United States: Keep Calm And Transfer Appropriately

Earlier this week, Europe's highest court invalidated the US-EU Safe Harbor agreement ("Safe Harbor") in the landmark decision Maximillian Schrems v. Data Protection Commissioner. American companies have relied upon Safe Harbor for more than a decade to transfer personal data, including critical customer and employee data, from the European Union (EU) to the United States. This decision now requires those companies to re-evaluate their transfer programs to determine other legal bases for appropriate transfer.

As explained by Fred H. Cate, Distinguished Professor and C. Ben Dutton Professor of Law at Indiana University Maurer School of Law,1 the decision from the Court of Justice of the European Union (the "CJEU") "requires that transferors look for other legal bases for sending personal data to the U.S. Some of these alternative bases include where consent to the transfer is unambiguous, where the transfer is necessary for the performance of a contract, where the transfer is legally required, or where the transfer is necessary to protect the vital interests of the individual." Companies may also implement binding corporate rules and/or model contract provisions in engagements with other companies for transfer.

In short, the decision requires that companies re-evaluate existing transfers of personal data from the EU to determine whether these transfers are appropriate and to identify alternative legal bases to support such transfers. Companies that have relied on Safe Harbor should carefully consider alternative legal strategies to ensure that such data transfers to not subject their companies to potential penalties under EU law.

Of course, the full ramifications of the decision remain to be seen, and companies may also choose to wait for the dust to settle and see what guidance each EU Member state data protection authority will publish regarding the decision. As Cate explains, "The decision eliminates the Safe Harbor, but that doesn't necessarily have immediate consequences for companies unless a Data Protection authority or business partner raises the issue." Antje Petersen, Attorney at Law and an astute observer of the changing international data protection landscape, offers that the decision is "nothing short of a nightmare for any company in the US that receives personal data from the EU as part of its business. Until the EU provides clarity on how one can now comply with EU Data Protection laws in light of the decision, companies should take a deep breath, review and if necessary enhance their privacy policies and transparently communicate with stakeholders such as employees about their efforts to protect personal data."

Safe Harbor Background

In 1995, the EU adopted its Data Protection Directive (Directive 95/46/EC) (the "Directive"), which requires that any data transferred outside the EU be adequately protected. If the transferee country does not provide an "adequate level of protection" as defined by the Directive, the receiving company at the transferee country must prove to the EU data protection authority that it protects EU personal data in compliance with EU law. Due to the fact that US law does not provide an adequate level of protection under the Directive, Safe Harbor has been the primary method for US companies to collect and transfer personal data from EU citizens to the US in compliance with the Directive.

Since Safe Harbor's implementation in 2000, the most significant transfer under its protection has been that of employment data for payroll and commercial customer data between corporate affiliates. In addition, many US-based third party service providers (e.g. digital marketers, software as a service providers, consultants, etc.) have relied upon the agreement to serve their customers in the EU. Safe Harbor currently has about 4,500 companies in both the US and EU who rely on the agreement to do their daily business2.

The Edward Snowden revelations have created a challenging political atmosphere for Safe Harbor in the EU. Prior to the recent decision, many EU leaders were calling for Safe Harbor reform or elimination altogether in light of the privacy risks posed by U.S. government surveillance activities. In addition, the European Commission and the U.S. have been in negotiations for several years to update the Safe Harbor framework. Therefore, it appeared to be a foregone conclusion that Safe Harbor would be altered in some manner. This decision has only accelerated that process.

EUCJ Decision

The decision stems from a complaint filed by Maximillian Schrems, an Austrian Lawyer, with the Irish Data Protection Authority concerning Facebook's Irish subsidiary. His main issue surrounded the possible collection of his Facebook data by the NSA surveillance program, PRISIM, which was first disclosed by Edward Snowden in 2013. The Irish Data Protection Authority dismissed the complaint and refused to investigate based on the European Commission's backing of the U.S. Safe Harbor framework.

An Irish court, however, decided to hear the case but first asked the highest European Judicial authority, the European Court of Justice (the "Court"), their opinion on one question: Is the European Commission's approval of the Safe Harbor framework binding on member states or do the members have the discretion to investigate complaints against corporations covered under the agreement?

The Advocate General, Yves Bot, determined that

the safe harbour principles [were] implemented ... with a view to meeting the requirements of Directive 95/46, without, however, containing sufficient findings regarding the measures by which the United States ensures an adequate level of protection.... Consequently, ... it is to be concluded that [Safe Harbor] fails to comply with the requirements laid down in [the Directive], ... and that it is accordingly invalid.3

The Court's decision is controversial on both sides of the Atlantic. Europe's digital technology industry has expressed "grave concerns about the [Judgement's] long-term implications," while the United States Secretary of Commerce Penny Pritzker believes that the decision "puts at risk the thriving trans-Atlantic digital economy."4

Prof. Cate believes that "Europe needs the safe harbor as much as the U.S. does, so governments on both sides of the Atlantic are going to be scrambling to find ways to keep data flowing." As discussed above, the European Commission and the U.S. have been in negotiations for several years to update the Safe Harbor framework, and it appears that now is the time to conclude those talks with a new agreement that addresses the Court's concern over US national security intelligence gathering practices.

What Next?

In the wake of this decision, companies who have relied on Safe Harbor should re-evaluate existing transfers of personal data from the EU to identify alternative legal bases for such transfers. Alternative strategies may include the use of Standard Contract Clauses approved by the EU Commission and/or Binding Corporate Rules for transfers within groups of companies. Identifying and implementing such strategies will be an important task in the coming months for companies that wish to ensure compliance with EU law.

Ice Miller's Data Security and Privacy Practice advises clients on issues of international data transfer. We are currently assisting multiple clients with the impact of this decision.

Footnotes

1. Fred H. Cate, Vice President for Research, Indiana University; Distinguished Professor and C. Ben Dutton Professor of Law, Indiana University Maurer School of Law; Senior Fellow, Center for Applied Cybersecurity Research; Director, Center for Law, Ethics, and Applied Research in Health Information.

2. DitigalEurope, DIGITALEUROPE's reaction to the CJEU Judgement in the case Maximillian Schrems vs Data Protection Commissioner (Case C-362/14), http://www.digitaleurope.org/DesktopModules/Bring2mind/DMX/Download.aspx?Command=Core_Download&EntryId=1023&PortalId=0&TabId=353

3. Maximillian Schrems v. Data Protection Commissioner, case # C-362/14, European Court of Justice, October 6, 2015.

4. The Wall Street Journal, EU Court Says Data-Transfer Pact With U.S. Violates Privacy, http://www.wsj.com/articles/eu-court-strikes-down-trans-atlantic-safe-harbor-data-transfer-pact-1444121361?cb=logged0.3018147449198812

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