(Yicai) Dec. 19 -- TikTok's Chinese owner ByteDance will be the largest single shareholder in a new US data security joint venture that will oversee the short video platform's local operations and it will retain the full intellectual property rights to TikTok's algorithm, according to an internal memo emailed to staff.

ByteDance and TikTok have signed binding agreements with Oracle, Silver Lake, and MGX Fund Management to set up TikTok US Data Security, with Beijing-based ByteDance owning 19.9 percent, per the memo TikTok Chief Executive Shou Zi Chew sent to employees yesterday. The deal is set to close on Jan. 22.

“We have signed agreements with investors regarding a new TikTok US JV, enabling over 170 million Americans to continue discovering a world of endless possibilities as part of a vital global community,” Chew wrote. “With these agreements in place, our focus must stay where it's always been -- firmly on delivering for our users, creators, businesses, and the global TikTok community.”

A consortium of new investors, including Oracle, Silver Lake, and MGX with 15 percent each, will own half of TikTok USDS. Some 30.1 percent will be held by affiliates of existing investors in ByteDance. The JV will be majority-owned by US investors and governed by a new seven member board of directors, most of whom will be US nationals.

TikTok USDS will oversee US data protection, algorithm security, content moderation, and software assurance, which are non-profit operations designed to meet the country's national security requirements.

Specifically, the JV will be responsible for safeguarding sensitive user data, which will be stored in a trusted and secure cloud environment in the US run by Oracle, retraining the content recommendation algorithm to ensure content feeds are free from outside manipulation, and overseeing the deployment and integrity of the local app software and platform, while having ultimate decision-making authority for reviewing and approving all content moderation and related policies within the country.

ByteDance will also continue to own the IP rights to TikTok's algorithm, licensing it to the JV and collecting licensing fees. Commercially reasonable revenue-sharing arrangements will be made between the two entities to support the JV’s operational costs.

In addition, other TikTok entities in the US that ByteDance owns will manage global product interoperability and certain commercial activities, including e-commerce, advertising, and marketing, which are the platform's primary revenue source.

The JV arrangement is similar to Apple's "Cloud on Guizhou" operating model in China, analysts pointed out, though Apple does not have a stake in AIPO Cloud Guizhou.

The TikTok deal, signed pursuant to an executive order signed by US President Donald Trump on Sept. 25, specifies that the new JV will be majority-owned by US investors, governed by a new seven member majority-US board of directors, and subject to terms that protect local users' data and the country's national security.

Last year, members of the US House of Representatives passed the Protecting Americans From Foreign Adversary Controlled Applications Act, which requires social media apps owned by companies from certain countries, including China and Russia, to become independent, with their parent firms not permitted to hold more than 20 percent of the total equity.

Editor: Martin Kadiev