Yahoo Finance Biden’s TikTok Dilemma: Go After China or Pursue Social Media Antitrust Claims
In big tech, data is currency, and TikTok is printing money. Once known for viral dance videos, the platform has built itself into a digital advertising juggernaut. The app has more than 150 million monthly users and 5 million businesses it can harvest information from to sell ads, it disclosed March 21. It’s the leading video-sharing app in America by a mile in terms of attracting and holding users’ attention. Competitors are reeling to catch up, copying its video features.
But national security concerns grounded in TikTok’s data privacy practices as well as the potential for the Chinese government to influence the content users see on the platform are jeopardizing its lucrative business. The company says that the Biden administration is demanding that TikTok’s Chinese owners sell their stakes or potentially face a U.S. ban on the app. By banning the platform, the government risks prioritizing alleged national security interests at the expense of its antitrust agenda. Meta and Google, fighting lawsuits from competition enforcers seeking to break up the companies, stand to gain the most if TikTok is banned. Users likely would flock to the only viable alternatives in Instagram Reels and YouTube Shorts.
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“We know that TikTok had been extremely effective in competing in the social media market,” says Eric Goldman, a professor and director of the High Tech Law Institute at Santa Clara University School of Law. “To the extent there are concerns about market dominance, curbing TikTok is counterproductive to antitrust concerns.”
Demands by the president for TikTok to sell to an American firm cemented Democrats’ about-face on alleged national security threats posed by TikTok, with momentum against the platform escalating. The government and more than 30 states have blocked the app on government-issued devices. And, in a precursor to Biden’s ultimatum, the White House on March 7 supported a bipartisan measure to take action against TikTok and other companies subject to influence from foreign adversaries by establishing a new unified framework for reviewing and addressing foreign technology.
The effort came after Republicans on a House committee rammed through a separate bill that effectively would ban TikTok on mobile devices in the U.S on the heels of the company acknowledging that its Beijing-based parent firm, ByteDance, used data collected from the app to monitor journalists’ physical location using their IP addresses.
To date, lawmakers have offered no evidence that TikTok has provided American user data to the Chinese government or that it’s been directed to influence the content users see on the platform.
While the government has adopted an increasingly combative stance against China, it has not passed a national data privacy law that would protect users from rampant data harvesting that has become an industrywide practice. TikTok collects vast amounts of data but no more than its peers. Meta tracks the content, communications and other information users provide when they use its products, including geolocation and biometric data. So do practically all free apps, which make money by selling data to third parties in some fashion. Of more than 17,000 apps surveyed in a 2018 study, the majority leaked sensitive content recorded from the camera, screen and microphone over the Internet in “ways that are either undisclosed or unexpected given the purpose of the apps.”
Antitrust enforcers can look to India for a glimpse at how Meta and Google will try to snatch TikTok’s market share in the app’s absence. A year after the country banned TikTok in 2020 over similar national security and privacy concerns, Instagram became its most popular social media app and reclaimed the top spot in global downloads, according to data from intelligence firm Sensor Tower. It became the first Meta-owned app to lead the category since WhatsApp held the position in 2019. While TikTok copycats could pop up to fill the void left by the platform in the U.S. — like they did in India — Meta and Google have competitive advantages because of their entrenched market positions and global reach.
“When you eliminate an option like TikTok, that will create even stronger market power for companies already in the social media space,” says Rebecca Allensworth, an antitrust professor at Vanderbilt law school. Emile El Nems, a senior credit officer at Moody’s Investors Service, says a ban would “benefit YouTube, Instagram and Snap, likely resulting in higher revenue share of the total advertising wallet.” Research and brokerage firm Bernstein similarly notes that “Meta once again looks like the likeliest winner with best-in-class ad products” alongside YouTube, which “offers the highest overlap of branded campaign objectives” and “could see ad dollars return home.”
If a TikTok ban is implemented, it wouldn’t be the first time the White House put its thumb on the scales of competition. In 2020, the government scored a major win when a federal appeals court overturned a ruling against Qualcomm that would have forced it to overhaul its licensing business for violating antitrust laws. A three-judge panel of the 9th U.S. Circuit Court of Appeals preserved Qualcomm’s monopoly in the mobile chip market, finding the company has no duty to license its patents to rivals.
