The Senate voted 79-18 Tuesday evening to advance a landmark bill giving China’s ByteDance up to a year to divest TikTok or face a U.S. ban of the app.
The next stop is the desk of President Joe Biden, who has promised to sign the agreement.
The long-debated measure will have political ramifications for the 2024 elections and will also set in motion a series of complex steps that are likely to take place in both boardrooms and courtrooms over the next 12 months.
The bill gives the company 270 days to sell, but the president can extend this period by up to one year. The process could result in a ban on an app currently used by more than 170 million monthly users in the United States.
“This is another front in the ongoing U.S.-China trade war that started during the Trump administration,” Georgetown business professor Stephen Weymouth said in an interview this week.
He notes that the upcoming aggressive legislation will lead to reactions on many fronts, including possible retaliation from the Chinese government. “Congress has generally had a relatively hands-off approach to technology regulation,” he previously said.
The effort comes after lawmakers and the Biden administration have repeatedly charged that TikTok poses an immediate national security threat because the Chinese government could force the company to share its data.
There are also concerns about the Chinese government’s ability to use the app to influence the American public by adjusting what millions of users see when they open the app.
“We hope that TikTok will continue under new ownership, American or otherwise,” Senator Mark Warner said in the Senate chamber during final debate. The Virginia Democrat, one of the advocates of the effort, added: “It should no longer be controlled by an enemy.”
The bill had previously passed the US House 360-58 and now heads to the White House, where President Biden has promised to sign it. The TikTok provision is part of a larger relief bill package that would also send new funds to support Ukraine, Israel and the Indo-Pacific.
Key question: Will Bytedance try to sell?
TikTok has denied the Biden administration’s accusations and insisted it would never share US data. Responded to action taking place on Capitol Hill this week by charging it The upcoming legislation will be “a ban bill that would trample on free speech for 170 million Americans.”
TikTok and ByteDance also said in a recent statement that they have no intention of trying to sell, saying the impact of the transition would be “the shutdown of a platform that contributes $24 billion a year to the US economy.”
However, it is unclear whether the company will change its stance and start actively looking for a buyer after the law comes into force. By its own count, ByteDance is 60% owned by institutional investors, who will have a strong financial incentive to keep the app ahead of the American market in one way or another.
And there are potential buyers. Donald Trump’s Treasury secretary, Steven Mnuchin, publicly expressed interest and said he was forming an investor group to bid.
It’s unclear whether Mnuchin or anyone else has the ability to raise the necessary funds. Dan Ives, managing director at Wedbush Securities, said the app could be worth “more than $100 billion” if the underlying algorithm is included.
Beyond that, it remains an open question whether ByteDance could sell the algorithm even if it wanted to, even if the money and willingness to sell were available.
In recent years, China has provided greater control by adding content recommendation algorithms to its export control lists. China’s Ministry of Commerce has already said it “strongly opposes” the idea of a sale and that any deal “must receive government approval,” according to a translation from the Wall Street Journal.
Without the underlying algorithm, often described as TikTok’s “secret sauce,” the app’s value could plummet and buyers’ interest could quickly fade.
“I can’t imagine a buyer who would be interested without some of this intellectual property,” says Professor Weymouth, adding that “a sale of the brand seems unlikely.”
Another important front: the courts
It is certain that the issue will reach the courts. ByteDance signaled that it would file a lawsuit to object to the law, arguing that the law could be overturned from more than one legal perspective.
A legal dispute may center around the first amendment.
A recent analysis by the Economist Intelligence Unit predicts that free speech grounds could challenge the law all the way to the U.S. Supreme Court, resulting in its easy overturn, noting that the high court is “increasingly becoming the final arbiter of technology policy of the United States.”
Others agree. California Congressman Ro Khanna, who opposes the bill, recently told ABC: “I don’t think this will pass first amendment review because I think there are less restrictive alternatives.”
He also reminded that then-President Trump’s similar effort to ban the app was also rejected in court.
“I doubt it will survive scrutiny,” he added.
Another issue that is likely to be the subject of a lawsuit is whether the bill unfairly targets a single company.
Direct mentions of the company appear to have been reduced in the final bill, but both TikTok and ByteDance are still directly named in the legislation.
The practice is called a “foreign adversary-controlled practice” in the bill, an unusual move that could leave it open to legal challenges under the legal concept of “mandate statement.” The concept prohibits a party from being declared guilty of a crime without first going through a trial process.
“This is a problem,” Mark MacCarthy of the Brookings Institution said in a recent interview before the bill was passed, saying there was established precedent against “a legal conclusion based on nothing but your name.”
Ben Werschkul is Yahoo Finance’s Washington correspondent.
For business and money-related politics news, click here
Read the latest financial and business news from Yahoo Finance