There have been new developments in the TikTok U.S. plan, which has attracted widespread attention.

According to multiple foreign media reports, at around 12:00 a.m. Beijing Time on December 19, TikTok CEO Shouzi Zhu released an internal letter, disclosing some details of the TikTok U.S. plan. As of now, this is the first time that TikTok has revealed information about this matter internally.

According to the internal letter, in the future, TikTok in the United States will be operated by two entities: On one hand, TikTok U.S. Company, a wholly-owned subsidiary of ByteDance, will continue to handle commercialization operations such as e-commerce, advertising, and market operations; on the other hand, a new "TikTok U.S. Data Security Joint Venture LLC" will be established, specifically responsible for U.S. user data security, content review, and other matters. ByteDance will hold 19.9% of the shares in the new joint venture, making it the largest single shareholder.

Additionally, the algorithm will still be controlled by ByteDance, and ByteDance will ensure the safety of the algorithm.

In September this year, Observers' Network had previously analyzed the TikTok U.S. plan. From this internal letter, the new plan aligns with previous judgments.

Image source from previous reports

Based on the internal letter and previous public statements from both China and the U.S., the core logic of the TikTok U.S. plan can be summarized as follows.

The new joint venture only handles U.S. compliance, while other businesses remain under ByteDance's control

The internal letter mentions two entities. One is the newly established "TikTok U.S. Data Security Joint Venture LLC," which was mentioned earlier in Observers' Network reports as the TikTok U.S. Data Security Joint Venture. This company will be responsible only for data protection, algorithm safety, content review, and software security in the United States.

The company will introduce external investors, with Oracle, Silver Lake Capital, and MGX collectively holding 45%; existing investors and affiliated parties of ByteDance collectively holding 30.1%; and ByteDance holding 19.9%, still the largest single shareholder.

The second entity is TikTok U.S. Company and other entities fully owned by ByteDance, which will be responsible for commercial activities in the U.S., including e-commerce, advertising, and market operations, as well as global connectivity.

In other words, the business segments that actually generate revenue remain under the control of ByteDance; while the affairs related to data security for U.S. users are handled by the new joint venture.

From the perspective of business allocation, the e-commerce and advertising businesses undertaken by TikTok U.S. Company are the core "blood-making" sections of TikTok, which are of significant strategic importance to ByteDance and TikTok globally. The new joint venture mainly assumes high-investment, low-profit compliance-related businesses, requiring long-term investment in data centers, cloud services, etc., with almost no profit margin.

It is understood that in order to ensure the continuous operation of the new joint venture, the TikTok U.S. Company will share reasonable revenue with it in the future.

ByteDance controls the algorithm and will ensure its security

Regarding the algorithm, ByteDance will still own the intellectual property rights of the TikTok algorithm, authorize the TikTok U.S. Data Security Joint Venture LLC to use it, and charge licensing fees to the latter.

After the September 2024 Sino-U.S. Madrid talks, a relevant official from the Cyberspace Administration of China stated that both sides reached a basic consensus on "entrusting the operation of TikTok's U.S. user data and content security business, and the licensing of intellectual property rights of algorithms, etc." "The Chinese government will legally approve technical exports and licensing of intellectual property rights related to TikTok." This indicates that the entrusted operation of U.S. user data and content security, and the licensing of algorithm intellectual property rights, all comply with Chinese legal requirements.

The licensing of the algorithm means that the new joint venture cannot possess the intellectual property rights of the algorithm, but can only use it within the scope authorized by ByteDance.

Factually, ByteDance and TikTok have always been protecting the algorithm, such as by using physical and digital security measures to protect the intellectual property rights of TikTok's algorithm and platform security from third-party damage.

It is understood that in the future, third parties like Oracle may be able to review the TikTok algorithm in a transparent center controlled by ByteDance to ensure the safety of U.S. user data, but they cannot copy or take photos during the review. The massive algorithm code cannot be copied. According to a report by the Los Angeles Times, TikTok submitted legal documents in 2024 stating that its codebase contains billions of lines of code, developed over many years by thousands of engineers worldwide (including many Chinese engineers), and the maintenance and development of the relevant code must rely on customized software tools from ByteDance.

This means that ByteDance still holds the intellectual property rights of the algorithm and can ensure its security.

The U.S. version of "Cloud Guizhou"

From an operational perspective, the newly established TikTok U.S. Data Security Joint Venture LLC is essentially an overseas extension of Apple's "Cloud Guizhou" model.

Since 2018, Apple has handed over the operation of the iCloud business in the Chinese market to "Cloud Guizhou," a state-owned enterprise controlled by the Guizhou Provincial State-Owned Assets Supervision and Administration Commission. Both parties jointly built data centers, with "Cloud Guizhou" responsible for operating the Chinese market, while Apple provided technical support. iCloud data of Apple users in China is stored within China.

The TikTok U.S. plan is highly similar to this model, achieving localized data management through "transnational cooperation + local data storage." In this plan, the new joint venture is equivalent to "Cloud Guizhou," taking on responsibilities for data, content, and software security compliance; ByteDance corresponds to Apple, holding core algorithms and technical capabilities.

However, ByteDance has much more say in the new joint venture than Apple does. "Cloud Guizhou" is a state-owned enterprise, and Apple has not invested, only having a cooperative relationship. But in the new joint venture of TikTok in the U.S., ByteDance has board seats and is the largest single shareholder, holding 19.9% of the shares.

Publicly available information shows that in the practice of corporate governance, a major single shareholder holding more than 15% of shares is considered relatively high. Even if the shareholding is less than 10%, it may have a substantive impact on company decisions in a dispersed equity structure.

Overall, this TikTok U.S. plan not only complies with U.S. laws but also meets the requirements of Chinese law, achieving the core interests of China, and creating practical space for Sino-U.S. economic and trade cooperation in the digital economy field.

Source | Observer News

Original: toutiao.com/article/7585439864389173823/

Disclaimer: This article represents the personal views of the author.