A proposed $400 million privacy settlement between TikTok and its Chinese parent company ByteDance been met with a major legal hurdle in the United States, with a federal judge saying he is “unwilling to hear” the agreement. The controversy focuses on whether the current federal privacy agreement between TikTok’s predecessor should be cancelled as part of the agreement.
In August, TikTok and ByteDance reached a settlement with the US Justice Department in a case alleging that the popular short video app infringed on federal regulations meant to safeguard children’s privacy on the internet. The agreement, which would call on the companies to make a significant financial contribution, is now being challenged by the court on the broader legal questions.
The proposed deal calls for TikTok to pay off $300 million right now. If the court agrees to end a 2019 consent decree imposed on Musical.ly, the short video service acquired by TikTok, the company will also have to pay another $100 million.
The second clause is the sticking point in the deal. In Los Angeles, U.S. District Judge George H. Wu said he wasn’t ready to approve the request to lift the earlier consent decree. He set a hearing date for the next Monday, so that the parties could discuss the court’s concerns.
In an initial sign of his stance, Wu wrote that, in his absence of detail, the court “cannot conclude it is a permanent solution or that the termination is appropriately responsive to the claimed change of circumstances. In the statement, the judge indicated that he wanted to see greater evidence that the current order would be able to offer a satisfactory and permanent remedy to the privacy concerns that resulted in the case.
The disagreement is significant as consent decrees are intended to carry on commitments on companies even after litigation has ended. An order is usually only lifted if there is a material change in circumstances which justify the order, or if the current order requirements are no longer needed. Here, the judge’s remarks suggest he has not yet convinced himself that the proposed settlement is up to that standard.
The conflict traces its roots to a social media app known as Musical.ly, which was well-liked by younger users before it was incorporated into TikTok. The Federal Trade Commission said in 2019 it learned that Musical.ly knew children were using the platform who were too young for the platform, but failed to properly seek parental consent before gathering personal data from the children.
The data in question contained names, email addresses and other personal information. The allegations raised pointed to a larger issue that social media platforms may be able to gain a massive base of young users and gather data that falls under the extra protections that US children’s privacy laws provide.
In 2019, Musical.ly came to a settlement with the FTC, agreeing to pay $5.7 million to settle the claims. Another consequence of the settlement was a consent decree with ongoing obligations for the company. The earlier enforcement action and its legal requirements remained applicable to Musical.ly when it was acquired by TikTok.
The Justice Department settlement is a recent development in the on-going regulatory probe into TikTok and ByteDance. The proposed $400 million payment is significantly higher than the punishment for the previous Musical.ly situation, which is an indication of the size of the platform and the ongoing focus on how users’ information was handled.
TikTok would be able to settle the matter and respond to the government’s claims, and possibly remove an older consent decree from its obligations. But the proposed structure ties some of the economic compensation to the end of that previous order, raising an issue as to whether the two should be addressed simultaneously.
The judge’s initial stance doesn’t automatically mean that the entire settlement will fall apart. The court has deliberately raised this issue to determine if it should approve the application to end the 2019 consent decree. The companies or government officials could yet submit further evidence or make other changes before the court has a final ruling.
It is important because a settlement can have multiple parts and one reason for a court’s decision to rule against a provision does not mean it will rule against all of the provisions. Such a hearing may therefore prove to be a pivotal step in resolving the privacy controversy.
The case is also a warning about the growing pressure on big tech firms to stop collecting and using the personal data of children. The U.S. regulators have increasingly been interested in whether a digital service offers meaningful safeguards for minors, especially where its data collection systems might not be apparent to minors and their parents.
Children’s privacy is a more sensitive area as kids may be less aware of how their information is gathered, kept, and used. Compliance with privacy requirements for technology companies is more than just stating general terms and conditions. Platforms may be required to have systems in place to detect the presence of children younger than 18, to seek parent consent in certain circumstances to access and/or collect information, and to restrict the collection of information in certain circumstances.