But the reversal was a crucial loss for the government, too. The Federal Trade Commission brought the case that the Department of Justice stepped in at the eleventh hour to oppose on the grounds that any remedy weakening Qualcomm’s position in the burgeoning 5G market threatened national security since it’s a vital competitor to Huawei — a Chinese-owned firm that sells smartphones and other gear that make up the backbone of the telecom network. The intervention by federal prosecutors directly undermined antitrust regulators’ most momentous enforcement victory in decades.
“China would likely compete robustly to fill any void left by Qualcomm should Qualcomm’s ability to invest and innovate be diminished,” stated Ellen Lord, then the under secretary of defense, in a court declaration. “Participation and leadership in 5G standard setting is a zero-sum game — if the United States does not lead, an aggressive, eager China will set standards to accommodate its own wishes.”
Bryan Cunningham, deputy legal adviser to George W. Bush’s National Security Council, says the sister agencies taking clashing positions is “unusual” but that it was historically “predictable when national security and antitrust issues become opposed to each other.”
The national security and censorship concerns allegedly posed by TikTok are not unique to the company. Facebook was used to help incite an insurrection at the U.S. Capitol after data from the app was weaponized in 2016 to influence the presidential election. YouTube’s rules have been manipulated to silence oppression in China.
In 2018, the Justice Department charged Huawei with stealing trade secrets from U.S. companies after Congress placed the company on a black list, preventing U.S. entities from selling manufacturing parts to the Chinese firm. Huawei in a statement at the time called the actions “political prosecution.”
“The U.S. government’s sole purpose for this is to attack, discredit and smear the reputation of Huawei’s leading technologies,” it said. “They want to damage Huawei’s competitive edge in the global market.”
In another move that benefited an American company also suspected to have engaged in anticompetitive conduct, the Justice Department in 2018 sued Chinese chipmaker Fujian Jinhua and Taiwanese chipmaker UMC for stealing trade secrets from Idaho-based firm Micron. As with Huawei, Fujian Jinhua was blocked from importing American components, forcing a halt to its production plant.
The enforcement actions further consolidated the market for semiconductors called “dynamic random-access memory” by crippling one of Micron’s competitors. Micron — the only remaining U.S. maker of those semiconductors which accounted for over half of China’s supply in 2017 — has been accused in federal court and by foreign regulators of violating antitrust laws. The firm and two others own 95 percent of the market for such chips, according to court filings in a price-fixing suit.
“A lot of antitrust law is built up around the idea that we need to encourage entrepreneurship and economic opportunity,” Allensworth says. “Really what that means is American entrepreneurship and American opportunity.”
Some lawmakers agree on the urgency of passing a national data privacy law instead of a patchwork solution targeting a single app. “Social media companies — and TikTok is not unique in this — gather a tremendous amount of user data and use powerful AI tools to make eerily accurate predictions of human behavior and seek to manipulate that behavior,” said Rep. Jay Obernolte, R-Calif., during TikTok CEO Shou Zi Chew’s testimony before Congress on March 23. “It’s not just TikTok. It’s all social media companies doing this.”
A ban would also not address China’s capability to harvest American user data. In the absence of a national data privacy law, the Chinese government — and any other foreign adversary — can buy troves of personal information from data brokers. “Any government has many ways to get data on Americans, including buying that data from a host of sources because all the apps on your phone are gathering data,” says Anupam Chander, a professor of law and technology at Georgetown University. “A national data privacy law would put in controls over what information is collected and how it is shared so that there wouldn’t be huge data bases of information available for sale without the knowledge and consent of users.”
In addition to undermining competition enforcement, Chander notes that the U.S. risks China retaliating by raising barriers to participate in its economy if it bans or forces a sale of TikTok. He adds, “Hollywood movies are edited to make them more palatable to the Chinese government. That didn’t require China to own the movie studio.”
A version of this story first appeared in the March 29 issue of The Hollywood Reporter magazine. Click here to subscribe.
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