As TikTok fights the U.S. government in court, brands brace for impact
The ongoing battle between TikTok and the U.S. government reached a fever pitch on Monday in federal court, where the Chinese-owned social media company argued that a bill threatening a nationwide ban was unconstitutional.
A panel of three judges overseeing the case heard oral arguments from both sides in an appeals court in Washington D.C., where TikTok, its Beijing-based parent ByteDance and a group of TikTok creators sued to block the law. The hearing, which was scheduled for 50 minutes, stretched into a two-hour debate in which judges grilled both TikTok and the Justice Department with thorny questions that called into question the constitutionality of the ban and the scope of ByteDance’s TikTok operations in the U.S.
Both TikTok and the Justice Department have asked for a ruling by Dec. 6 in order to give the U.S. Supreme Court to consider an appeal before the law’s Jan. 19 deadline to sell takes effect.
For brands, the ban threatens what has become a highly lucrative source of revenue. In recent years, companies have flocked to TikTok in droves, a platform that had a developed a reputation for turbocharging business success stories, seemingly overnight. Even as TikTok’s future has been thrown into jeopardy in the U.S., brands are saying they aren’t fleeing the platform just yet. For some, it’s business as usual as brands look to maximize sales on TikTok while they can. Still, companies and creators that have come to rely on TikTok have hatched backup plans in case it shuts down or changes hands.
In April, U.S. Congress passed a bill that gives ByteDance until Jan. 19 to sell its stake in TikTok to a government-approved buyer or face a national ban. The legislation, which passed with overwhelming bipartisan support, was driven by concerns that the app poses a threat to national security, specifically that China could access data on Americans or spy on them with the app. TikTok and ByteDance have repeatedly denied such claims, and in early May, the companies sued to block the legislation, deeming it unconstitutional.
The legislation’s passage came just as TikTok has been doubling down on its push to transform the social media platform into a full-fledged shopping destination with TikTok Shop, which launched in the U.S. last year. More than 11% of U.S. households have made a purchase through TikTok Shop since it debuted, according to research firm Earnest Analytics.
Andrew Pincus, a lawyer for TikTok and ByteDance, argued that the sell-or-ban law would have a “staggering” impact on the First Amendment of its 170 million U.S. users. “The speech here that is being banned, we would say, or at a minimum burned, is the speech of the U.S. speaker,” Pincus said. He said that divestiture was “infeasible” within the mandated time frame, an argument previously made in court filings.
Pincus said the law unfairly singles out TikTok even though other Chinese companies, including major e-commerce platforms, collect data from American users. Pincus didn’t name-drop any e-commerce platforms, but Chinese-back companies like Temu and Shein have surged in popularity among inflation-pinched shoppers in the U.S.
Rao said that Pincus’s argument seems to suggest that Congress lacks the authority to pass such a law. “Congress doesn’t legislate all the time, but here they did. They actually passed a law, and many of your arguments want us to treat them like they’re an agency,” Rao said. “It’s a very strange framework for thinking about our first branch of government.”
Meanwhile, Jeffrey Fisher, a lawyer for TikTok creators, argued that users have a First Amendment right to work with the publisher of their choosing. “You couldn’t tell an American writer they wouldn’t have a First Amendment interest in working with Twitter, owned by a particular individual,” Fisher said. He pointed to examples of other media publications owned by foreign entities, such as Insider, which is owned by German multinational company Axel Springer SE.
In response, Rao emphasized TikTok’s Chinese ownership to express doubt that new ownership would actually inhibit free speech.
Despite pushback from judges, a national ban still faces hurdles, both legally and in the court of public opinion, according to law professor Eric Goldman of the University of Santa Clara. A recent survey of U.S. adults conducted by the Pew Research Center found that support for a TikTok ban has declined, with 32% in favor compared to 50% last March. Most respondents said they’re skeptical an outright ban would take place.
“The ban is massively out of sync with what people actually want,” Goldman said.
The fact that previous attempts to ban TikTok have failed is also strong evidence that the government faces an uphill battle, Goldman said. For example, in October 2020, a federal judge in Pennsylvania blocked a Trump administration order that would have banned TikTok from operating inside the US. More recently, just a few months ago, a U.S. District Court judge blocked a Montana state law that attempted to ban TikTok.
What brands are saying
Many brands have told Modern Retail they view TikTok as a crucial driver of sales growth. Cakes Body, which makes medical grade silicone nipple covers, has built a robust fan base through TikTok. Scrunchie brand NightCap traces about 80% — or $4 million — of its sales back to TikTok. Meanwhile, it’s significantly harder to go viral on other platforms, according to apparel startup Collars & Co’s CEO Justin Baer.
In March, TikTok released an economic impact report that it commissioned, which claims the platform helped small businesses boost their sales by nearly $15 billion in 2023. The company also claims it contributed more than $8 billion to the U.S.’s GDP in 2022 through its own operations.
That said, brands are prepared to shift gears if need be. “I can’t control what I can’t control,” said Jeremy Lowenstein, chief marketing officer of makeup brand Milani Cosmetics. “Marketers today are and have always been, by default, very nimble.”
To Katya Constantine, founder of the agency Digishopgirl Media, a sale seems more likely than an outright ban. “I don’t think anyone believes that TikTok is going to be banned,” Constantine said. “I think the question, ‘Who is going to acquire TikTok? And how will that change the platform? I think that is probably more of a concern.”
As for Scott McIntosh, CEO and co-founder of Cell Phone Seat, whose phone-slash-cup holder product went viral on TikTok, he’s optimistic that TikTok will win out in the end. “If TikTok went away, it would really hurt my business, but I don’t see that happening completely,” McIntosh said. “I’ve never seen something so publicly big and popular go away, especially in an election year.”