Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 1 of 49
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`IN THE UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`_________________________________________
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`TIKTOK INC.,
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`BYTEDANCE LTD.,
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`Petitioners,
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`v.
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`THE COMMITTEE ON FOREIGN
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`INVESTMENT IN THE UNITED STATES, )
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`STEVEN T. MNUCHIN, in his official
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`capacity as Secretary of the Treasury and
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`Chairperson of the Committee on Foreign
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`Investment in the United States,
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`DONALD J. TRUMP, in his official
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`capacity as President of the United States, )
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`and
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`WILLIAM P. BARR, in his official capacity )
`as United States Attorney General,
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`Respondents.
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`No. ________________
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`PETITION FOR REVIEW
`Pursuant to Section 721 of the Defense Production Act (50 U.S.C.
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`§ 4565(e)(2)) and Rule 15(a) of the Federal Rules of Appellate Procedure,
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`IN THE UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`_________________________________________
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`TIKTOK INC.,
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`and
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`BYTEDANCE LTD.,
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`Petitioners,
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`v.
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`THE COMMITTEE ON FOREIGN
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`INVESTMENT IN THE UNITED STATES, )
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`
`)
`STEVEN T. MNUCHIN, in his official
`)
`capacity as Secretary of the Treasury and
`)
`Chairperson of the Committee on Foreign
`)
`Investment in the United States,
`
`)
`
`
`
`
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`
`)
`DONALD J. TRUMP, in his official
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`capacity as President of the United States, )
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`)
`and
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`
`
`)
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`)
`WILLIAM P. BARR, in his official capacity )
`as United States Attorney General,
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`)
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`)
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`
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`Respondents.
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`No. ________________
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`PETITION FOR REVIEW
`Pursuant to Section 721 of the Defense Production Act (50 U.S.C.
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`§ 4565(e)(2)) and Rule 15(a) of the Federal Rules of Appellate Procedure,
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 2 of 49
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`TikTok Inc. and ByteDance Ltd. hereby petition this Court for review of
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`the Presidential Order Regarding the Acquisition of Musical.ly by
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`ByteDance Ltd., 85 Fed. Reg. 51,297 (Aug. 14, 2020) (the “Divestment
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`Order”), and the related action of the Committee on Foreign Investment
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`in the United States (“CFIUS”), including its determination to reject
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`mitigation, truncate its review and investigation, and refer the matter to
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`the President (collectively, the “CFIUS Action”).1 This Court has original
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`and exclusive jurisdiction to hear Petitioners’ challenges. 50 U.S.C.
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`§ 4565(e)(2); see also Ralls Corp. v. CFIUS, 758 F.3d 296, 311 (D.C. Cir.
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`2014); Chamber of Commerce of U.S. v. Reich, 74 F.3d 1322, 1327–28
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`(D.C. Cir. 1996).
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`The Divestment Order and the CFIUS Action seek to compel the
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`wholesale divestment of TikTok, a multi-billion-dollar business built on
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`technology developed by Petitioner ByteDance Ltd. (“ByteDance”), based
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`on the government’s purported national security review of a three-year-
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`old transaction that involved a different business. This attempted taking
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`1 A copy of the Divestment Order and CFIUS’s July 30, 2020 letter to
`Petitioners memorializing the CFIUS Action are attached to this
`Petition.
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`2
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 3 of 49
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`exceeds the authority granted to Respondents under Section 721, which
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`authorizes CFIUS to review and the President to, at most, prohibit a
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`specified “covered transaction” to address risks to national security
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`created by that transaction. Here, that covered transaction was
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`ByteDance’s acquisition of the U.S. business of another Chinese-
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`headquartered company, Musical.ly—a transaction that did not include
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`the core technology or other aspects of the TikTok business that have
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`made it successful and yet which the Divestment Order now seeks to
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`compel ByteDance to divest.
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`The Divestment Order and CFIUS Action are also unlawful in other
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`respects.
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` They violated the Due Process Clause because they
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`prematurely terminated the review to which Petitioners were entitled
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`and denied them a meaningful hearing. The CFIUS Action violated the
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`Administrative Procedure Act because the agency failed to adequately
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`explain its decision and did not take account of the alternative mitigation
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`proposals submitted by Petitioners. Finally, the forced divestment of
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`Petitioners’ business without fair compensation would constitute an
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`unlawful taking under the Fifth Amendment.
