TikTok: Proposed Legislation and Implications

TikTok: Proposed Legislation and Implications

INSIGHTi

TikTok: Proposed Legislation and
Implications
Updated April 23, 2024
On March 13, 2024, the House of Representatives passed the Protecting Americans from Foreign
Adversary Controlled Applications Act (H.R. 7521). This bill would make it unlawful for any entity “to
distribute, maintain, or update” a “foreign adversary controlled application” (hereinafter referred to as a
“covered app”) within U.S. jurisdiction, unless a “qualifying divesture” occurs. The bill specifically
identifies those operated by ByteDance, Ltd., and TikTok as foreign controlled applications. On April 20,
2024, the House passed an amended version of H.R. 7521 as Division D of H.R. 8038, the “21st Century
Peace through Strength Act,” which is discussed in below sections.
Background on TikTok
The People’s Republic of China (PRC) government holds an equity stake and a board seat in the entity
that conducts ByteDance’s core business in China, Beijing ByteDance Technology. Due to this, TikTok
has faced scrutiny from policymakers for potential privacy and national security risks. Critics allege the
PRC influences ByteDance’s content policy or may compel it to turn over user data in accordance with
PRC laws that codify the government’s ability to compel data access and require data localization in
China. Shou Chew, Chief Executive Officer, TikTok Inc., has denied these allegations his March 23,
2023, testimony before the U.S. House Committee on Energy and Commerce.
TikTok is banned on federal executive agency devices under the Consolidated Appropriations Act,
2023 (P.L. 117-328). Many states have banned the app on some or all state-owned devices. In May 2023,
Montana passed a state-wide ban on TikTok, but the ban was blocked by a district court in November
2023.
First Amendment and other legal issues associated with a forced divestiture or ban of TikTok and similar
platforms are discussed in other CRS products.
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Overview of Division D of H.R. 8038
Forced Divestiture
Division D of H.R. 8038 would subject any entity that distributes, maintains, or updates a covered app to
civil penalties unless a “qualifying divestiture” takes place within 270 days of the bill’s enactment (it had
been 180 days in H.R. 7521); and added the ability for the President to grant a one-time extension of 90
days if certain requirements are met. For TikTok to continue to operate within U.S. jurisdiction through
divestiture, ByteDance would likely need to sell its U.S. operating subsidiaries to an entity that is outside
PRC jurisdiction.
PRC officials have stated the PRC government would oppose a forced sale of TikTok, with China’s
Ministry of Foreign Affairs asserting on March 13, 2024, that legislative proposals that would prohibit a
“foreign adversary controlled application” from operating in the United States use national security as a
pretext “to willfully suppress other countries’ superior companies.” Several analysts observe that such
comments are at odds with the PRC government’s own policies that prohibit U.S. and other foreign social
media companies from operating in China. The PRC government could leverage a wide range of tools,
including export controls (social media algorithms are a controlled technology under China’s Export
Control Law), its equity stake in ByteDance’s China operations, or China’s Data Security Law, to exert
pressure on ByteDance to avoid a sale.
A divestiture consideration may be who would be willing and able to purchase the platform. TikTok
would likely be sold at a high price, given its large number of users and potential for future growth in
revenue. ByteDance was reportedly valued at $268 billion in a company share buyback in December
2023; however, the value of the U.S. version of TikTok is uncertain.
A high selling price may limit the entities that are able to purchase TikTok. Some large technology
companies—such as Apple, Google, and Meta—might be able to purchase TikTok, although any
proposals to do so might raise antitrust concerns.
Technical Requirements and Uncertainties of U.S. Ban
Section 2 of Division D of H.R. 8038 creates technical requirements for several types of online service
providers. Violations could lead to civil penalties as enforced by the Attorney General.
1. Entities distributing software apps through an online marketplace. For example, a mobile
app store operated by Apple Inc. or Google LLC would need to remove the covered app or inhibit
U.S. users from finding, downloading, installing, or updating the app.
2. Entities hosting the covered app. For example, a cloud computing provider or a content delivery
network (CDN) provider would need to stop hosting or delivering the covered app’s content or
inhibit U.S. users from accessing the app’s content and services.
3. Entities that own or control the covered app. For example, TikTok Ltd. would be required to
provide “all the available data related to” a U.S. user’s account (including posts, photos, and
videos) to the requesting user before the user loses access to the app. Such data is intended to
enable the user to transfer the content to “alternative applications.”
Division D of H.R. 8038 does not address the implications of U.S. users accessing a covered app through
various services that may bypass geographic restrictions. For example, if a user physically located in the
United States uses an IP address masking technology (e.g., a Virtual Private Network) to access a covered
app by appearing to be located outside of the United States or through services outside the United States,
it is unclear what entities, if any, could be held liable for app distribution.

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Additionally, if individuals request their user data from a covered app operator, some might not have
sufficient equipment to handle and secure the requested information, which may create privacy or data
security risks if the released data contains personally identifiable information.
Users and Competition
The effect Division D of H.R. 8038 on users and competition would depend on a covered company’s
response. If a company chooses to pursue a divesture, it might not affect users or competition. The effects
would depend on the purchasing entity. For example, if the purchasing entity operates an app similar to
the divested app, it could reduce competition. The purchasing entity could also stop offering certain
services, affecting users.
If a company chooses not to divest its app, prohibiting the app from providing U.S. services might have a
financial effect on U.S. businesses that use the platform to advertise products, and individuals who are
paid to sponsor products because they have a large number of followers (i.e., influencers). Prohibiting the
app from providing services might also reduce competition, depending on the app’s market share. TikTok
estimates that there are 7 million U.S. businesses and 170 million active U.S. users on its platform. Some
influencers are reportedly lobbying Congress to reject Division D of H.R. 8038. Some TikTok users might
switch to other social media platforms, particularly those that offer short-form videos similar to TikTok,
such as Meta’s Instagram Reels and Google’s YouTube Shorts, potentially increasing their respective
market shares.

Author Information

Kristen E. Busch, Coordinator
Clare Y. Cho
Analyst in Science and Technology Policy
Specialist in Industrial Organization and Business Policy

Michael D. Sutherland
Ling Zhu
Analyst in International Trade and Finance
Analyst in Telecommunications Policy

Disclaimer
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to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
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