The Trump administration has put a target on TikTok.
Angela Lang/CNET
A federal judge on Monday blocked a ban of TikTok, a move that comes as the Chinese owner of the short-form video app works to finalize a sale of its US operations that satisfies the US government.
District Judge Carl Nichols said the government had "likely overstepped" its authority in pushing to ban the app. The order prevents the Commerce Department from prohibiting internet hosting companies, content delivery networks and other services from working with TikTok.
The injunction is the latest twist in a saga that started in August when President Donald Trump signed two executive orders aimed at TikTok. One barred transactions with TikTok, while the other required the sale of the US business. A Friday deadline for that sale expired without an extension though negotiations have continued.
ByteDance has struck a preliminary deal with software company Oracle and retail giant Walmart, but the agreement still needs to be finalized. The Committee on Foreign Investment in the United States, which reviews foreign acquisitions for national security risks, has given ByteDance two extensions of the initial Nov. 12 deadline.
The Commerce Department said it will comply with the injunction but intends to "vigorously defend" Trump's executive order, noting that it "promotes national security interests." TikTok said it was "pleased" with the judge's order.
The Trump administration is pushing for the sale because of concerns the data TikTok collects could "allow the Chinese Communist Party access to Americans' personal and proprietary information." The ban of the app has been blocked on two other occasions, including an October decision by a US district judge in Pennsylvania.
Here's what you need to know:
What's in the deal between TikTok, Oracle and Walmart?
Oracle and Walmart would get a combined 20% stake in a new company called TikTok Global, which is expected to go public in the next year. Four of the five members on TikTok Global's board of directors will be American.
Oracle will host all US user data on its cloud platform and be tasked with "securing associated computer systems," TikTok said in a statement.
"We are a hundred percent 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," Oracle CEO Safra Catz said in a statement.
TikTok Global also plans to create 25,000 US jobs as part of an expansion of its global headquarters, which will remain in the US. TikTok Global will pay more than $5 billion in new tax dollars to the US Treasury, according to Walmart. It will also create an educational program to "develop and deliver an AI-driven online video curriculum" that includes courses in math, terbaik sumatera reading, science, history and computer engineering for children.
Does that mean ByteDance owns 80% of TikTok Global?
There's confusion over how big a role ByteDance would play in TikTok Global. ByteDance says that it will have an 80% stake in TikTok Global before the new company goes public.
But Ken Glueck, Oracle executive vice president, said in a statement that "upon creation of TikTok Global, Oracle/Walmart will make their investment and the TikTok Global shares will be distributed to their owners, Americans will be the majority and ByteDance will have no ownership in TikTok Global."
A person familiar with the deal told The Wall Street Journal that ByteDance wouldn't technically be an owner of TikTok Global because the shares would be given to ByteDance investors. About 40% of ByteDance is owned by US venture capital firms.
Meanwhile, a group of Republican US lawmakers has urged Trump to reject the deal if ByteDance still has control over TikTok's US operations, data and algorithms. Trump has signaled that he wouldn't approve a deal if Walmart and Oracle didn't have most of the control over TikTok Global.
"They are going to own the controlling interest. Everything is going to be moved into a cloud done by Oracle … and it's going to be totally controlled by Oracle," he told Fox News. "If we find that they don't have total control, then we're not going to approve the deal."
Why does Walmart want a stake in TikTok?
TikTok has been experimenting with e-commerce features. Last year, the company started allowing some users to add links to e-commerce sites so people can buy products that are shown in videos.
Walmart said it will "bring its omnichannel retail capabilities including its Walmart.com assortment, eCommerce marketplace, fulfillment, payment and measurement-as-a-service advertising service" to TikTok.
Does the Chinese government approve of the TikTok-Oracle deal?
China reportedly but the current deal structure isn't a full divestment. Still, there are signs that Beijing isn't fully comfortable with the proposal.
"Based on what I know, Beijing won't approve current agreement between ByteDance, TikTok's parent company, and Oracle, Walmart, because the agreement would endanger China's national security, interests and dignity," tweeted Hu Xijin, editor-in-chief of the Global Times. The tabloid is backed by China's Communist Party.
Based on what I know, Beijing won't approve current agreement between ByteDance, TikTok's parent company, and Oracle, Walmart, because the agreement would endanger China's national security, interests and dignity.
— Hu Xijin 胡锡进 (@HuXijin_GT) September 21, 2020
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In August, China issued new restrictions on artificial intelligence technology exports, a move that delayed the TikTok deal. Under the current proposal, ByteDance won't be transferring its algorithm and technology to Oracle, which might satisfy Chinese regulators.
What comes next?
The legal battle is hardly over. TikTok has another lawsuit pending against the Trump administration to block the potential ban. While federal judges have blocked the ban from happening, the US government is appealing.
CNET's Steven Musil contributed to this report.