U.S. Department of Commerce Publishes Transactions with ByteDance and Tencent That Are Prohibited Due to National Security Concerns Raised by TikTok and WeChat

Wilson Sonsini Goodrich & Rosati

On September 18, 2020, the U.S. Department of Commerce issued two orders identifying the specific transactions related to the WeChat and TikTok mobile applications ("Orders") that are prohibited pursuant to Executive Orders 13942 and 13943 that were issued on August 6 and discussed in our prior client alert. The Orders impose restrictions relating to transactions with: (1) Tencent Holdings Ltd. (Tencent) and its subsidiaries as they relate to the WeChat app; and (2) ByteDance Ltd. (ByteDance) and its subsidiaries, including TikTok Inc.

The WeChat order states that all prohibitions take effect on September 20, 2020. With respect to TikTok, the order appears to indicate that the listed actions are prohibited beginning September 20, but the Department of Commerce has indicated that it will "implement" certain of the prohibitions on a staggered schedule, as described below (what it would mean to have a transaction "prohibited" but not "implemented" is not explained in the Orders).

Prohibitions

The Orders prohibit specific transactions by any person or involving any property that is subject to the jurisdiction of the United States with ByteDance or its subsidiaries, including TikTok, and with Tencent or its subsidiaries when related to WeChat, but only when those transactions are carried out "within the land or maritime borders of the United States and its territories." Further, the Orders indicate that the prohibitions apply only to business-to-business transactions and not to the use of these mobile applications by individuals.

The prohibited transactions include:

  1. Services to distribute or maintain TikTok or WeChat mobile applications, constituent code, or application updates through an online mobile application store, or any online marketplace where mobile users … may download or update applications for use on their mobile devices: Generally, this restriction purports to prohibit U.S.-based app stores or any other online mobile application store from providing TikTok or WeChat, related updates, or related code. With respect to TikTok and WeChat, this provision takes effect on September 20.
  2. Internet hosting services enabling the functioning or optimization of the TikTok or WeChat mobile applications including file hosting, domain name server hosting, cloud hosting, and virtual private server hosting: This provision will be "implemented" on November 12 for TikTok and takes effect September 20 for WeChat.
  3. Content delivery network services enabling the functioning or optimization of the TikTok or WeChat mobile applications: This includes services that enable the faster delivery of content for either of these mobile applications. This provision will be "implemented" on November 12 for TikTok and takes effect September 20 for WeChat.
  4. Directly contracted or arranged internet transit or peering services enabling the functioning or optimization of the TikTok or WeChat mobile applications: Generally, this restriction prohibits connectivity, transport, and routing services that allow the mobile applications to reach broader portions of the internet and services where internet service providers (ISPs) directly interconnect to exchange internet traffic—even when provided for free. This provision will be "implemented" on November 12 for TikTok and takes effect September 20 for WeChat.
  5. Using TikTok or WeChat constituent code, functions, or services to develop software or services developed or make them more accessible: This provision generally prohibits the integration of TikTok and WeChat into other applications. This provision will be "implemented" on November 12 for TikTok and takes effect September 20 for WeChat.
  6. With regard to WeChat, the relevant Order prohibits services that allow the transferring of funds or processing of payments through WeChat. This provision takes effect on September 20 for WeChat and is not applicable to TikTok.

Exceptions

As stated above, the Orders state that the prohibitions apply to business-to-business transactions and not to the use of these mobile applications by individuals. The Orders also exempt the following activities from the prohibitions:

  1. Paying wages, salaries, and benefit packages to employees or contractors of the named companies;
  2. Using TikTok and WeChat to exchange personal or business information among users of the mobile application—including transferring and receiving of funds;
  3. Activities by U.S. persons related to mobile applications that are intended for distribution, installation, or use outside of the United States, including any activities that are ordinarily incident and necessary for the distribution, installation, and use of those mobile applications outside of the United States.
  4. Storing TikTok or WeChat user data in the United States.

Takeaways

The Orders use broad terminology and not all terms are defined. As such, we believe further guidance from the Commerce Department regarding the precise scope of the restrictions set forth in the Orders is necessary, and the Commerce Department's implementation should be observed closely. In the meantime, however, some preliminary takeaways are:

  • These prohibitions apply to persons and property subject to U.S. jurisdiction that are carried out within the U.S. land or maritime borders and its territories. Although "subject to U.S. jurisdiction" is not defined, if it is used in the same way as it is defined in other IEEPA-based regulations, the prohibitions should not apply to foreign subsidiaries of U.S. companies. This is consistent with the reading that the prohibitions do not apply to transactions that take place outside of the United States even when carried out by a U.S. person.
  • The Orders identify a wide range of transactions with ByteDance and its subsidiaries, including TikTok, that may be prohibited, although some of the prohibitions may not take immediate effect. The Orders prohibit certain business with Tencent and its subsidiaries only to the extent that business is related to WeChat; they do not prohibit doing business more broadly with Tencent and its subsidiaries.
  • Pursuant to the exceptions in the Orders, it appears that individuals can still use TikTok and WeChat and backups of their related data can be stored. The WeChat order states that the mobile app may not be used to facilitate payments within the United States, but it does include an exception allowing individuals to use WeChat to transfer funds.
  • The Commerce Department has the right to issue further orders that restrict more transactions with Tencent and its subsidiaries as they relate to WeChat and ByteDance Ltd. and its subsidiaries.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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