Grindr’s IPO at the New York Stock Exchange. (Screen capture: YouTube/NYSE)
In a bipartisan vote of 352-65 on March 13, the U.S. House of Representatives cleared a bill that would force a divestiture of TikTok by its Chinese parent company ByteDance or ban the video sharing platform’s use in the U.S.
While the legislation faces an uncertain path to passage in the U.S. Senate, the vote provided additional evidence of the extent to which lawmakers are concerned about U.S. national security risks that could stem from TikTok.
More specifically, as recent years have seen relations between the U.S. and China become more fraught than they have been since the two countries first established diplomatic ties in 1979, questions have been raised about the access government leaders in Beijing might have to data from America’s 150 million TikTok users who are active on the platform each month.
Concerns have also been raised about whether and how the platform’s content moderation policies, algorithmic recommendation engine or other features might be manipulated to advance Chinese interests — including, potentially, by sowing political strife in the U.S. or manipulating or undermining American elections.
Many of these claims are speculative, lacking the type of evidence that might be required if they were presented in a court of law. Nevertheless, for purposes of forcing a divestiture through an act of Congress or a decision by the Committee on Foreign Investment in the United States, they are sufficient.
CFIUS is a nine-member interagency panel that adjudicates questions of whether business transactions between foreign buyers and U.S. targets may raise national security concerns. Since 2020, the committee has investigated TikTok because the platform was created by ByteDance’s 2017 purchase of U.S. startup Musical.ly.
The probe led to negotiations over a deal in which American user data from TikTok would be sold to U.S. based multinational computer technology company Oracle, which would vet and monitor the platform’s algorithms and content moderation practices — but Axios reported on Monday that talks between TikTok and CFIUS have stalled for months.
Parallels to Grindr case
As directed by CFIUS, in 2020, Grindr, the location-based app used primarily by gay and bisexual men and transgender or gender diverse communities, was sold by the Chinese-based Beijing Kunlun Tech to San Vicente Acquisition, a firm that was incorporated in Delaware.
According to Reuters, Kunlun’s failure to notify CFIUS when the company purchased Grindr in 2018 was likely one of the reasons the committee decided to force the divestiture and thereby unwind an acquisition that, by that point, had been consummated for two years.
While CFIUS does not share details about the specific nature of national security risks identified with transactions under its review, reporting at the time suggested concerns with Grindr had to do with the Chinese government’s potential to blackmail Americans, potentially including American officials, with data from the app.
Cooley LLP, an international law firm with attorneys who practice in the CFIUS space, notes that the committee uses a “three-part conceptual framework” to assess national security threats:
-What is the threat presented by the foreign person’s intent and capabilities to harm U.S. national security?
-What aspects of the U.S. business present vulnerabilities to national security?
-What would the consequences for U.S. national security be if the foreign person were to exploit the identified vulnerabilities?
The firm writes that “issues that have raised perceived national security risks range from the obvious (e.g., foreign acquisitions of U.S. businesses with federal defense contracts) to the seemingly benign (e.g., foreign minority investments in offshore wind farm projects or online dating apps.)
Cooley additionally notes that CFIUS considers vulnerabilities such as “whether the U.S. business deals in ‘critical technology,’ ‘critical infrastructure’ or ‘sensitive personal data’” and threats such as “the foreign buyer’s/investor’s track record of complying with U.S. and international laws (e.g., export controls, sanctions and anti-corruption regimes.)”
Some critics argue CFIUS has been overzealous in enforcing investment restrictions against Chinese buyers, but assuming this may be true — and putting aside questions of whether U.S. national security concerns are best served by this approach — China’s foreign direct investment has “declined considerably,” according to another global law firm with a substantial CFIUS practice, Morgan Lewis & Bockius LLP.
The firm notes heightened scrutiny has been applied particularly in cases of “Chinese investment in the U.S. biotechnology industry,” while Akin Gump Strauss Hauer & Feld highlighted CFIUS’s expanded jurisdiction over Chinese investments in U.S. real estate — noting, however, that the committee’s increased authority is “unlikely to satisfy members of Congress and state legislators who want to prohibit investments in agricultural and other land by investors from ‘countries of concern’ such as China.”
Two years after the finalization of Grindr’s divestiture in 2020, the company went public on the New York Stock Exchange and enjoyed a 400 percent rise in its stock price. Its current value is $1.75 billion.
TikTok is privately owned, but Angelo Zino, a vice president and senior equity analyst at CFRA Research, told CNBC that the platform’s U.S.-only business “could fetch a valuation north of $60 billion” if Congress passes the bill to force its divestiture from ByteDance.
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