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`3
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 4 of 49
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`To facilitate this Court’s consideration of this Petition for Review,
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`Petitioners summarize the pertinent factual background and the legal
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`claims they intend to raise.2
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`Background and Nature of Proceedings
` CFIUS’s Authority Over Certain “Covered Transactions”
`1.
`CFIUS is an interagency committee authorized under Section
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`721 to “review” and “investigat[e]” a “covered transaction” to determine
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`its effects on national security.3 50 U.S.C. § 4565(b)(1)(A)–(B). Congress
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`defined a “covered transaction” to include “[a]ny merger, acquisition, or
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`2 Because Congress established the original and exclusive jurisdiction of
`this Court over CFIUS petitions for review recently, in 2018, Pub. L. No.
`115-232, sec. 1715(2), 132 Stat. 1636, 2191, (50 U.S.C. § 4565(e)(2)),
`Petitioners are filing a Petition for Review that is more detailed than may
`be required by Federal Rule of Appellate Procedure 15(a) to provide
`background on the statutory and regulatory scheme and factual
`allegations. See Am. Paper Inst. v. ICC, 607 F.2d 1011, 1012 (D.C. Cir.
`1979) (per curiam). Petitioners reserve their rights to raise additional
`facts and arguments in the briefing on the merits. See, e.g., CropLife Am.
`v. EPA, No. 02-1057, 2002 WL 1461788, at *1 (D.C. Cir. July 8, 2002) (per
`curiam).
`3 Section 721 was enacted in 1988, Pub. L. 100-418, and amended several
`times, most notably in the Foreign Investment and National Security Act
`of 2007, Pub. L. 110-49, and the Foreign Investment Risk Review
`Modernization Act of 2018, Pub. L. 115-232.
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`4
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 5 of 49
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`takeover … by or with any foreign person that could result in foreign
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`control of any United States business.” Id. § 4565(a)(4)(B)(i).
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`2.
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`Entities can voluntarily submit such transactions for review,
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`id. § 4565(b)(1)(A), and CFIUS can request that parties submit
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`transactions for review, 31 C.F.R. § 800.501(b). CFIUS’s review process
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`begins once it accepts a notice of a transaction filed by an entity, id.
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`§§ 800.501, 800.503(a), and must be completed within 45 days, 50 U.S.C.
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`§ 4565(b)(1)(F); 31 C.F.R. § 800.503(b). The statute provides that CFIUS
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`“shall” conduct an investigation if, inter alia, the initial review “results
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`in a determination that – the transaction threatens to impair the
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`national security” and the risk has not been mitigated, to be completed
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`within 45 days from the date the investigation is commenced. 50 U.S.C.
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`§ 4565(b)(2)(A), (B)(i)(I), (C)(i); 31 C.F.R. §§ 800.505(a), 800.508(a).
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`CFIUS may, during the review or investigation, “complete the action of
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`the Committee with respect to the transaction” and “refer the transaction
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`to the President for action.” 50 U.S.C. § 4565(l)(2).
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`3.
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`Before action by CFIUS is completed or action by the
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`President is taken, CFIUS may “negotiate, enter into or impose, and
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`enforce any agreement or condition with any party to a completed covered
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`5
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 6 of 49
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`transaction in order to mitigate any risk to the national security of the
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`United States that arises as a result of the covered transaction.” Id.
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`§ 4565(l)(3)(A)(i). Such actions “shall be based on a risk-based analysis,
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`conducted by the Committee, of the effects on the national security of the
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`United States of the covered transaction, which shall include an
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`assessment of the threat, vulnerabilities, and consequences to national
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`security related to the transaction.” Id. § 4565(l)(4)(A).
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`4.
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`Congress authorized the President “to suspend or prohibit any
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`covered transaction” if the President finds that (i) there is credible
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`evidence that the foreign person acquiring the interest in the U.S.
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`business as a result of the covered transaction might take action that
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`threatens to impair the national security and (ii) provisions of law other
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`than Section 721 and the International Emergency Economic Powers Act
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`do not provide adequate and appropriate authority to protect the national
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`security of the United States in the matter before the President. Id.
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`§ 4565(d)(1), (4); 31 C.F.R. § 800.101.
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` ByteDance’s Business
`5.
