The United States and China announced this week that they have reached a framework agreement designed to resolve the long-running national security dispute over TikTok’s U.S. operations. Although the deal has been presented as a breakthrough, the details remain opaque—and the intellectual property (“IP”) issues embedded in the agreement raise serious questions for companies across multiple sectors.
Key IP Issues Raised by the Deal
Algorithm and Source Code Ownership: The algorithm powering TikTok’s recommendation engine is arguably the company’s most valuable intangible asset. Reports suggest that any transfer to a U.S. entity may take the form of a license rather than a complete transfer of ownership. Licensing leaves open questions about ByteDance’s ongoing role in updates, bug fixes and future improvements—as well as the risk of revocation or restrictions tied to Chinese law.
Licensing vs. Transfer: The difference between licensing and assignment is not trivial. Licensing creates ongoing dependencies and potential contractual “back doors” that could enable continued Chinese influence. If ownership is not cleanly severed, U.S. regulators may remain skeptical of the national security adequacy of the arrangement.
Data Access and Control: User data is itself an intangible asset with trade secret and privacy dimensions. Even with nominal U.S. control, Chinese export control and national intelligence laws could impose obligations on ByteDance or its affiliates to share or enable access to data or algorithms. The durability of the relationship will depend heavily on verification and compliance mechanisms.
Export Control and Cross-Border Restrictions: China has, in recent years, tightened export control regimes covering recommendation algorithms and AI technologies. If the TikTok algorithm is deemed “restricted technology,” China may condition or even block any transfer. That raises the risk that the U.S. party receives something less than full IP rights, or that use is subject to ongoing regulatory oversight abroad.
Enforcement and Verification Challenges: The auditing and monitoring compliance mechanisms will be crucial. Without technical transparency, U.S. buyers and regulators may be unable to verify whether ByteDance retains residual access, whether source code is fully transferred or whether algorithmic functions are modified offshore.
Implications for Other Clients
Technology and AI Companies: The TikTok framework illustrates how algorithms and AI systems are increasingly regulated as strategic assets. Companies negotiating cross-border deals should anticipate heightened scrutiny of IP transfers, licensing structures and data-sharing arrangements.
Manufacturers and Life Sciences Firms: Clients in sectors where Chinese partnerships are common should recognize that licensing arrangements may expose them to unexpected foreign regulatory constraints. IP assets may be subject to dual oversight under U.S. and Chinese law.
Media, Consumer, and Data-Driven Businesses: This deal underscores the value regulators now place on algorithms as both IP and national security concerns. Companies that are dependent on user data or recommendation systems should expect governments to treat those assets as strategic and to demand disclosure or limitations in future transactions.
All Cross-Border Clients: The framework signals that U.S. authorities are prepared to condition market access on IP ownership structures. Businesses should expect greater government involvement in defining what counts as “sufficient” ownership, transfer or control of critical intangible assets.
Takeaways
The TikTok deal is not just about one app; it is a precedent for how the United States and China may treat IP-intensive assets in future transactions.
- Licensing structures—especially when tied to foreign export-control regimes—may not provide durable control or security assurances.
- Clients should reevaluate their own IP arrangements with Chinese counterparts, especially where algorithms, data processing or trade secrets are central.
- Future deals in AI, life sciences, semiconductors and data-rich industries may face similar government-mandated restructuring.
