Worldwide: Privacy Shield Update: A Recap Of Recent Developments

On April 13, 2016, the Article 29 Working Party (WP29), an influential group of European data protection authorities, issued a non-binding opinion that criticized certain elements of the fledgling Privacy Shield framework. Although the Privacy Shield remains in limbo at this time, a flurry of speculation and Shield-adjacent legal maneuvers have colored the landscape and heightened concerns about its long-term viability.

The Privacy Shield was proposed in early February as a replacement for the EU-U.S. Safe Harbor framework following the Safe Harbor's demise in October 2015. The invalidation of the Safe Harbor left thousands of companies in search of alternatives to meet their cross-border data transfer needs, and introduced new uncertainty regarding the long-term sustainability of other mechanisms such as binding corporate rules and model clauses.

While declaring the Privacy Shield to be a significant improvement over the Safe Harbor framework, the WP29 found that the European Commission's draft adequacy decision concerning the Privacy Shield lacked clarity and was inconsistent. The opinion urged the Commission to clarify the text and to evaluate its provisions in light of the recently approved EU General Data Protection Regulation (GDPR).

Below we provide an overview of the proposed Privacy Shield, including a brief history, a summary of developments since the WP29's opinion was issued in April, and what to expect in the coming weeks and months. 

Background

Pursuant to European law, certain conditions must be met to lawfully transfer European citizens' personal data outside of the EU. Specifically, the Data Protection Directive of 1995 (as well as the forthcoming GDPR) prohibits transfer of EU citizens' personal data outside of the EU unless the recipient country ensures an "adequate" level of protection for the data. The U.S. has never been deemed adequate for these purposes, due in large part to the "patchwork" nature of state and federal privacy and security laws and lack of a comprehensive data protection framework.

In 2000, to address the concerns of companies doing business across the Atlantic, the U.S. Department of Commerce and the European Commission created the Safe Harbor framework, a self-certification mechanism by which a company could lawfully transfer personal data to the U.S. from the EU. Over the years, various constituencies expressed concerns about the actual level of data protection provided by the Safe Harbor; these concerns were amplified in 2013 following revelations regarding the U.S. government's surveillance activities.

In this context, in June 2014, an Austrian student named Max Schrems lodged a complaint with the Irish Data Protection Authority regarding Facebook's transfer of his personal data from its Irish subsidiary to servers located in the United States. This complaint ultimately led to the October 6, 2015 decision by the Court of Justice of the European Union (CJEU), which held that the Safe Harbor framework was invalid, citing flaws in the European Commission's original adequacy opinion that had approved the Safe Harbor.

Following the Schrems decision, the WP29 indicated that it would allow EU and U.S. authorities until the end of January 2016 to come up with a replacement data transfer mechanism before pursuing enforcement actions against companies that had relied on the Safe Harbor. In an effort to move the ball forward in the United States, Congress passed the Judicial Redress Act, which was signed into law on February 24, 2016. The Act extends certain rights to non-U.S. citizens under the Privacy Act of 1974 with respect to unlawful disclosure of their personal information, as well as the right to access and correct U.S. government records about themselves. The Act's passage addressed some of the CJEU's concerns expressed in the Schrems decision regarding the lack of legal recourse for EU citizens whose personal data may be collected by U.S. government agencies, but it generally has been viewed as a first step down a longer road.

Privacy Shield: Key Components

On February 2, 2016, European and U.S. authorities "> announced the proposed Privacy Shield, a highly anticipated "replacement" for the invalidated Safe Harbor framework. As with the Safe Harbor framework, organizations seeking to avail themselves of this data transfer mechanism in order to move personal data from the EU to the U.S. would be required to self-certify their compliance to the U.S. Department of Commerce, and then recertify on an annual basis to maintain their status. Below we have outlined some of the key elements of the Privacy Shield, which is organized according to seven privacy principles and imposes a number of new, and more onerous, obligations on participating entities.