`ByteDance Ltd. (“ByteDance”) is an innovative technology
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`company founded as a start-up in 2012 by Chinese entrepreneur Yiming
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`6
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 7 of 49
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`Zhang. The company launched its first flagship app, Toutiao, the same
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`year. Toutiao is a news and content aggregating app, developed for the
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`Chinese market, that uses a proprietary “recommendation engine”
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`developed entirely in China by ByteDance’s team of elite engineers with
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`advanced training and expertise—and based upon cutting-edge machine
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`learning and artificial intelligence technology—to create a personalized
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`content feed for each user.
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`6.
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`Based in large part on the innovation and commercial appeal
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`of ByteDance’s recommendation engine, Toutiao was a huge success.
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`Toutiao’s recommendation engine has influenced the core technology
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`developed for several of ByteDance’s other apps. Building on the
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`experience with Toutiao and its recommendation engine, in September
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`2016, ByteDance launched in China a short entertainment video app
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`called Douyin, and ByteDance created another recommendation engine
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`for Douyin that recommends videos to Douyin users. Like Toutiao,
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`Douyin was highly successful in China.
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`7. On May 12, 2017, ByteDance launched TikTok globally in
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`over 150 countries, including the United States. ByteDance developed
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`TikTok to be a short entertainment video app that serves a user base
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`7
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 8 of 49
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`outside of China. When it launched TikTok, ByteDance leveraged its
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`experience with Toutiao and Douyin, and it developed another
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`recommendation engine that customizes each user’s content feed based
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`on how the user interacts with the content they watch. TikTok is
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`operated separately from Douyin (and other ByteDance apps), and at no
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`time has TikTok been available in mainland China.
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` ByteDance’s Acquisition of Musical.ly
`8.
`Another app already in the marketplace at the time of
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`TikTok’s launch was Musical.ly, a music video app launched in 2014 and
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`developed by musical.ly (a Cayman parent company, together with its
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`subsidiaries, referred to herein as the “Musical.ly company”). The
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`Musical.ly company was founded by two Chinese entrepreneurs,
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`headquartered in Shanghai, managed from China, and majority owned
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`and controlled by Chinese shareholders.
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`9. On November 23, 2017, ByteDance acquired the Musical.ly
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`company, which also had a small U.S. presence. Out of nearly 300
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`Musical.ly company employees worldwide, 20 were based in the United
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`States, and they were not responsible for core operations, such as
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`software and product development.
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` The Musical.ly app had
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`8
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`approximately 9.9 million U.S. registered monthly active users whose
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`data was stored in Japan. After completing the transaction, ByteDance
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`integrated some of the Musical.ly company’s U.S. assets—namely, the
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`Musical.ly app’s U.S. user base, some music licensing agreements and
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`other copyright agreements—into its TikTok business.
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`10. At the time of the acquisition, ByteDance examined the
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`Musical.ly app’s source code and determined that Musical.ly’s platform—
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`the mobile software application, server and data storage infrastructure,
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`and its algorithm powering recommendations for user content—was
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`technically and commercially inferior to TikTok. ByteDance had
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`significantly better engineering infrastructure than Musical.ly, with a
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`more experienced engineering team that was ten times larger. The
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`ByteDance development and engineering teams determined that,
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`although Musical.ly’s app was superficially similar to TikTok, the
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`technology developed by ByteDance, and particularly TikTok’s
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`recommendation engine, was much more sophisticated.
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`11. As a result, starting in February 2018, ByteDance abandoned
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`the Musical.ly code base and technology, including Musical.ly’s
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`recommendation engine, operation system, user growth, and marketing
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`9
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`tools. ByteDance kept, for a time, the Musical.ly name, but over the
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`course of 2018, it phased out Musical.ly’s back-end operations and
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`technology and combined its user base with the users of the app that
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`ByteDance had started, namely, TikTok. In August 2018, ByteDance
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`stopped offering the Musical.ly app.
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`12.
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`In short, the TikTok technology platform—which is among the
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`most important drivers of its astounding growth and popularity—was not
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`acquired by ByteDance from the Musical.ly company but instead
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`developed by ByteDance before the Musical.ly acquisition had even
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`occurred.
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`13.
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`In addition to utilizing TikTok’s superior technology,
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`including its recommendation engine, ByteDance significantly increased
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`brand and content promotional spending compared to that of the
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`Musical.ly company. ByteDance expanded promotions and marketing
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`activities in the United States to include out-of-home advertising,
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`television commercials, and key opinion leader marketing as well as
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`campaigns related to specific events and holidays. Whereas the
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`Musical.ly company had spent only about $300,000 on advertising in the
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`United States in 2017 before it was acquired by ByteDance in November
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`of that year, Petitioners spent more than $300 million on U.S. advertising
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`for TikTok in 2019, the first full year after the Musical.ly app was
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`abandoned.
