In a bold move, AI-powered search engine startup Perplexity AI has made a bid to merge with TikTok U.S., presenting a different option to ByteDance as regulatory pressure mounts. ByteDance's current investors would hold on to their stakes and inject new capital into the business under the proposed deal, which could prevent a full sale and keep TikTok in the U.S. market.
Nevertheless, the proposed merger is beset by a number of legal, regulatory, and geopolitical hurdles that may make its approval and implementation difficult. In this article, we’ll look at the legal implications of the proposed merger and what it could mean for TikTok’s future in the U.S.
On January 18, 2025, Perplexity AI officially bid to merge its AI-driven search capabilities with TikTok's parent company ByteDance's U.S. operations. The proposal came TikTok stopped working for U.S. users due to a law shutting it down on national security grounds. Incoming President Donald Trump has granted TikTok an additional 90 days to complete a deal before a nationwide ban takes effect. The proposed merger is seen as an alternative to an outright sale, a step ByteDance has been reluctant to take.
Perplexity AI, which saw rapid growth in valuation from $500 million to $9 billion in 2024, is vying to be a competitor of OpenAI and Google in AI-driven search. The company offers a chance to match TikTok’s vast video content library with Perplexity’s generative AI capabilities, possibly resulting in a powerful content discovery platform. However, the deal is coming under intense regulatory scrutiny, especially under U.S. national security and antitrust laws.
Several legal and regulatory challenges must be addressed before the proposed merger can proceed. These challenges include national security concerns, antitrust considerations, and compliance with data privacy regulations.
One of the merger’s main hurdles is national security scrutiny. The U.S. government has long seen TikTok's Chinese ownership as a potential threat, given worries that the Chinese government could access American user data. The proposed merger will be subject to an in-depth review by the Committee on Foreign Investment in the United States (CFIUS), which can block or impose conditions on foreign investments that may raise national security risks.
However, because the deal is structured as a merger rather than a sale, U.S. regulators will want proof that ByteDance has no control over U.S. user data or operations. A key legal requirement in ensuring that TikTok U.S. data will not be part of ByteDance’s international operations will be ensuring robust data firewalls with independent oversight structures to limit risk.
The merger has to be allowed by the Federal Trade Commission (FTC) and the Department of Justice (DOJ), which enforce antitrust laws to prevent anti-competitive practices. The marriage of AI-powered search and the world's biggest social media network would produce a formidable digital player. Regulators are set to examine whether the deal might stifle competition in social media and the AI search space. They will seek to ensure that the merger does not unfairly consolidate market power and reduce consumer choice at the expense of existing competitors such as Meta, Google, and OpenAI.
Even though a combined entity may provide consumers with more innovative search and content discovery experiences, the FTC could require structural remedies, such as divestitures or operational separations, to ensure a competitive market. The complexity of the digital landscape and precedent cases, such as Microsoft's acquisition of Activision Blizzard, suggest that the regulatory review process could be lengthy and subject to significant conditions.
Data privacy is another critical area of concern. The merged entity faces a top priority of compliance with U.S. data privacy laws as TikTok collects massive amounts of personal information from its users. Companies operating in Europe must follow the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) in California. To avoid fines and litigation, ensuring transparency in how user data is collected, stored, and used will be essential.
Regulators may demand that Perplexity AI and TikTok redesign their data handling practices to give users clear information regarding the processing and sharing of their personal data. TikTok's track record of legal battles over data privacy means the new company could be sued by consumer advocacy groups that seek tighter oversight of data practices.
Investment considerations and contractual obligations add further complications to the proposed merger. ByteDance’s existing investors retaining equity stakes introduces complexities related to shareholder agreements and fiduciary responsibilities. The merger will need to ensure the fairness of the minority shareholders’ interests in the new entity. Also, the infusion of new capital partners will likely change the governance structure and increase regulatory disclosure under securities law. To align with the new corporate structure, existing licensing agreements, content deals, and advertising partnerships may need to be renegotiated. These contractual elements will require careful legal navigation to avoid disputes and ensure compliance with regulatory obligations.
Perplexity AI and TikTok U.S. have proposed a merger to keep the popular social media platform in the American market despite regulatory issues. However, the deal faces numerous, far-reaching legal hurdles, from national security to antitrust approval and data privacy concerns. The merger process will be a test case for how emerging AI companies can integrate with existing digital platforms in a heavily regulated environment.
For businesses navigating mergers involving AI technologies and foreign ownership, seeking legal guidance is crucial. Whether assessing compliance risks or structuring strategic partnerships, consulting an attorney can help mitigate potential legal challenges and ensure regulatory alignment.
