are to his arguments.

18:49Even though he knows they can appeal if they lose, it's hard not to feel like the fate of an app used by 170 million Americans is entirely in his hands. TikTok lawyer Andrew Pincus kicks it off with an opening statement. Morning, Your Honor. Thank you and may you please support. The law before this court is unprecedented and its effect would be staggering. For the first time in history, Congress has expressly targeted a specific U.S. speaker banning its speech and the speech of 170 million Americans. He goes on to detail how the law is based on speculation of national security risks rather than proven risks, and that the law does not withstand the strict scrutiny required to impinge upon Americans' freedom of speech.

19:36And then the judge's questions begin. It quickly becomes clear that TikTok is in for a tough fight. But Pincus sticks to his arguments and strenuously makes his case. TikTok Inc. is a U.S. entity that engages in speech. It curates third-party content and it engages in its own speech. So the speech here that's being banned, we would say, or at the minimum burdened, is the speech of a U.S. speaker. I think what was clearly targeted here was the TikTok platform, a speaker. And I think when an individual speaker is targeted by a law, courts have said that that's enough to trigger strict scrutiny. I mean, we don't know what companies the U.S.

20:21government is going to say are subject to foreign adversary control. I think that's one of the problems of this statute is that the U.S. government could say, here is platform X. We think that they are subject to control by Russia and therefore they have to be moved to a new owner, even if the parent is a U.S. owner, because that risk is too great. As the hearing wraps up, legal experts anticipate that the judges will rule against TikTok. They're drawing their prediction from a few takeaways. First, the judges addressed most of their questions to TikTok's lawyers rather than the government attorneys.

20:57And second, they focused most of their concerns on the national security issues with the app rather than the free speech questions. One law professor who watched the hearing says it was a brutal day for TikTok, where very little went their way. But the court's ruling isn't due until December, three months away. So in the meantime, TikTok continues on with business as usual. Top executives, including CEO Shozi Chu, drive employees to hit their advertising goals and push the TikTok shop as a holiday gift-buying destination. and executives advise managers not to worry about the ban, but to focus on business goals that are in their control.

21:40They tell employees that if the D.C. court rules against them, they'll appeal to the Supreme Court. This is a legal fight that could drag out for years. There's nothing to do but carry on and continue to try to build the business. But for TikTok creators who depend on the app financially, the uncertainty is harder to ignore.

22:07In fall 2024, Pallet Media CEO Daniel Dax picks up the phone from one of his clients, a TikTok star. Pallet Media has a client base of over 200 content creators, helping them make branding deals and build their audiences. But when Dax answers, he can tell his client is trying not to panic. Hey, man, I just found out my wife is pregnant, and we need to move to a bigger place, but I'm kind of freaking out with everything that's going on with TikTok. Well, first of all, congrats. That's exciting. Yeah, thanks. It's exciting, but it's stressful, you know? Totally. And I'm going to be honest. I would hold off on making any major financial purchases right now.

22:48We really don't know what's going to happen with TikTok. And if this ban does go through, I don't want you to be stuck making payments on a place you can't afford anymore. What am I supposed to do? I've been posting on other platforms for over a year. I'm on everything. YouTube, Instagram, Facebook. None of them get nearly the number of views as TikTok. I know, I know. It's tough. But you gotta stay consistent with those platforms. The growth will come. TikTok is how my wife was able to stay home with my first baby. I really want to do that again with this one. I don't know what to tell you. Everything's up in the air right now.

23:22But look, maybe we'll be surprised. Maybe the court will rule in TikTok's favor. I'm just saying I think we've got to be cautious right now. I hope so. None of this seems fair. I built a whole business on TikTok and the government wants to take it away. You're not alone. We're all trying to figure out how to navigate this. Dax's phone buzzes. Sorry, man, I got to jump. Another call's coming through. Look, stay strong and congrats again on the baby. Really exciting news. Yeah, if I can afford to feed it. Dax answers the new call coming through. It's another client also panicking about her financial future.

23:58Dax takes a deep breath as he steals himself for another tough conversation. He wishes he had more to offer his clients than advising them to pinch their pennies and be patient. But with so much uncertainty surrounding the fate of TikTok, there's not much else he can say. But on November 5th, 2024, something finally goes TikTok's way. CNN projects that Donald Trump has been elected president, defeating Vice President Kamala Harris and making a political comeback unlike any in modern American politics. TikTok executives are thrilled with the results, but there is still some concern from TikTok's perspective.

24:38Trump said a few times during the run up to the election that he wouldn't ban TikTok, but he never made it a central part of his campaign. and he's known to change his mind on policies. And some of his closest allies, including his pick for Federal Communications Commissioner Brendan Carr and Secretary of State nominee Marco Rubio, strongly support banning TikTok. Plus, since this iteration of the ban is a law passed by Congress rather than an executive order issued by President Biden, it's unclear what power Trump would have to overturn the law. And on December 6, 2024, The D.C. Circuit Court issues its ruling in the case of Tick Tock Inc.

25:20v. Merrick Garland. They uphold the law, saying that the statute did not violate the First Amendment. In the opinion, they write that, quote, the government acted solely to protect that freedom from a foreign adversary nation and to limit that adversary's ability to gather data on people in the United States. They acknowledge that 170 million Americans will lose a platform that allows an outlet for expression and provides income, but say that the national security risk, as assessed by Congress, is grave enough to justify cutting that outlet off. TikTok lawyers promise to appeal the ruling to the Supreme Court, but many TikTok users fear this time the end of their beloved app really is here.

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