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`14. ByteDance also supported TikTok by dramatically expanding
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`its U.S.-based business. Whereas prior to the acquisition the Musical.ly
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`company had just 20 U.S. employees, Petitioners hired hundreds of U.S.
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`employees led by a U.S.-based leadership team deeply committed to
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`protecting U.S. user data privacy and security, and to promoting U.S.-led
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`content moderation and localized community guidelines.
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`15. The improved technological infrastructure and ByteDance’s
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`superior commercial strategy bore fruit and significantly increased
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`TikTok’s U.S. user base independently of what ByteDance acquired as
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`part of the Musical.ly company. Although the Musical.ly app had 9.9
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`million monthly active U.S. users at the time of the transaction in
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`November 2017, today there are 98 million monthly active U.S. users on
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`the TikTok platform, making TikTok the fastest growing app in the
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`country during that period.
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` The CFIUS Proceeding
`16. The parties did not submit the Musical.ly transaction to
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`CFIUS for review in 2017 because ByteDance was a Chinese-
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`headquartered company and Musical.ly was also a Chinese-
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`headquartered company; the Musical.ly company had only a small U.S.
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`presence; and the product was a short form music video app that did not
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`appear to raise any U.S. national security concerns. Nevertheless, on
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`October 15, 2019, CFIUS sent ByteDance a set of questions regarding its
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`acquisition of Musical.ly. After several months of responding to CFIUS’s
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`questions and making presentations to CFIUS, on May 27, 2020, at
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`CFIUS’s request, ByteDance submitted a formal notice to CFIUS
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`regarding its acquisition of the U.S. business of Musical.ly.
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`17. On June 15, 2020, CFIUS informed ByteDance by letter that
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`on June 16, 2020, it would initiate its formal review of a covered
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`transaction—ByteDance’s acquisition of
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`the
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`“U.S. Business of
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`Musical.ly”—triggering a 45-day statutory-review period. 50 U.S.C.
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`§ 4565(b)(1)(F); 31 C.F.R. § 800.503(b). Over the next several weeks,
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`ByteDance submitted extensive responses to hundreds of questions posed
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`by CFIUS.
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`12
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`18. Around July 7, 2020, however—only three weeks into the 45-
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`day review process—the government abruptly cut short that process and
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`threatened to force the divestiture of TikTok. In the preceding weeks,
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`news media had reported that TikTok users claimed to have used TikTok
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`to coordinate mass ticket reservations for the President’s June 20, 2020
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`campaign rally in Tulsa, depressing attendance and causing an
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`embarrassment for the campaign. Shortly thereafter, on July 6, 2020,
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`Secretary of State Mike Pompeo said that the United States was
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`considering banning TikTok. Within days of Secretary Pompeo’s
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`statement, Treasury Department officials informed ByteDance that it
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`would need to propose a divestiture of TikTok to resolve the matter.
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`19. Even though the Treasury Department’s demand lacked any
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`legal foundation, ByteDance submitted a term sheet on July 15 that
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`proposed a national security mitigation solution in an effort to address
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`its concerns. ByteDance submitted another such proposal on July 29,
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`and on July 30, the day before the 45-day statutory review period ended,
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`submitted with Microsoft Corporation a letter of intent regarding a
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`potential transaction involving TikTok.
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`13
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`20. As noted above, if CFIUS identifies a national security
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`concern with the covered transaction during the initial 45-day statutory
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`review period, the statute and regulation contemplate that CFIUS “shall”
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`conduct an investigation that may last for an additional 45 days, 50
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`U.S.C. § 4565(b)(2)(A), (B)(i)(I), (C)(i); 31 C.F.R. § 800.505(a), 800.508(a),
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`which period gives CFIUS the opportunity to investigate the facts
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`thoroughly and, if CFIUS has concerns about the transaction, engage in
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`detailed consultations regarding potential mitigation of its concerns with
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`the entities involved in the transaction. After its investigation, if CFIUS
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`rejects mitigation, CFIUS sends a letter to the entity, as required by this
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`Court’s decision in Ralls, 758 F.3d at 319 (addressing the predecessor
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`statutory CFIUS scheme), detailing the unclassified basis of its findings
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`and affording the entity the opportunity to respond before determining
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`whether to issue a report to the President.
