On September 18, 2020, the US Commerce Department announced the prohibited transactions (which would be effective as of September 20, subject to a court-ordered suspension discussed below) aimed at limiting the use of WeChat (and possibly also TikTok) within the United States. These prohibitions may have some effect outside the United States as well. Technology companies, Internet infrastructure companies, financial institutions, and other companies that support these apps should take particular note since the prohibitions are directed at business-to- business engagement, as opposed to individual users of these apps. However, users should consider that their ability to continue to use WeChat in particular within the United States may become severely restricted, and perhaps eventually eliminated. The Commerce Department’s September 18 announcement explains that these prohibitions are intended to “protect users in the U.S. by eliminating access to these applications and significantly reducing their functionality.”
As background, on August 6, President Trump issued Executive Orders 13942 and 13943, directing the Secretary of Commerce to identify, within 45 days, specific types of prohibited transactions related to ByteDance Ltd. (including TikTok) and WeChat. See our earlier blog post for more detail. In two Notifications issued on September 18 (the WeChat notice is available here, and the ByteDance / TikTok notice is here), the Commerce Department identified a broad set of business-to-business transactions involving WeChat and ByteDance / TikTok that would be prohibited under US law.
Importantly, the timing for these prohibitions is different for each of the two Notifications.
- The WeChat prohibitions were to take effect on September 20. However, they were temporarily blocked by a preliminary injunction issued by a US federal magistrate judge on September 19. The outcome of this litigation remains uncertain.
- The limited ByteDance / TikTok prohibitions that were slated to take effect on September 20 were suspended by the Commerce Department until September 27 at 11:59 p.m. eastern. In a press release issued after the Notifications themselves, the Commerce Department stated that this delay was provided “in light of recent positive developments . . . at the direction of President Trump.” The effective date of most of the ByteDance / TikTok prohibitions as stated in the Notification is not until November 12, 2020, which would align with the 90-day period for divestment of TikTok in the United States that was ordered by the President on August 14. A proposed divestment or other type of partnership to operate TikTok within the United States is currently under review by the Committee on Foreign Investment in the United States (CFIUS). President Trump stated that he has given the most recent proposed deal for TikTok his “blessing,” but the CFIUS process is not yet complete; nor has the deal closed. Commerce’s press release states that “the President has provided until November 12 for the national security concerns posed by TikTok to be resolved. If they are, the prohibitions in this order may be lifted.” The Chinese government has also indicated that any such deal would be subject to its approval as well.
Prohibited Transactions
Most of the prohibitions announced in the Notifications apply only to the provision of support for these apps “within the land and maritime borders of the United States and its territories,” although some of the restrictive language may impact activity involving these apps outside the United States as well. These prohibitions only apply to certain “business-to-business” transactions.
The WeChat Notification includes a prohibition on providing services through the WeChat mobile application for the purpose of transferring funds or processing payments to or from parties within the land or maritime borders of the United States and its territories.
The prohibitions identified in the Notifications for both ByteDance / TikTok and WeChat are as follows:
- Distribution and maintenance services: Services to distribute or maintain the TikTok or WeChat mobile application, constituent code, or application updates through an online mobile application store, or any online marketplace where mobile users within the land or maritime borders of the United States and its territories may download or update applications for use on their mobile devices. This is the only prohibition relating to TikTok that, according to the Notification, is to take effect prior to November 12 – this prohibition as it relates to TikTok is currently set to take effect on September 27 at 11:59 p.m., subject to the resolution of the CFIUS process as discussed above.
- Internet hosting services: Internet hosting services enabling the functioning or optimization of the TikTok or WeChat mobile application within the land and maritime borders of the United States and its territories. Internet hosting service is defined as “a service through which storage and computing resources are provided to an individual or organization for the accommodation and maintenance of one or more websites or Internet services. Services may include but are not limited to file hosting, domain name server hosting, cloud hosting, and virtual private server hosting.”
- Content delivery network services: Content delivery network services enabling the functioning or optimization of the TikTok or WeChat mobile application within the land and maritime borders of the United States and its territories. A content delivery service is defined as “a service that copies, saves, and delivers content, for a fee, from geographically dispersed servers to end-users for the purposes of enabling faster delivery of content.”
- Internet transit or peering services: Directly contracted or arranged Internet transit or peering services enabling the functioning or optimization of the TikTok or WeChat mobile application within the land and maritime borders of the United States and its territories. Internet transit service means “a service where a network operator provides connectivity, transport and routing for another network, enabling them to reach broader portions of the Internet. A transit provider’s routers also announce to other networks that they can carry traffic to the network that has purchased transit.” Peering “means a relationship between Internet service providers (ISP) where the parties directly interconnect to exchange Internet traffic, most often on a no-cost basis.”
- Utilization of code, functions, or services in US software or services: Any utilization of the TikTok or WeChat mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the land and maritime borders of the United States and its territories.
This fifth prohibition is particularly broad, and less clear than the others. The prohibition on use of TikTok or WeChat in the functioning of software or services developed and/or accessible within the US could potentially be intended to restrict use of these apps outside the US to the extent such use would relate to other types of software or services that were developed in the US or that are accessible in the US. Given that a great many types of US and non-US digital software and services are developed and/or accessible in the US, this provision will likely be a focus of concern within industry and among other stakeholders and would benefit from clarification by the Commerce Department.
There are important limitations on this prohibition, including that it does not apply to “activities related to mobile applications intended for distribution, installation or use outside of the United States by any person and all ancillary activities which are ordinarily incident to, and necessary for, the distribution, installation, and use of mobile applications outside of the United States. This includes use by US persons abroad as well as services provided by US persons abroad.” But for any transaction involving TikTok or WeChat not relating to mobile apps, persons outside the United States should assess whether any of these five restrictions could apply if one of the listed linkages to the United States is present. As with US export controls and economic sanctions, this may call for due diligence now to reduce risks should the prohibitions go into full effect.
Excluded Activities
In addition to being limited to business-to-business transactions, the identified prohibitions do not apply to the following activities:
- Payment of wages, salaries, and benefit packages to employees or contractors.
- The exchange between or among TikTok or WeChat mobile application users of personal or business information using the TikTok or WeChat mobile application. For WeChat, this includes the transferring and receiving of funds.
- Activities related to mobile applications intended for distribution, installation or use outside of the United States by any person and all ancillary activities which are ordinarily incident to, and necessary for, the distribution, installation, and use of mobile applications outside of the United States. This includes use by US persons abroad as well as services provided by US persons abroad.
- The storing of TikTok or WeChat mobile application user data in the United States.
The Notifications clarify that other transactions with Tencent Holdings Ltd. or ByteDance Ltd. or their subsidiaries are permitted unless identified as prohibited or otherwise contrary to law. With regard to both ByteDance / TikTok and WeChat, the Commerce Department has left open the possibility that it could identify additional prohibited transactions in the future pursuant to separate public notices like these. Commerce’s September 18 press release also states that similar restrictions could be considered for “another app somehow outside the scope” of these current restrictions “should the U.S. Government determine that WeChat’s or TikTok’s illicit behavior is being replicated by” such an app.