United States: European Court Of Justice Declared EU-U.S. Safe Harbor Invalid - What This Means For Your Company

In a recent landmark decision, the Court of Justice of the European Union (the "CJEU") declared the EU-U.S. safe harbor invalid. The ruling comes out of the Schrems v. Facebook case, which has become one of the most widely followed and significant global data privacy cases to date. Although unsettling for the thousands of private companies who have operated in good faith under the Safe Harbor framework since 2000, there are indications that new guidance will be forthcoming from legislative and enforcement bodies in the U.S. and EU, and companies should bear in mind that alternatives exist for managing cross-border data transfers in the interim. While it remains to be seen whether a framework reconciling U.S. and EU differences can be devised, it is clear that the CJEU's decision has significant implications for companies that transfer data about EU citizens to the U.S.

Background on the Safe Harbor Framework.

The European Data Protection Directive issued in 1995 generally prohibits the transfer of personal data of EU citizens for processing outside of the European Economic Area (EEA) unless the recipient country can ensure an adequate level of privacy protection.

After the privacy laws of the US were deemed inadequate under the 1995 Directive, the European Commission issued in 2000 a so-called "Safe Harbor Decision." The Safe Harbor Decision established that personal data of EU citizens could be transferred to those companies in the U.S. that voluntarily certified that they were in compliance with certain "safe harbor principles" without violating the requirements of the 1995 Directive (the "Safe Harbor Framework"). The Safe Harbor Decision grew out of extensive negotiations between the U.S. and European Commission, and was effectively an acknowledgement by the Commission that the transfer of EU citizens' data pursuant to the Safe Harbor Framework ensured its citizens an "adequate level of protection."

Since 2000, more than 4,000 companies have certified themselves as Safe Harbor compliant, relying upon the Safe Harbor Decision to transfer to the United States data from the EU or about EU citizens without running afoul the 1995 Directive.

The history of Schrems v. Facebook.

The CJEU's recent landmark decision stems from a 2013 lawsuit filed by Maximilian Schrems, an Austrian law student. Schrems alleged that Facebook's Irish subsidiary transferred personal data of European citizens to Facebook servers in the U.S., and thereby allowed access to that data by U.S. government officials as part of the National Security Agency ("NSA")'s PRISM program, which came to light through the revelations of former NSA contractor Edward Snowden. Schrems contended that, because the laws and practices of the U.S. government offer no real protection of the data kept in the United States against state surveillance, the Safe Harbor Framework does not adequately protect the privacy rights of EU citizens.

Schrems first brought his action against Facebook before the national data protection agency ("DPA") in Ireland, but the Irish DPA refused to take the case on the grounds that the Safe Harbor Decision had already determined that data transferred pursuant to the Safe Harbor Framework provided adequate protection for EU citizens' privacy rights.

Schrems then sued the Irish DPA in Irish court, and the Irish court ultimately referred the case to the CJEU, the EU's top court.

In an advisory opinion to the CJEU issued on September 23, 2015, Advocate General Yves Bot found that: 1) national DPAs can investigate complaints (like Schrems') concerning the adequacy of protection provided by the recipient country, (2) with respect to the U.S., DPAs are not bound by the Safe Harbor Decision, and 3) the 2013 revelations by Edward Snowden of the NSA's unrestricted access to mass data through the PRISM program invalidate the Safe Harbor Decision.

The CJEU decision.

Last week, the CJEU officially invalided the Safe Harbor Decision. The court held that the Safe Harbor Framework failed to adequately protect the privacy rights of EU citizens because:

1)  national security, public interest and law enforcement requirements in the U.S. take precedence over the Safe Harbor Framework, so that U.S. companies are forced to abandon their obligations under the Safe Harbor Framework when such law enforcement requirements are in conflict with the safe harbor principles; and

2)  the U.S. offers EU citizens no means of judicial redress for alleged privacy violations, i.e., no mechanism within the U.S. legal system for challenging the disclosure of their data or remediating any improperly disclosed data.

In addition, the CJEU adopted the Attorney General's finding that national DPAs have the power to investigate and suspend international data transfers where a complainant has alleged that personal data is being transferred to a recipient country that does not ensure an adequate level of protection. Indeed, the court held that DPAs are required to investigate challenged data transfers regardless of whether the European Commission previously opined on the adequacy of protection provided by the recipient country.

While there is no appeal from a judgment of the CJEU, Schrems' initial complaint has been remanded to the Irish DPA to examine whether Facebook's transfer of data about its European users to the U.S. should be suspended in light of the invalidation of the Safe Harbor Framework. 

