From this week our newsletter will have a more international flavour as we opened our US office on July 15, 2020. This brings our total number of offices outside mainland China to 3 as we now have offices in Hong Kong, London and Seattle. Further details relating to our Seattle office can be found by following this link.

Whilst we already provide news from Hong Kong we aim in future issues to bring you news from the US and also the UK that may be of relevance to companies investing into China. Our first such article appears this month and relates to the ongoing litigation in the US regarding the use and availability of WeChat functions in the US. Many companies in the US use WeChat as part of their communication strategy with China based clients and customers. One of the grounds of the challenge brought by the Plaintiffs in that the proposed block will cause such US companies severe commercial problems.

ISSUING AUTHORITY:

US District Court, District of Northers California

DATE OF ISSUANCE

September 20, 2020

EFFECTIVE DATE:

September 20, 2020

On August 6, 2020, President Trump issued Executive Order 13943, 85 Fed. Reg. 48,641 (the “WeChat EO”) prohibiting US residents from doing business with WeChat. Whilst US concerns about certain Chinese companies such as Huawei have been apparent for several years, the WeChat EO was a surprise to many as WeChat had not been named in any previous Whitehouse materials. The order stated that:

“any transaction that is related to WeChat by any [United States] person, or with respect to any [United States] property . . . with Tencent” shall be prohibited “as identified by the [Secretary] under section 1(c) of this order.”

A number of plaintiffs brought an action challenging the Order. One plaintiff was a company, Chihuo Inc, that regularly used WeChat for communication purposes in providing digital marketing and advertising services to clients.

The plaintiffs sought a preliminary injunction which would prevent the Order taking effect until the substantive matters had been decided. To do so the plaintiffs were required to establish the following:

 i.  The main application is likely to succeed on the merits;

ii.  The Plaintiff is likely to suffer irreparable harm in the absence of such preliminary relief;

iii. The balance of equities tips in Plaintiff’s favour; and

iv.  An injunction is in the public interest

Following a hearing concluding on September 19, 2020, the US Magistrate Judge considered all the written pleadings and also oral representations made by the parties. The Magistrate Judge concluded that the test for granting a preliminary injunction was met by Plaintiffs and proceeded to order that the President and Secretary of Commerce be enjoined from directly or indirectly prohibiting or limiting the WeChat application in the US or by US persons abroad. The Magistrate Judge made clear that the injunction would only last until final judgement of the court on the main issues. The court, on at least two occasions, mentioned the lack of evidence relating to any specific security threat posed by WeChat. It appears that the court applied something equivalent to a proportionality test, finding that the proposed ban was disproportionate to the security aims of the government which could be achieved in other, less wide-ranging ways.

As a result of the preliminary injunction, WeChat users in the US will not face any disruption in their use of WeChat. This means that companies may, for the moment, continue to use WeChat when communicating with Chinese customers and clients. The US government has indicated its intention to challenge the injunction so companies using WeChat should monitor the progress of both the substantive hearing and also the appeal against the preliminary injunction.

Follow this link for a more detailed discussion of the issues.