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`21.
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`In this case, CFIUS dramatically departed from this statutory
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`and regulatory scheme and well-established agency practice. Instead of
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`the deliberative process required by Section 721, Treasury officials
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`summarily conveyed to Petitioners CFIUS’s intent to force a divestment
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`even though the Committee’s staff was continuing to gather facts to
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`14
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 15 of 49
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`inform its statutorily required risk-based analysis. CFIUS itself never
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`responded to Petitioners’ proposed mitigation solutions and never
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`explained why these mitigation solutions were inadequate, nor did it
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`offer any counter-proposals for mitigation.
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`22. On July 30, 2020, at the end of the 45-day review period,
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`CFIUS notified Petitioners by letter that CFIUS was “undertaking an
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`investigation of the transaction,” commencing the 45-day statutory
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`investigation period. Just a few hours later, however, CFIUS informed
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`ByteDance in a separate letter that it had rejected ByteDance’s
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`mitigation proposals and had not identified adequate mitigation
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`measures, without any explanation of the basis for that determination.
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`The letter stated summarily that ByteDance’s two mitigation proposals
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`“do not adequately address” the Committee’s concerns. The letter also
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`stated that CFIUS “anticipate[d]” that it would “refer the matter to the
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`President for decision.” CFIUS then—the very next day—referred the
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`matter to the President without affording ByteDance a meaningful
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`opportunity to respond to CFIUS’s determination to reject mitigation and
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`instead refer the matter to the President. This summary determination
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`rejecting mitigation, truncating CFIUS’s review and investigation, and
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`15
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 16 of 49
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`referring the matter to the President (collectively, the “CFIUS Action”)
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`“complete[d]” CFIUS’s action with respect to the transaction, 50 U.S.C.
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`§ 4565(l)(2).
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`23. On August 7, 2020, ByteDance responded to the July 30
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`CFIUS letter, demonstrating that many of the factual findings in the
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`letter were inaccurate or outdated and reiterating its request for prompt
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`and meaningful engagement with CFIUS. To date, ByteDance has not
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`received a substantive response to its August 7 letter.
`
` The Divestment Order
`24. On August 14, 2020, the President issued the Divestment
`
`Order. The Order asserted, again without explanation, that ByteDance,
`
`through its acquisition of Musical.ly, “might take action that threatens
`
`to impair the national security of the United States.” The Divestment
`
`Order prohibited ByteDance’s acquisition of the Musical.ly company and
`
`directed ByteDance to “divest all interests and rights in (i) any tangible
`
`or intangible property, wherever located, used to enable or support
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`ByteDance’s operation of the TikTok application in the United States …
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`[and] (ii) any data obtained or derived from TikTok application or
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`Musical.ly application users in the United States.” The Divestment
`
`
`
`16
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`
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`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 17 of 49
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`Order states that it takes effect on November 12, 2020, unless CFIUS
`
`grants a 30-day extension.
`
`25. Before the issuance of the Divestment Order, President
`
`Trump stated that he might be willing to approve a mitigation proposal
`
`involving a transaction with a U.S. acquirer in lieu of a ban, so long as
`
`the government would receive a “substantial portion” of any price paid by
`
`the acquirer.
`
`26. While Petitioners believed the Divestment Order to be
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`unlawful, they continued to explore mitigation alternatives with the
`
`government to try to achieve a resolution that would obviate the need for
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`litigation. To that end, on September 13, Petitioners proposed a multi-
`
`layered approach to security of the TikTok app and its U.S. user data to
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`fully address any national security concerns.
`
`27. On September 19, 2020, the President informed reporters that
`
`he had given his “blessing” to and “approved … in concept” that
`
`September 13 mitigation proposal.4 The President also indicated that the
`
`
`4 Rachel Lerman, “Trump says he has given his ‘blessing’ to TikTok deal
`but that final terms are still being negotiated,” Washington Post (Sep. 19,
`2020).
`
`
`
`17
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 18 of 49
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`agreement involved “about a $5 billion contribution toward education,”
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`but did not specify the source of the investment or the purpose for which
`
`it would be used.5 During a campaign rally that evening, the President
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`announced what he alleged to be a new term of the proposed TikTok
`
`agreement. Specifically, he stated that the U.S. government had a “deal
`
`worked out,” in which the parties to the deal would “pay $5 billion into a
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`fund for education” so that “we can educate people as to the real history
`
`of our country.”6 Petitioners had not agreed to contribute to such a fund.
