United States: 2016 Spring Update On U.S.-EU Privacy Shield Program

Although it has been almost five months now since the United States-European Union Safe Harbor program was held invalid by a European Court, no clear solution is in immediate sight. Although a new "Privacy Shield" program was announced, whether the provisions as currently "agreed" will survive European ratification remains to be seen.

Nonetheless, it is important for U.S.-organizations to keep the recent changes in data privacy law in the EU in mind, as they plan their organizational data practices. As one of the U.S.' largest trade partners, the European data protection laws are likely to push U.S. laws in a similar direction, especially as EU members push for more from the U.S. on the Privacy Shield program.

Countries in Asia, particularly members of the Asia-Pacific Economic Cooperation (APEC), have also continued to push for broader inter-operability rules. Multi-national corporations based in the U.S. should also closely watch such developments, to make sure that their protocols for trans-Pacific and trans-Atlantic data transfers will be forward-compatible.

A. The "Privacy Shield" For Transatlantic Data Protection Framework

In light of the Snowden revelations, an Austrian privacy activist named Max Schrems brought suit against Facebook for its alleged transfer of personal data to the United States' National Security Agency (NSA), as part of NSA's PRISM program. Schrems' "Europe v. Facebook" group filed suit against Facebook in Ireland with the Irish Data Protection Commissioner. On June 18, 2014, the suit before the Irish High Court was referred to the Court of Justice of the European Union (CJEU). The central question of the referral was the legitimacy of the European Union's granting of the "Safe Harbor" status to the United States when it came to the transfer of personal information.

On September 23, 2015, the CJEU found that with respect to the powers of national supervisory authorities, the European Commission may adopt a decision that a third country ensures an adequate level of protection that is binding on all member states and their organs, including national supervisory authorities. 1 However, a European Commission determination, such as the Commission Decision 5000/250 that first found the Safe Harbor "adequate," does not prevent a national supervisory authority from examining claims lodged by individuals concerning the processing of their personally identifiable information (PII). In fact, "[w]hile the Advocate General (of the CJEU) acknowledges that the national supervisory authorities are legally bound by the Commission decision (on the Safe Harbor)...such a binding effect cannot require complaints to be rejected summarily." 2 Thus, the CJEU found that the Safe Harbor program was inadequate in so far as it allowed for government interference with individual privacy rights, it failed to give individuals violated a means of redress, and it prevented national supervisory authorities from exercising their powers on behalf of their citizens. 3

Although the European Union said it had reached an agreement in principal with the United States on a revised Safe Harbor program for trans-Atlantic data flow by the end of January 2016 – deemed the "Privacy Shield" program – debates on the details continue to the date of this publication. Organizations and scholars were quick to notice that Schrems also put into question mechanisms such as Binding Corporate Rules (BCRs) and standard contractual clauses (SCCs). 4 The national supervisory authorities know this as well. The national supervisor authority of France announced that Facebook would have only three months to fix their various data transfer issues, 5 while the authority in Hamburg Germany announced that it will soon be ready to hand down fines against three unnamed companies for relying on the Safe Harbor. 6

The FTC, White House, and Congress are all apparently working hard to negotiate not only the Privacy Shield program details, but also other assurances that need to be in place. For example, on February 24, 2016, President Obama signed into law what was previously named the "Judicial Redress Act," in an effort to given EU citizens the right to sue the U.S. government for alleged privacy violations. 7

On February 29, the FTC announced more tentative details of the Privacy Shield program, subject to a determination of adequacy from the EU prior to implementation. 8 The documents provided concurrent with the announcement suggests that the Privacy Shield program will likely include the following requirements in its final form: 9

  • Obtain affirmations from organizations that they will follow rules on consent, relevance, proportionality, access, and correction 10 ;
  • Make arbitration available for disputes;
  • Additional information to be provided to data subjects, including a declaration of the organization's participation in the Privacy Shield program, a statement of right of access to PII by data subject, and the identification of the arbitration forum for disputes;
  • Stronger controls on data transfers to third-party data controllers, including assurances that "the recipient will provide the same level of protection as the (EU) Principles";
  • Stronger controls on data transfers to third-party data processors and "agents," including assurances that "the recipient will provide the same level of protection as the (EU) Principles";
  • Obtain assurances from organizations that they will remain responsible for misuse, even if its responsibilities were delegated to other controllers, processors, or "agents";
  • Commitments by organizations to "respond expeditiously" to EU member complaints "through the Department (FTC)";
  • That the FTC "verify self-certification requirements" provided by organizations, including commitments by the organizations to "cooperate with the appropriate EU data protection authorities";
  • More extensive verification of, and follow up on, expired certifications and organizations that have been removed; and
  • Commitment by the FTC to work more closely with European data protection authorities.

In its release, the FTC repeatedly assures the EU that the FTC will vigorously enforce the requirements of the Privacy Shield program. Just as interestingly, there appears to be a "national security" exemption for U.S. intelligence that remains to be discussed. 11

As of Spring 2016, however, the ratification of the Privacy Shield program as announced is in still in question. Despite the announcement of the Privacy Shield, authorities in both Germany and France immediately attempted to prosecute Facebook for alleged privacy violations. 12 Numerous EU-organizations also protested and criticized the Privacy Shield, saying that it is only a slight improvement over the Safe Harbor, and asking the Article 29 Working Party to recommend renegotiations. 13

B. General Data Protection Regulation (GDPR)

In December 2015, the European Commission, European Parliament, and the European Council agreed to replace the 1995 Data Privacy Directive in its entirety with the General Data Protection Regulation (GDPR).14 Set to take effect in 2018, the GDPR should further standardize data protection across all EU member states. The following should be noted about the GDPR.

1.    Privacy-Friendly Design

  • "Privacy by design" as default. 15
  • PII should only be collected for "specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes." 16
  • Generally, processing of data will only be allowed with explicit consent, to perform a contract or legal obligation, to protect the vital interests of the data subject, to perform a task in the public interest, or (in very limited circumstances) "for the purposes of legitimate interests pursued by the controller or by a third party." 17
  • Consent can be revoked at any time and cannot generally be presented as "take it or leave it." 18

2.    Accounts For Emerging Technologies

  • Data subjects have the right to object to "automated profiling" that "produces legal effects concerning him or her." 19
  • Genetic and biometric data are "sensitive personal data," which are subject to stricter rules (i.e., a general prohibition with exceptions). 20
  • Encryption and anonymization are encouraged – as is the use of pseudonyms where possible – as part of good data security practice. 21

3.    Timely Accessibility, Portability, And Erasure

  • Data subjects have very broad rights to access and control data collected regarding them from the controller, regardless of whether the data is collected by the controllers or from third parties. 22
  • Controllers have to provide any information they hold about a data subject free of charge within one month of the request.23
  • Data subjects have the right to control their data through the "right of erasure" and "right of rectification." 24

4.    Tighter Controls On Controller-Processor Relationships

  • Increased obligations on data controllers, including more detailed contractual vendor controls. 25
  • Vendors may not subcontract the service without the consent of the controller.26

5.    New Internal Control Requirements

  • Data Protection Officers (DPOs) are often mandated, and DPOs shall enjoy independence and not be terminated for exercising their duties. 27
  • Increased use of privacy impact assessments. 28

6.    More Forceful Breach Requirements And Enforcement

  • Notification must be provided for any data breach that creates significant risk for the data subjects within 72 hours of discovery. 29
  • Data protection authorities (DPAs) would be empowered to fine organizations up to 4% of their annual revenue.30

As compliance is set to take place in 2018, MSCs would do well to reassess their products, technologies, and compliance for consistency with the GDPR. Compliance with the GDPR is no small undertaking. Insofar as an MSC intends to rely instead on the Privacy Shield program, the organization would do well to remember that it is likely there will be demands by the EU that the Privacy Shield provide for "adequate" protections when compared to the GDPR.

C. The Network Information Security (NIS) Directive

In December 2015, the various EU institutions reached an informal agreement on the general text and concept of the Network Information Security (NIS) Directive. 31 The NIS Directive will require operators of certain "critical infrastructure" sectors to meet certain minimum standards on data security. In addition, the NIS Directive provides specific details on how those operators will need to notify public authorities in the event of a cybersecurity breach.

Thus far, the "critical infrastructure" operators include those in energy, water, transport, health, and banking industries. In addition, certain digital service providers, including cloud services, ecommerce platforms, and search engines, will likely be covered. The current draft speaks of more restrictions on critical infrastructure.

Should the NIS Directive be adopted by the individual EU members, each member will have 21 months to adopt and implement the NIS Directive into law. Members will have an additional six months to apply the framework created in the NIS Directive to identify specific companies that may be covered.

