United States: Use Of EU Personal Data Now That U.S. Safe Harbor Agreement Has Been Invalidated By European Court Of Justice

Background

The European Union has strict laws (EU Data Protection Directive 95/46/EC; the DP Directive) for the protection of personally identifiable information (PII). This extends to a general prohibition on the export of PII to countries without an adequate level of data protection, unless some statutory exception applies or some approved data protection mechanism is adopted. Export includes the electronic access of PII by persons in that third country, even if the data is not physically imported into the third country. The USA is considered by the EU Commission to be a country without an adequate level of data protection under its general laws.

The key exceptions permitted under the DP Directive are:

  • if the individual has given his unambiguous consent to the transfer;
  • if the transfer is necessary or legally required on significant public interest grounds, or for the establishment, exercise or defense of legal claims;
  • if the transfer is necessary in order to protect the vital interests of the data subject;
  • if the transfer is necessary for the performance of a contract between the individual and the business; or
  • if the transfer is necessary for the conclusion or performance of a contract concluded in the interest of the individual between the business and a third party.

In practice, the exceptions are more restrictive than they appear and are not the most commonly used method for justifying the export of PII from the EU to the USA—e.g., the consent exception requires active, informed and express consent with the right for the data subjects to rescind their consent at any time for any reason. Practically, that rescission right makes it economically unviable for many business purposes.

The two approved mechanisms for export of PII into such countries are:

  • binding corporate rules (BCR), which are business-specific policies and procedures designed to provide adequate data protection and which have been approved by the relevant country data protection regulator; and
  • use of approved model contracts between an EU person and a foreign person for the export and use of the PII (model contracts).

In addition, the EU and the USA entered into a "safe harbor" agreement (Commission Decision 2000/520/EC of 26 July 2000) under which the European Commission (the Commission) considered that the USA ensured an adequate level of protection of PII transferred from the EU to the USA for organisations registered under the safe harbor scheme. Although various EU country data protection regulators have expressed concern about the standard of data protection in the USA, it was considered that they were bound by the Commission's decision about safe harbor. To date, more than 5,000 U.S. companies have registered with the safe harbor scheme (administered by the U.S. Department of Commerce).

Decision

On 6 October 2015, the European Court of Justice (ECJ) issued its judgment in Maximillian Schrems v Data Protection Commissioner, Case C-362/14 (the Judgment). The ECJ is the highest court of appeal in relation to EU laws, regulations and decisions. The ECJ found that:

  • a Commission decision finding that a third country ensures an adequate level of protection of the personal data transferred cannot eliminate or even reduce the powers available to the national supervisory authorities—i.e., despite the Commission's decision on safe harbor or a similar decision, a country data protection regulator can find that a particular export of PII from that country to the USA does not have an adequate level of protection; and
  • the Commission's decision on the adequacy of the EU-U.S. safe harbor arrangement was invalid with immediate effect (primarily because of the ability of U.S. authorities to examine PII with no limitation scope or any means of redress).

Enforcement

The majority of EU country data protection regulators belong to the Article 29 Working Committee (WP29), which tries to provide consistency in the interpretation and enforcement of the various EU country data protection regimes. Following the Judgment, the WP29 held an emergency meeting and issued a statement regarding the Judgment on 16 October 2015 that:

  • any export of PII to the USA under the safe harbor scheme after the Judgment was illegal;
  • the EU institutions and USA should urgently develop a framework to permit the export of PII under a regime that would provide data protection consistent with EU principles (this could include the acceleration of the current discussion about a new "safe harbor" scheme);
  • until January 31, 2016, the WP29 will examine the validity of BCR and model contracts in light of the Judgment, but until then, those mechanisms can be used; and
  • after January 31, 2016, the WP29 will issue guidance on the use of BCR and model contracts and coordinate enforcement actions regarding any export of PII to the USA.

It is important to note that some states in member countries have their own data protection regulators and they do not belong to WP29. Some of them may take independent action.

Potential Implications

  1. Some EU regulators may begin to examine safe harbor signatories now and examine if their export of PII from that EU country is illegal. Penalties are potentially high (e.g., USD 750,000 in the UK) for a breach.
  2. Any person who is exporting PII from an EU country to the USA under the safe harbor scheme may want to immediately cease such export and examine if some alternative method can be used, such as:

    • anonymization or pseudonymization (where the identifying information is stripped out of the exported data);
    • an exception—e.g., consent provided by a person to the company; and
    • a currently approved mechanism—e.g., a BCR or a model contract.
  3. For many businesses currently exporting PII, the only viable replacement method in the short term is a model contract.
  4. The BCR and model contract methods are each being examined by the WP 29 and may be modified or rescinded as of January 31, 2016.

If you have any questions about this Alert, please contact Jeffrey V. Rodwell in our London office, Sandra A. Jeskie in our Philadelphia office, any of the attorneys in our Privacy and Data Protection Practice Group, any of the attorneys in our Information Technologies and Telecom Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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