`
`28. On November 6, 2020, ByteDance submitted a fourth
`
`mitigation proposal, which contemplated addressing the purported
`
`national security concerns through a restructuring of TikTok U.S. by
`
`creating a new entity, wholly owned by Oracle, Walmart and existing
`
`U.S. investors in ByteDance, that would be responsible for handling
`
`TikTok’s U.S. user data and content moderation. To allow time to
`
`negotiate the final terms of a mitigation solution, ByteDance requested
`
`that CFIUS extend by 30 days the deadline for complying with the
`
`
`5 Id.
`6 Demetri Sevastopulo & James Fontanella-Khan, “Doubts surround
`‘education fund’ at heart of US TikTok deal,” Financial Times (Sept. 20,
`2020).
`
`
`
`18
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 19 of 49
`
`Divestment Order, which the Order itself authorized. As of this filing, no
`
`extension has been granted.
`
`29. From the time the Divestment Order was issued, Petitioners
`
`have been engaged in discussions with CFIUS in an effort to reach a
`
`mitigation solution that would avoid litigation. Petitioners had hoped it
`
`would not be necessary to seek judicial intervention, but given that the
`
`Divestment Order mandates divestment by November 12, Petitioners
`
`have no choice but to file this Petition to preserve their rights.
`
`Petitioners remain committed to reaching a negotiated mitigation
`
`solution with CFIUS satisfying its national security concerns, and they
`
`intend to file a motion to stay enforcement of the Divestment Order only
`
`if discussions reach an impasse and the government indicates an intent
`
`to take action to enforce the Order.
`
`Grounds On Which Relief Is Sought
`
`
`
`Petitioners seek review of the CFIUS Action and Divestment Order
`
`on grounds that include, without limitation, the following.
`
`Ground 1: Ultra Vires Action
`
`30. The CFIUS Action and the Divestment Order exceed the scope
`
`of the government’s authority under Section 721 of the Defense
`
`
`
`19
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 20 of 49
`
`Production Act and are ultra vires, because they (i) seek to compel
`
`divestment of assets that were not part of, and (ii) seek to address
`
`purported national security risks that do not arise out of, the “covered
`
`transaction.” See 50 U.S.C. § 4565(d)(1) (limiting Presidential action to
`
`covered transactions and risks threatened from such transactions); id.
`
`§ 4565(b)(1), (2) (limiting CFIUS “national security reviews and
`
`investigations” to covered transactions).
`
`31. The CFIUS Action and Divestment Order are ultra vires
`
`because they seek to compel the divestment of assets that were not part
`
`of the covered transaction. Congress in Section 721 authorized CFIUS to
`
`review and investigate only a “covered transaction to determine the
`
`effects of the transaction” on national security.
`
` 50 U.S.C.
`
`§ 4565(b)(1)(A)(i), see also id. § 4565(b)(2) (authorizing “investigation of
`
`the effects of a covered transaction on the national security”). During its
`
`“review or investigation of a covered transaction,” CFIUS may “complete
`
`the action of the Committee with respect to the transaction and refer the
`
`transaction” to the President for action or impose conditions on “the
`
`covered transaction in order to mitigate any risk to the national security
`
`of the United States that arises as a result of the covered transaction.”
`
`
`
`20
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 21 of 49
`
`Id. § 4565(l)(2), (3)(A)(i). The President, in turn, has authority to, at
`
`most, “suspend or prohibit any covered transaction that threatens to
`
`impair the national security of the United States.” Id. § 4565(d)(1).
`
`32. The plain text of Section 721 thus limits the authority of
`
`CFIUS and the President to the covered transaction: CFIUS may refer
`
`only a “covered transaction” to the President, and the President may
`
`suspend or prohibit only a “covered transaction.”
`
`33. Yet the CFIUS Action and Divestment Order ignore that
`
`limitation.
`
`a. The CFIUS Action—the determination that national security
`
`risk arising from the transaction could not be mitigated and
`
`the referral to the President—exceeded this statutory
`
`authority because it was directed at the TikTok U.S. business
`
`in its entirety, even though the “covered transaction” under
`
`review was ByteDance’s acquisition of the U.S. business of the
`
`Musical.ly company.