The take-away.

Without a doubt, this decision has disrupted the framework under which thousands of U.S. companies have been operating, in good faith, to comply with applicable laws governing transatlantic data transfers. The CJEU decision makes clear that companies that transfer personal data from Europe to the U.S. can no longer rely on the Safe Harbor Framework to guard against data privacy challenges in Europe. In other words, if a DPA in Europe were to challenge the transfer of data from the EU to the U.S. as violating the privacy rights of EU citizens, the fact that the recipient company in the U.S. adheres to the Safe Harbor Framework may no longer be a sufficient defense.

So, what options do companies have now?

First, companies can consider relying on so-called model clauses, which are standard contract clauses drafted by the Commission under which the data importer essentially agrees to be bound by EU data protection laws. There are a few caveats with this option, though:

  • In order to get the benefit of having the data transfers pre-approved, the model clauses cannot be modified.
  • As part of the model clauses, the data importer must represent and warrant that it is not aware of any local laws that would prevent the importer from complying with the guarantees (as to privacy protection) provided for under the clauses.  However, U.S. companies subject to the Foreign Intelligence Surveillance Act (FISA) and other laws may be required to turn over personal data to the U.S. government in contravention of EU privacy rights. Thus, model clauses may be invalidated on similar grounds as the Safe Harbor Framework.  (Indeed, on October 14, 2015, a German DPA issued an opinion suggesting that model clauses are no longer valid in light of the CJEU decision.)
  • That said, if your company is not one that typically receives subpoena requests for data for law enforcement/intelligence purposes, you could implement the model clauses and likely would be in compliance with their guarantees for all practical purposes.

Second, companies can implement binding corporate rules, which can only be used by members of the same corporate group (i.e., if an entity wants to transfer data to its parent company/sister company/or subsidiaries). Binding corporate rules are intragroup rules on data processing, which can take more than a year to put in place. The rules also must go through an EU approval process.

Finally, there are various limited exceptions under EU data protection laws which permit the transfer of personal data outside the EEA. One such exception is where the company transferring the data has obtained the data subject's informed consent. Keep in mind, however, that informed consent must typically be obtained in advance of the data transfer, and the EU does not consider consent provided by an employee to its employer for the transfer of its data to be "freely given," as required by most EU data protection laws, in light of the unequal relationship between employer and employee.

Next Steps

What should your company do in the immediate future if it previously operated under the Safe Harbor Framework?

  • First, remain calm. Your company most likely invested substantial time and efforts to ensure its compliance with the safe harbor principles and to comply in good faith with the laws governing transatlantic data transfers.  There is no indication that regulatory bodies in either the U.S. or the EU are looking to prosecute such companies solely by virtue of their not having anticipated the outcome of this case.
  • Second, assess your current business operations and consider whether your company can accomplish its necessary business functions without conducting transatlantic data transfers.
  • Third, assess whether one of the alternatives to the Safe Harbor Framework provides a workable solution for your companies' transatlantic data transfers going forward.
  • Fourth, obtain explicit consent as often as possible and use any data in minimal and well-described ways (including options such as anonymization of transferred data to the extent possible).
  • Fifth, maintain adequate data security to mitigate the risk of loss of any collected data.
  • Sixth, look out for new guidance from the various legislative and enforcement bodies in the EU regarding the practical implications of the CJEU's judgment, which should be issued shortly.1
  • Seventh, keep abreast of any developments with respect to Safe Harbor II, an updated Safe Harbor scheme which has been subject to negotiations between the U.S. and European Commission since 2013. Reports anticipate the new framework and guidance could be finalized as early as 2016.

Footnote

1. The Article 29 Working Party on the Protection of Individuals with regard to the Processing of Personal Data is an independent advisory board on data protection and privacy, comprised of representatives from the national data protection authorities of the EU member states, the European Data Protection Supervisor and the European Commission. In a press release issued just after the CJEU's decision on October 6, 2015, the Article 29 Working Party indicated that it had begun discussions with experts in Belgium and would be scheduling a plenary meeting of the Working Party shortly, so that it could provide further guidance for businesses and clarify the impact of the judgment on business. Since the CJEU's decision, national DPAs have also issued statements indicating they would be providing further guidance. The UK ICO acknowledged that it "will take some time" for businesses that used Safe Harbor to review how they ensure that data transferred to the U.S. is transferred in line with the law, suggesting that it is not in a rush to prosecute companies in this intermediate period.

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This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

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Authors
S. Gregory Boyd
Jeremy S. Goldman
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