D. Using APEC Cross Border Privacy Rules Program

On March 1, 2016, the day after the Privacy Shield program was announced, Merck became the first U.S.-based company to achieve approval for its BCRs based on the APEC Cross Board Privacy Rules (CBPR) Program. Unlike the EU-based BCRs, the CBPR program does not require the establishment of internal enforcement structures, and is instead enforced through the CBPR arrangement. The CBPR-BCR program is primarily based on the use of a "referential," a pragmatic checklist released by the G29 and APEC countries in March 2014, blessed by the Article 29 Working Party, to assist companies seeking to obtain double certification under Europe's BCRs and APEC's CBPR.32

Merck reported that the whole process took it 15 months from start to finish. And that getting the CBPR approval first, made qualification under the Privacy Shield essentially automatic, in addition to lowering the barrier to entry to obtaining certification for the EU-based BCRs.33 U.S. companies doing business in both the EU and Asia may want to consider APEC's CBPR programs, in terms of how they intend to deal with cross-Atlantic data transfers.

E. The Trans-Pacific Partnership (TPP) Agreement

For those watching how negotiations with the EU can affect U.S. based multi-national corporations, the development of multi-national data flow agreements amongst Asian countries may also be important to ensure future protocol compatibility. Notably, twelve countries surrounding the Pacific signed the Trans-Pacific Partnership (TPP) Agreement (Agreement) on February 4, 2016: the United States, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.34 China was not a signatory. 35

The main goal of the Agreement is to facilitate global trade. From a privacy and electronic commerce perspective, the Agreement allows cross-border data flows and prohibits requirements related to data localization. Each TPP member country is required to "allow the cross-border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business." 36 Since "conduct of the business" is a broad term, the inference is that data flow for any commercial purpose would suffice, meaning that PII can freely flow between corporate entities of TPP members.

Additionally, TPP members are encouraged to develop mechanisms that are compatible with other regimes to promote compatibility of legal approaches to protecting personal information. 37 Chapter 14 of the Agreement now provides that data can now rest and be stored in data centers located in a country outside of the place of business. Previously, some of the TPP member countries, such as Vietnam, had required companies that want to do business in Vietnam to maintain a copy of their data for inspection by local authorities.38 The Agreement now prohibits TPP members from requiring companies located in a TPP country to build data centers in the market countries in which they serve.39 Thus, the Agreement allows easier cross-border data flows for TPP member countries and facilitates a growing digital economy.

Developments amongst members of the APEC and TPP should be monitored diligently by multi-national corporations in the U.S. As data flows become more global, intercompatibility will need to be ensured between U.S.-EU and U.S.-Asia standards.

Footnotes

1 Press Release No. 106.15, Advocate General's Opinion in Case No. C-362/14 (Court of Justice of the European Union Sept. 23, 2015), available at: http://curia.europa.eu/jcms/upload/docs/application/pdf/2015-09/cp150106en.pdf.

2 Id. at p. 2; the Advocate General's opinion was adopted by the CJEU, see Maximilian Schrems v. Data Prot. Comm'n, 2015 E.C.R. I-1-35, CJEU Case No. C-362/14, available at: https://cdt.org/files/2015/10/schrems.pdf.

3 Press Release No. 106.15 at p. 2-3.

4 See e.g., Bracy, EU DPAs Respond to Privacy Shield; BCRs Are a Go, for Now (IAPP Feb. 3, 2016); but see Wugmeister, Digital Privacy: Europeans Threaten to Halt Data to U.S. (Newsweek Feb. 2, 2016) (U.S.-based law firms arguing that national supervisory authorities actually have more limited powers).

5 Grande, Facebook Gets 3 Months to Fix France's Data Transfer Qualms (Law360 Feb. 8, 2016).

6 Meyer, Here Comes The Post-Safe Harbor EU Privacy Crackdown (Fortune Feb. 25, 2016).

7 Freking, Obama Signs Bill Extending Privacy Protections to Allies (AP News Feb. 24, 2016); but see Bender, The Judicial Redress Act: a Path to Nowhere (IAPP Dec. 17, 2015) (criticizing the Judicial Redress Act for failing to provide any redress to the problems with U.S.-government surveillance that was raised by Schrems).