`
`b. The Divestment Order exceeded statutory authority because
`
`it mandated that ByteDance divest the entire U.S. TikTok
`
`business and all data and assets associated with it, and thus
`
`
`
`21
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 22 of 49
`
`was not limited to the U.S. business of the Musical.ly company
`
`that was the covered transaction.
`
`c. The Musical.ly brand has been completely phased out of
`
`Petitioners’ TikTok U.S. business for more than two years,
`
`and only 3.2 million of TikTok’s 98 million monthly active U.S.
`
`users had a Musical.ly app account at the time of the
`
`transaction. The TikTok U.S. business—its technology, its
`
`value,
`
`its employees,
`
`locations,
`
`contracts, and
`
`the
`
`overwhelming majority of its users and their data—is a
`
`product of ByteDance that was not derived from the U.S.
`
`business of Musical.ly, and thus was not part of the “covered
`
`transaction,” and the President accordingly did not have the
`
`authority to order its divestment.
`
`d. The CFIUS Action and the Divestment Order ignored these
`
`facts, all of which Petitioners provided to CFIUS during its
`
`months-long gathering of information. The CFIUS Action
`
`targeted TikTok and its “approximately 133 million users”
`
`even though neither TikTok nor the vast majority of its users
`
`were acquired by ByteDance as part of the Musical.ly
`
`
`
`22
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 23 of 49
`
`company transaction. The Divestment Order similarly
`
`purports to require ByteDance to divest “any tangible and
`
`intangible assets or property, wherever located, used to
`
`enable or support ByteDance’s operation of the TikTok
`
`application in the United States” and “any data obtained or
`
`derived from TikTok application or Musical.ly application
`
`users in the United States”—in other words, assets that had
`
`nothing to do with ByteDance’s acquisition of Musical.ly or
`
`the U.S. business of Musical.ly or its U.S. assets and, in
`
`critical aspects, encompassed assets that are not and never
`
`have been in the United States.
`
`e. Neither the CFIUS Action nor the Divestment Order even
`
`attempt to justify a divestment of the scope and character
`
`demanded. Instead, they merely assert that “ByteDance
`
`merged its TikTok application with Musical.ly’s social media
`
`application and created a single integrated social media
`
`application.” While Musical.ly’s 9.9 million monthly active
`
`users migrated to TikTok, and the U.S. Musical.ly entities
`
`were renamed to reflect that the Musical.ly app and brand
`
`
`
`23
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 24 of 49
`
`had been abandoned, the CFIUS Action and Divestment
`
`Order do not explain how this could subject the entire TikTok
`
`U.S. business to divestment under CFIUS authority,
`
`including the technology used to support and the data derived
`
`from that business—which indisputably was not part of the
`
`covered transaction.
`
`34. The CFIUS Action and Divestment Order are ultra vires for
`
`the additional reason that they seek to address purported national
`
`security risks that do not arise out of the “covered transaction.” Section
`
`721 limits CFIUS’s authority to the review and investigation of “the
`
`effects of a covered transaction on the national security of the United
`
`States.” 50 U.S.C. § 4565(b)(1)(A)(i), (2)(A) (emphasis added). Before
`
`completion of CFIUS’s review or investigation, it may “mitigate any risk
`
`to the national security of the United States that arises as a result of the
`
`covered transaction.” Id. § 4565(l)(3)(A)(i) (emphasis added). And
`
`CFIUS may make a referral to the President based only on “a risk-based
`
`analysis … of the effects on the national security of the United States of
`
`the covered transaction.” Id. § 4565(l)(4)(A) (emphasis added).
`
`
`
`24
`
`
`
`Case 1:20-cv-02658-CJN Document 54-1 Filed 11/10/20 Page 25 of 49
`
`35. CFIUS’s regulations, in turn, provide that such a “risk based
`
`analysis shall include credible evidence demonstrating the risk and an
`
`assessment of the threat, vulnerabilities, and consequences to national
`
`security related to the transaction.” 31 C.F.R. § 800.102 (emphasis
`
`added). The President may act only “to suspend or prohibit any covered
`
`transaction that threatens to impair the national security of the United
`
`States.” 50 U.S.C. § 4565(d)(1) (emphasis added). To mandate
`
`divestment, the President must find that the foreign acquirer “as a result
`
`of the covered transaction might take action that threatens to impair the
`
`national security.” Id. § 4565(d)(4)(A)
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