Technology

Trump says he approves TikTok deal with Oracle and app ban has been averted for now

A judge also blocked the U.S. administration's request that app stores remove WeChat from their platforms

A reflection of the U.S. flag is seen on the sign of the TikTok app in this illustration picture taken September 19, 2020. REUTERS/Florence Lo/Illustration
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  • TikTok will be owned by a new company called TikTok Global and will be headquartered in the United States.
  • Oracle and Walmart will have stakes in the new company, but the deal is structured as a partnership rather than a divestment from ByteDance, TikTok’s owner;
  • While ByteDance will get to keep TikTok’s source code under the deal, Oracle will get to inspect it;
  • ByteDance agreed to create 25,000 new U.S. jobs at TikTok, up from a little over 1,000 now.

U.S. President Donald Trump said late Saturday he supported a deal in principle that would allow TikTok to continue to operate in the United States, even as it appeared to conflict with his earlier order for China’s ByteDance to divest the video app.

At the same time, the U.S. Commerce Department said it would delay by one week an order that had been set to take effect late Sunday that would have forced Alphabet‘s Google and Apple to stop offering TikTok for download, so the TikTok deal can be completed. The Committee on Foreign Investment in the United States (CFIUS), the U.S. government panel overseeing the deal talks, has to approve the transaction.

In separate news, a U.S. judge early Sunday also blocked the Trump administration from requiring Apple and Google to remove Chinese-owned messaging app WeChat for downloads by the end of the day.

READ ALSO: Alphabet’s YouTube is launching a service to rival TikTok

U.S. Magistrate Judge Laurel Beeler in San Francisco said in an order that WeChat users who filed a lawsuit “have shown serious questions going to the merits of the First Amendment claim, the balance of hardships tips in the plaintiffs’ favor.”

ByteDance was racing to avoid a crackdown on TikTok after the U.S. Commerce Department said on Friday it would block new downloads and updates to the app on Sunday. U.S. officials had expressed concern that the personal data of as many as 100 million Americans that use the app were being passed on to China’s Communist Party government.

Trump signed an executive order on August 14 giving ByteDance 90 days to sell TikTok. The deal announced on Saturday, however, is structured as a partnership rather than a divestment.

TikTok will be owned by a new company called TikTok Global and will be headquartered in the United States, possibly in Texas, Trump said. Oracle will take a 12.5% stake in TikTok Global and store all its U.S. user data on its cloud to comply with U.S. national security requirements. Retail giant Walmart said it would take a 7.5% stake in TikTok Global. 

READ ALSO: Walmart wants to go viral with TikTok

While Oracle and Walmart said that TikTok Global will be majority-owned by U.S. investors, this is the case only if one takes into account ByteDance’s investor base. This is because ByteDance will own 80% of TikTok Global, a source said.

Given that U.S. investors currently own about 40% of ByteDance, the White House will count that towards how much of TikTok Global is owned by U.S. parties. As a result, Oracle, Walmart, and ByteDance’s U.S. investors will own, directly or indirectly, about 53% of TikTok Global, a second source said.

It was not immediately clear what spurred the White House to compromise on its push for an outright sale of TikTok. However, the deal comes with pledges that cater to Trump’s ‘America First’ policy agenda. It also averts alienating TikTok’s young users ahead of the November 3 U.S. election.

ByteDance agreed to create 25,000 new U.S. jobs at TikTok, up from a little over 1,000 now. Trump, who had previously called on companies such as Oracle and Walmart to pay the United States a “fee” to participate in the TikTok deal, said there would also be a $5 billion U.S. education fund as part of the deal.

READ ALSO: How TikTok went from a global sensation to Trump’s target

Oracle and Walmart described the agreement differently. They said that together with ByteDance top investors General Atlantic, Sequoia and Coatue they would create an educational initiative to deliver an artificial-intelligence driven online video curriculum for children, from basic reading and math to science, history and computer engineering.

The companies did not say how much they would spend on the education initiative. However, they said TikTok Global would pay more than $5 billion in new taxes to the U.S. Treasury.

While ByteDance will get to keep TikTok’s source code under the deal, Oracle will get to inspect it. Oracle CEO Safra Catz said her company was “100% confident in our ability to deliver a highly secure environment to TikTok and ensure data privacy to TikTok’s American users, and users throughout the world.”

Catz served on Trump’s transition team in 2016, while Oracle’s co-founder and chairman Larry Ellison is one of the few top technology executives to openly support the U.S. president.

ByteDance also had to give up some of its control of TikTok. Reuters reported on Thursday that TikTok Global would have a majority of American directors, a U.S. chief executive and a security expert on the board. Walmart said on Saturday its CEO Doug McMillon would serve as one of the five board members of TikTok Global.

It is possible that ByteDance’s ownership of TikTok will be reduced further next year, as it plans an initial public offering (IPO) of TikTok Global. The filing of the IPO would be on a U.S. stock exchange and could come in about a year.

READ ALSO: Snapchat soared in August amid TikTok uncertainty, says TechCrunch

TikTok interim CEO Vanessa Pappa said in a video posted that “Tiktok is here to stay.”

China also has to approve the deal. The first Chinese reaction to the deal came from Global Times, which is published by the People’s Daily, the official newspaper of China’s ruling Communist Party. Global Times editor Hu Xijin said “this scheme is still unfair, but it avoids the worst result that TikTok is shut down or sold to a U.S. company completely.”

A purge on what the Trump administration considers “untrusted” Chinese apps 

The Trump administration has stepped up its efforts to purge what it deems “untrusted” Chinese apps from U.S. digital networks. An order to require app stores to stop downloads of Tencent Holding‘s WeChat was still set to take effect Sunday night.

Judge Laurel Beeler halts the ban saying the prohibitions “burden substantially more speech than is necessary to serve the government’s significant interest in national security, especially given the lack of substitute channels for communication.”

Beeler’s preliminary injunction also blocked the Commerce order that would have barred other transactions with WeChat in the United States that could have dramatically degraded the site’s usability for current U.S. users or potentially made it unusable. The U.S. Commerce Department did not immediately comment.

READ ALSO: TikTok announces a $200 million fund for US creators

WeChat, an all-in-one messaging, social media and electronic payment app, has had an average of 19 million daily active users in the United States, analytics firms Apptopia said in early August. It is popular among Chinese students, Americans living in China and some Americans who have personal or business relationships in China.

The Justice Department said blocking the order would “frustrate and displace the president’s determination of how best to address threats to national security.”

Beeler wrote “certainly the government’s overarching national-security interest is significant. But on this record — while the government has established that China’s activities raise significant national security concerns — it has put in scant little evidence that its effective ban of WeChat for all U.S. users addresses those concerns.”