United States: Grindr And PatientsLikeMe Outcomes Show Non-Cleared Transactions' Exposure To CFIUS Scrutiny, Especially When PII Is Involved

In the last three weeks, the Committee for Foreign Investment in the United States (CFIUS) has reportedly informed two Chinese companies that they must sell their stakes in two U.S. companies. It is understood that in late March 2019, CFIUS conveyed to the Kunlun Group that it must sell its stake in Grindr, an online dating app. More recently, it was announced that CFIUS ordered iCarbonX, the Shenzhen-based unicorn, to sell its majority stake in the U.S. company PatientsLikeMe. PatientsLikeMe is an online service that links individuals suffering similar health issues in an effort to improve disease detection and treatment.

CFIUS's disposition of these transactions reinforces two points about CFIUS's administration of restraints on non-U.S. investment in the United States for national security reasons:

  • First, as these transactions closed years ago, CFIUS's treatment highlights that a foreign investment transaction is susceptible to disturbance by CFIUS at any time into the indefinite future if CFIUS has not cleared it.
  • Second, CFIUS's treatment of these transactions shows the importance that CFIUS attaches to a U.S. target company's storage of personally identifiable information (PII) as a potential national security concern.

Non-Cleared Transactions – Exposure to Disturbance by CFIUS

The Kunlun-Grindr and iCarbonX-PatientsLikeMe cases illustrate how foreign investment transactions not cleared by CFIUS are susceptible to disturbance at any time.

Kunlun-Grindr

  • The Kunlun Group is a wholly owned subsidiary of Beijing Kunlun Tech Co. Ltd., a listed company in China. The Kunlun Group acquired 100% of the shares of Grindr LLC in two separate transactions. In March 2016, Kunlun acquired 61.53% of the shares of Grindr for US$93 million. In May 2017, Kunlun signed agreements to purchase the remaining shares of Grindr for US$152 million, with the deal closing in January 2018. In August 2018, Beijing Kunlun announced that Grindr was preparing for an IPO.
  • In March 2019, spurred by data privacy concerns, CFIUS intervened and Kunlun is now in an auction process to sell Grindr. On April 1, 2019, Beijing Kunlun announced it is in communication with CFIUS and has not reached any agreement on this matter.

iCarbonX-PatientsLikeMe

  • In January 2017, the U.S. healthtech startup company PatientsLikeMe announced that it received an investment from iCarbonX, the Chinese digital healthcare unicorn, in excess of US$100 million, resulting in iCarbonX being the majority stakeholder in PatientsLikeMe.
  • In April 2019, it was reported that CFIUS is insisting that iCarbonX fully divest its stake in PatientsLikeMe.

Foreign Company Access to U.S. PII – Exposure to Disturbance by CFIUS

The U.S. government's focus on a foreign company's access to the PII of U.S. citizens is not entirely new. The watershed was the Ant Financial-MoneyGram proposed transaction. In December 2017, Ant Financial Services Group's proposed purchase of MoneyGram International Inc. was de facto blocked due to concerns that Ant Financial would then have access to significant PII as part of the transaction. Another example is the 2018 China Oceanwide-Genworth Financial deal. In that transaction, China Oceanwide Holdings Group Co. first had to implement mitigation measures to prevent "personal consumer information [from] becoming more vulnerable" before CFIUS clearance was granted. Specifically, the mitigation agreement required, among other things, that Genworth use a U.S.-based third-party service provider to manage and protect the personal data of Genworth's U.S. policyholders.

In August 2018, the U.S. Congress codified in the Foreign Investment Risk Review Modernization Act (FIRRMA) that CFIUS is to focus on potential national security concerns associated with the U.S. investment target's maintenance or collection of "sensitive personal data of United States citizens."

Importance of CFIUS Planning

CFIUS's disposition of these transactions underlines the importance of informed CFIUS planning well before proceeding with a foreign investment transaction that could implicate CFIUS's jurisdiction. For Chinese companies in the process of an investment or an acquisition in the U.S., the parties need to resolve whether a filing with CFIUS is mandatory under October 2018 FIRRMA "pilot program" regulations relating to an investment in a U.S. business involved in "critical technology." If not, but the non-U.S. investor could gain control over a U.S. business, the parties should consciously resolve whether they will seek CFIUS clearance for the transaction. Whether to do so may depend on the types and magnitude of national security considerations (such as the target company's PII storage) that the transaction presents.

For any number of reasons, deciding not to notify the transaction to CFIUS may be in the parties' interest. But they should recognize that without CFIUS clearance, the CFIUS Sword of Damocles (large or small as it may be) will hang over the outcome of the transaction.

For Chinese companies that have already invested in or acquired a U.S. company and did not notify CFIUS in the process, it may be prudent to now conduct an internal review of those transactions. The review should cover, among other questions, whether the transaction has made PII of U.S. citizens accessible to the Chinese company. Various measures may then be considered, such as a partial divestment of shareholding in the U.S. company that would eliminate the Chinese company's access to the PII of U.S. citizens. Or the parties could propose that the U.S. company engage a U.S.-based third party service provider to manage and protect the PII of U.S. citizens. By proactively managing this risk going forward, the Chinese company would potentially be in a stronger position with more options than if CFIUS intervenes and demands a fire-sale divestment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
28 Aug 2019, Webinar, San Francisco, United States

This CLE webinar will analyze the potential antitrust ramifications of joint ventures (JVs) and other collaborations between competitors and how to balance the pro-competitive efficiencies against the anti-competitive effects of a proposed JV.

1 Oct 2019, Other, Washington, DC, United States

Orrick is proud to host the AIPN for its final breakfast meeting of 2019 for a session titled “Helping the World Gasify”. As natural gas production and use is very unevenly distributed throughout the world, often gas produced in association with crude oil is sold below cost or flared.

25 Nov 2019, Speaking Engagement, New York, United States

Lorraine McGowen will be speaking on the upcoming “Evaluating the Financial Health of an Entity” panel at the New York session of the Pocket MBA: Finance for Lawyers and Other Professionals program, hosted by the Practising Law Institute.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions