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TikTok poised for deal to avoid millions in privacy damages

TikTok (Solen Feyissa, Flickr/Released)

TikTok’s Chinese owner is proposing to settle consumer privacy litigation that has exposed it to hundreds of millions of dollars in damages as the video-streaming app prepares for a possible acquisition under threat of being shut down in the U.S. over national security concerns.

Lawyers for ByteDance Ltd. and consumers have “reached a settlement in principle, subject to certain conditions,” to resolve claims that the app unlawfully records facial-scan images of children and sends confidential information about adult users to China, according to a filing in Chicago federal court. The attorneys said they plan to file a final settlement proposal within 90 days.

But there’s a wrinkle: The deal could be scuttled because attorneys representing consumers in California are complaining that they were left out of the settlement talks.

As it tries to resolve the 19 class-action lawsuits, TikTok’s owner has been under a cloud of suspicion across the Western Hemisphere that the app is dangerous for consumers. While ByteDance has rejected claims that it’s controlled by the Chinese government or that user data is at risk, it has faced heavy scrutiny by regulators in the U.S. and Europe.

Microsoft Corp., meanwhile, has been under pressure to resolve privacy and security concerns tied to a possible TikTok acquisition in time to meet President Donald Trump’s Sept. 15 deadline for reaching a deal. Another possible suitor is Oracle Corp., whose bid for the U.S. operations of TikTok has received Trump’s backing. Either company would benefit immensely by not inheriting a raft of lawsuits filed on behalf of millions of consumers.

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In light of Trump’s Aug. 6 order threatening to ban TikTok from operating in the U.S. and the sensitivity around a possible acquisition, “strict confidentiality concerning the terms of the settlement until the settlement is disclosed publicly” is important, the lawyers said in a filing Sunday in the Chicago case.

They said they were able, with the help of a judge, to reach the deal during a 12-hour mediation session last Thursday.

But the attorneys representing consumers in California say the company had previously been mediating with them before subsequent cases were filed in other U.S. courts. The cases that were initially filed in California before a judge known as one of the toughest in the nation on data privacy issues were transferred to Chicago this month so that all the litigation could be overseen by a single court.

TikTok “improperly selected which plaintiffs’ counsel could attend and represent the class,” in the Aug. 13 mediation talks, the attorneys for the California consumers told U.S. District John Z. Lee in a Monday filing.

Those attorneys said TikTok suspected that two law firms and the lead lawyer for the California consumers are secretly pursuing the case for TikTok’s potential buyers or supporting Trump’s TikTok ban, according to the filing.

“This accusation was, and always has been, false,” the group said.

Plaintiffs’ attorneys leading the Chicago case and lawyers for the California consumers didn’t immediately respond to requests for comment. ByteDance also didn’t immediately respond.

If the litigation doesn’t settle, ByteDance faces massive exposure under a strict biometric privacy law in Illinois that provides for damages of as much as $5,000 each time an online facial scan is collected without consumer consent.

Late Wednesday, Facebook Inc. won approval from a federal judge in San Francisco for a $650 million settlement in a biometric privacy case after being accused of illegally collecting user data through its photo-tagging tool. The case was fiercely litigated for five years.

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© 2020 Bloomberg News

Distributed by Tribune Content Agency, LLC.