Merger & Acquisitions, Technology, Data Privacy & Security, Legislation & Regulation, Antitrust Litigation & Investigations

China's TikTok Facing Privacy & Security Scrutiny from U.S. Regulators, Lawmakers

TikTok Didn't Realize it Acquired Privacy Problems With Two Years Ago

Reuters broke the story that the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) is conducting a national security review of the owners of TikTok, a social media video-sharing platform that claims a young but formidable U.S. audience of 26.5 million users. CFIUS is engaged in the context of TikTok owner ByteDance Technology Co.’s $1 billion acquisition of U.S. social media app two years ago, a deal ByteDance did not present to the agency for review.


Meanwhile, U.S. legislators are concerned about censorship of political content, such as coverage of protests in Hong Kong, and the location and security of personal data the company stores on U.S. citizens.

Sen. Josh Hawley (R-Mo.), Chairman of the Judiciary Committee’s Subcommittee on Crime and Terrorism, invited TikTok and others to testify in Washington this week for hearings titled “How Corporations and Big Tech Leave Our Data Exposed to Criminals, China, and Other Bad Actors.”

While TikTok did not send anyone to testify, the company’s recently appointed General Manager for North America and Australia Vanessa Pappas, formerly with YouTube, sent a letter indicating that it did not store data on U.S. citizens in China. She explained in an open letter on the TikTok website, which reads similarly to that reportedly sent to the subcommittee, that the company is very much aware of its privacy obligations and U.S. regulations and is taking a number of measures to address its obligations.

For nearly eight years Pappas served as Global Head of Creative Insights and before that Audience Development for YouTube. In late 2018 she was strategic advisor to ByteDance, and in January 2019 became TikTok’s U.S. General Manager. In July her territory expanded to North America and Australia. Selecting someone who played such a leadership position for YouTube, widely used and familiar to Americans, to lead U.S. operations may serve calm the nerves of U.S. regulators. But given U.S. tensions with China over trade, security and intellectual property, TikTok and Pappas have a way to go.

Some commentators think Facebook must enjoy watching TikTok getting its turn in the spotlight, especially since TikTok is a growing competitor to Facebook in the younger market. If just briefly, it may divert attention away from the attention being paid globally to the social media giant’s privacy and data collection practices, and the many fines.

It’s clear that TikTok has Facebook’s attention. TikTok, which allows users to create and share short videos with special effects, did a great deal of advertising on Facebook. The ads were clearly targeting the teen demographic and were apparently successful. CEO Mark Zuckerberg recently said in a speech that mentions of the Hong Kong protests were censored in TikTok feeds in China and to the United States, something TikTok denied. In a case of unfortunate timing, Zuckerberg this week posted that 100 or so software developers may have improperly accessed Facebook user data.

Since TikTok is largely a short-video sharing application, it competes at some level with YouTube in the youth market. In the third quarter of 2019, 81 percent of U.S. internet users aged 15 to 25 accessed YouTube, according to figures collected by Statista. YouTube boasts more than 126 million monthly active users in the U.S., 100 million more than TikTok.

"Potential counterintelligence threat we cannot ignore."

Last month, U.S. Senate Minority Leader Chuck Schumer (D-NY) and Senator Tom Cotton (R-AR) asked Acting Director of National Intelligence to conduct a national security probe of TikTok and other Chinese companies. Expressing concern about the collection of user data, whether the Chinese government censors content feeds to the U.S., as Zuckerberg suggested, and whether foreign influencers were using TikTok to advance their objectives.

“With over 110 million downloads in the U.S. alone,” the Schumer and Cotton letter read, “TikTok is a potential counterintelligence threat we cannot ignore. Given these concerns, we ask that the Intelligence Community conduct an assessment of the national security risks posed by TikTok and other China-based content platforms operating in the U.S. and brief Congress on these findings.” They must be happy with Sen. Hawley’s hearings.

In her statement, TikTok GM Pappas offered the following assurances:

  • U.S. user data is stored in the United States with backup in Singapore -- not China.
  • TikTok’s U.S. team does what's best for the U.S. market, with "the independence to do so.”
  • The company is committed to operating with greater transparency.
  • California-based employees lead TikTok’s moderation efforts for the U.S.
  • TikTok uses machine learning tools and human content reviews.
  • Moderators review content for adherence to U.S. laws.
  • TikTok has a dedicated team focused on cybersecurity and privacy policies.
  • The company conducts internal and external reviews of its security practices.
  • TikTok is forming a committee of users to serve them responsibly.
  • The company has banned political advertising.
  • Both TikToc and YouTube have been stung by failing to follow the rules when it comes to the youth and children’s market. In February, TikTok agreed to pay $5.7 million to settle the FTC’s case which allege that, through the app, TikTok company illegally collected personal information from children. At the time it was the largest civil penalty ever obtained by the FTC in a case brought under the Children’s Online Privacy Protection Act (COPPA). The law requires websites and online services directed at children obtain parental consent before collecting personal information from kids under 13. That record was smashed in September, though, when Google and its YouTube subsidiary agreed to pay $170 million to settle allegations brought by the FTC and the New York Attorney General that YouTube was also collecting personal information from children without parental consent. The settlement required Google and YouTube to pay $136 million to the FTC and $34 million to New York.
Quality degrades when near-monopolies exist.

What I am watching for here is whether (and how) TikTok and other social media platforms respond to these scandals by competing on privacy.

For example, in its early years Facebook lured users with the promise of privacy. It was eventually successful in defeating competitors that offered little in the way of privacy, such as MySpace, which fell from a high of 75.9 million users to 8 million today. But as Facebook developed a dominant position in social media through acquisition of competitors like Instagram or by amassing data, the quality of its privacy protections degraded. This is to be expected where near-monopolies exist and anticompetitive mergers are allowed to close.

Now perhaps the pendulum is swinging back. As privacy regulation and publicity around privacy transgressions increase, competitive forces may come back into play, forcing social media platforms to compete on the quality of their consumer privacy protections once again. That would be a great development for consumers.

Edited by Tom Hagy for MoginRubin LLP.

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