8 Press Release, Statement of FTC Chairwoman Edith Ramirez on EU-U.S. Privacy Shield Framework (FTC Feb. 29, 2016); see also Sayer, Five Things You Need to Know About the EU-U.S. Privacy Shield Agreement (PC World Feb. 29, 2016) (stating draft program is still subject to approval).

9 Package to the European Commission, Commissioner of Justice, from the U.S. Dept. of Commerce, dated Feb. 23, 2016, which includes a package with tentative details on the Privacy Shield program, subject to an adequacy decision, at p. 5-11, available at https://www.commerce.gov/sites/commerce.gov/files/media/files/2016/eu_us_privacy_shield_full_text.pdf.pdf?utm_source=govdelivery

10 Instead of "correction," the words used for the summary initial details are actually "recourse mechanisms." Id. at p. 5. It remains to be seen whether "recourse mechanisms" will be read to include the now infamous EU "right to be forgotten." But see id. at p. 34, Section 8(a)(i)(3) (on "hav[ing] the data corrected, amended, or deleted..." Because this publication is being released before any further clarification has been released, "correction" was selected as the best description of the new tentative requirement.

11 Id. at p. 10.

12 Meyer, Facebook Hit With German Antitrust Investigation Over User Terms (Fortune, Mar. 2, 2016); Lomas , Facebook Ordered to Stop Tracking Non-Users In France (Techcrunch, Feb. 9, 2016).

13 IAPP Asia-Pacific Dashboard Digest: Privacy Groups Want Renegotiation of Privacy Shield (IAPP, Mar. 17, 2016), available at: https://iapp.org/news/a/privacy-groups-want-renegotiation-of-privacy-shield.

14 A copy of the December 15, 2015 draft is available at http://www.statewatch.org/news/2015/dec/eu-council-dp-reg-draft-final-compromise-15039-15.pdf.

15 Id. at Article 23.

16 Id. at Article 5(1)(b); Article 6; see also Article 14.

17 Id. at Article 6(1).

18 Id. at Article 7(1), (3)-(4).

19 Id. at Articles 19-20.

20 Id. at Article 9.

21 Id. at Article 30(1)(a).

22 Id. at Articles 14-15.

23 Id. at Article 12(1)-(4); see also Articles 14-15.

24 Id. at Article 14(1)-(3); Articles 16-17b.

25 Id. at Article 22; Article 26(1).

26 Id. at Article 26(1a)-(2a).

27 Id. at Articles 35 and 38(3).

28 Id. at Article 33.

29 Id. at Articles 31-32.

30 Id. at Article 79(3aa).

31 Press Release, MEPs Close Deal With Council on First Ever EU Rules on Cybersecurity (European Union Dec. 7, 2015), available at http://www.europarl.europa.eu/news/en/news-room/20151207IPR06449/MEPs-close-deal-with-Council-on-first-ever-EU-rules-on-cybersecurity.

32 Carson, European Regulators, FTC Unveil Cross-Border Data Transfer Tool (Mar. 7, 2014).

33 Carson, Merck First Company to Win BCRs Via APEC's CBPRs (IAPP, Mar. 22, 2016).

34 BBC, TPP: What is it and why does it matter? available at: http://www.bbc.com/news/business-32498715.

35 China is in separate negotiations with the U.S., as both are involved with the U.S.-China Business Council (USBC) to complete a bilateral investment treaty. The USBC's Board of Directors issued top priorities for the two countries with a heavy focus on more collaboration on investment, cybersecurity, and intellectual property protection. Lawson, Group Calls For U.S.-China Work on IP, Cybersecurity in 2016 (Law360 Jan. 20, 2016).

36 The Trans Pacific Partnership, art. 14.8(5), Feb. 4, 2016.

37 Id.

38 Brown, Trans-Pacific Partnership Would Promote Cross-Border Data Transfers and Restrict Data Localization (Data Privacy Monitor Nov. 10, 2015), available at: http://www.dataprivacymonitor.com/international-privacy-law/trans-pacific-partnership-would-promote-cross-border-data-transfers-and-restrict-data-localization/. Decree 72, or the "Management, Provision, Use of Internet Services and Information Content Online," was signed by Prime Minister Nguyen Tan Dung on July 15, 2013 prohibited even basic flow of information such as sharing of news stories on various social networks. Therefore, the TPP Agreement is a game changer for countries with stringent internet law policies such as Vietnam.

39 The Trans Pacific Partnership, art. 10, Feb. 4, 2016.

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