Cyberwarfare / Nation-State Attacks , Endpoint Security , Fraud Management & Cybercrime

TikTok Picks Oracle as US 'Technology Partner'

Chinese State Media Says TikTok Operations and Source Code Off Limits to US Buyers
TikTok Picks Oracle as US 'Technology Partner'

This story has been updated.

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Potentially capping a fraught political showdown, China's TikTok, which is owned by Beijing-based ByteDance, has selected Oracle to be the "technology partner" for its U.S. operations.

In a Monday statement, Oracle pointed to Treasury Secretary Steven Mnuchin telling CNBC earlier in the day that Oracle is "part of the proposal submitted by ByteDance to the Treasury Department over the weekend in which Oracle will serve as the trusted technology provider." The proposed deal will undergo a review by the White House, Mnunchin told CNBC.

ByteDance has been under pressure from the Trump administration to divest all U.S. operations associated with the popular TikTok social media app to an American firm. The New York Times reports that Oracle is now in negotiations to take a majority stake in TikTok’s U.S. operations and that TikTok has rejected a competing offer from Microsoft. But Chinese state media suggests that any such deal would be subject to export-license control, and the Chinese government may not be predisposed to allow TikTok's U.S. operations to be sold to any American firm.

If the partnership between TikTok and Oracle succeeds, however, the company could avoid a U.S. ban as well as appease the Chinese government. Reuters reports that the terms of such a deal might see Oracle taking control of TikTok's U.S. operations, with “some of ByteDance’s top backers, including investment firms General Atlantic and Sequoia" - both of which are U.S.-based - being given a minority stake in the social media firm's American operations.

So far, however, it's still not clear if such a deal will succeed. Notably, Chinese state broadcaster CGTN reported on Monday that ByteDance will not sell its U.S. TikTok operations to Microsoft or Oracle and will not share its source code with any buyers in the U.S.

Oracle's name on the list of potential TikTok suitors initially caught many by surprise. But The New York Times reports that Oracle has enjoyed close ties with the Trump administration, owing in part to its founder, Larry Ellison, having hosted a fundraiser for President Donald Trump. Last month, the president had said he would support Oracle buying TikTok after lauding the company and saying it would be well-placed to successfully run it.

Microsoft's Bid for US TikTok Operations

On Sunday, Microsoft reported that its offer to take control of TikTok's U.S. operations had been rejected by ByteDance. "We are confident our proposal would have been good for TikTok’s users, while protecting national security interests," Microsoft said in a blog post. "We would have made significant changes to ensure the service met the highest standards for security, privacy, online safety and combatting disinformation."

In addition, China Daily, a state-run media outlet, said that the government wouldn’t accept an acquisition of TikTok's U.S. operations by Microsoft. The editorial further said that "China will by no means accept the 'theft' of a Chinese technology company, and it has plenty of ways to respond if the administration carries out its planned smash and grab."

Early in August, after a conversation between Microsoft CEO Satya Nadella and President Trump, Microsoft announced that it was open to exploring the purchase of TikTok's U.S. operations from ByteDance. "The operating model for the service would be built to ensure transparency to users as well as appropriate security oversight by governments in these countries," Microsoft said in a statement at the time.

Executive Order Threatens to Ban TikTok

Shortly thereafter, on Aug. 6, President Trump signed two executive orders, each banning WeChat and TikTok from doing business in the United States after 45 days. The orders appear to have been designed to accelerate the sale of both services' U.S. operations to an American firm, although whether Trump's move might have a sound legal basis or survive court challenges remains unclear.

In the executive order, Trump wrote that TikTok has more than 100 million users in the U.S. and said the app poses a national security threat to Americans. Accordingly, after 45 days, the executive order would prohibit "any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance Ltd." (See: Trump Signs Executive Orders Banning TikTok, WeChat.)

Trump claimed that TikTok collects U.S. citizens' sensitive personal data and grants the Chinese government access to that data, thus making the firm a national security threat.

On Aug. 14, Trump signed an updated executive order giving TikTok's parent company 90 days to find a buyer.

Treasury Secretary Mnuchin has noted that the federal government's inter-agency Committee on Foreign Investment in the United States had conducted an exhaustive review of ByteDance and its ownership of TikTok and found that its collection of personal data could harm American citizens (see: Trump Orders TikTok Owner to Divest US Operations).

TikTok Sues Trump Administration

In response, TikTok on Aug. 24 filed a lawsuit in federal court against the Trump administration, seeking to overturn the president's attempt to use an executive order to force it to sell its social media app's U.S. operations (see: TikTok Sues Trump Administration to Fight Against Ban).

TikTok claims that Trump's Aug. 6 order is arbitrary and that the social media platform does not pose a threat to U.S. national security.

The lawsuit, filed in Los Angeles federal district court, also says that TikTok does not store U.S. user data in China - where Beijing might be able to access it - but rather says it has taken "extraordinary measures to protect the privacy and security of TikTok’s U.S. user data," in part by storing it on servers in Singapore and the U.S. In addition, the company says in the lawsuit that it employs "software barriers that help ensure that TikTok stores its U.S. user data separately from the user data of other ByteDance products."

TikTok's court filing adds: "These actions were made known to the U.S. government during a recent U.S. national security review of ByteDance’s 2017 acquisition of a China-based company, As part of that review, plaintiffs provided voluminous documentation to the U.S. government documenting TikTok's security practices and made commitments that were more than sufficient to address any conceivable U.S. government privacy or national security concerns."

Executive Editor Mathew Schwartz contributed to this report.

About the Author

Prajeet Nair

Prajeet Nair

Assistant Editor, Global News Desk, ISMG

Nair previously worked at TechCircle, IDG, Times Group and other publications, where he reported on developments in enterprise technology, digital transformation and other issues.

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