Notice – Specific Privacy Policy Provisions. A self-certifying organization will be required to address the following 13 points in its privacy policy or other notice to individuals regarding its privacy practices:

  • The organization's participation in the Privacy Shield (along with the URL or a link to the posted list of all participating organizations)
  • The types of personal data collected (and any subsidiaries also participating in the Privacy Shield)
  • The organization's commitment to apply the Privacy Shield Principles to all personal data received from the EU
  • The purposes for which the organization collects and uses personal data about individuals
  • How to contact the organization with inquiries or complaints (including relevant establishments in the EU that can respond to such inquiries or complaints)
  • The third parties to which the organization discloses personal data it collects, and the purposes for such disclosure(s)
  • The right of individuals to access their personal data
  • The choices the organization offers individuals for limiting the use and disclosure of their personal data
  • The independent dispute resolution body designated to address complaints and provide appropriate recourse (free of charge) to individuals
  • That the organization is subject to the investigatory and enforcement powers of the FTC, the Department of Transportation, or another authorized statutory body in the U.S.
  • That individuals may, under certain conditions, invoke binding arbitration
  • The requirement to disclose personal data in response to lawful requests by public authorities, including to meet national security or law enforcement requirements
  • The organization's liability in cases of onward transfers to third parties

Choice. An organization must provide a clear, conspicuous, and readily available mechanism to individuals in the EU to opt out of (1) sharing of their personal data with a third party or (2) use of their personal data for a purpose that is materially different than the purpose(s) for which it was originally collected or subsequently authorized by the individual. Additionally, organizations must obtain affirmative express consent before sharing sensitive information (e.g., about health, race, political affiliation, religion) with a third party, or using such information for a purpose not previously disclosed to the individual. Notably, the Privacy Shield requires organizations to treat as "sensitive" any personal data received from a third party where the third party identifies and treats such personal data as sensitive.

Recourse, Enforcement, and Liability. EU and U.S. officials have made clear that violations of the Privacy Shield Principles would be enforced against both private organizations and government entities. In addition to FTC enforcement, the Privacy Shield contemplates a binding arbitration requirement and an ombudsperson to work with U.S. government officials on resolving complaints related to the U.S. government's handling of personal data.

  • The FTC has committed to prioritize alleged Privacy Shield violation referrals from EU Member States. It would also prioritize referrals of noncompliance with self-regulatory guidelines relating to the Privacy Shield Framework from privacy self-regulatory organizations and other independent dispute resolution bodies.
  • Organizations would be required to participate in binding arbitration to resolve alleged violations of the Privacy Shield Principles. A Privacy Shield Panel, which would consist of a pool of 20 arbitrators designated by the U.S. Department of Commerce and the European Commission, would have the authority to impose individual-specific, non-monetary equitable relief (such as access, correction, deletion, or return of an individual's personal data) necessary to remedy the violation.
  • An ombudsperson would be appointed to work closely with appropriate officials from the State Department and other U.S. government agencies to coordinate and ensure appropriate responses to complaints regarding the U.S. government's use of personal data.

An organization found to be in violation of the Privacy Shield Principles could be ejected from the framework, resulting in a number of negative consequences beyond the inability to continue to transfer personal data from the EU. Perhaps most notably, if disqualified from participation in the Privacy Shield framework, an organization would be obligated to return or delete all EU personal data it had received in the U.S. under the Privacy Shield – a requirement which would likely result in significant financial, administrative, and operational burdens on the organization. Additionally, the noncompliant organization would be removed from the publicly available Privacy Shield List, which could harm the company's reputation and potentially provoke breaches of contract where the entity had represented to counterparties that it would maintain its Privacy Shield certification as a condition of a given agreement.

The Privacy Shield may also have significant practical implications for U.S. litigation and discovery. Although there are European data protection laws that restrict the disclosure of European citizens' personal data in discovery, parties in U.S. litigation often argue, when pursuing foreign discovery, that these laws are rarely enforced – even in the face of an actual prosecution, as was the case here. However, if the Privacy Shield is enacted and enforced, U.S. courts may begin to consider the risk of companies' noncompliance with the Privacy Shield when ordering the production of documents that may contain European citizens' personal data, especially if noncompliance leads to another high-profile matter (such as the Christopher X case).

If the Privacy Shield is enacted, EU and U.S. regulators would convene on an annual basis to review the Privacy Shield framework and assess whether the mechanism continues to meet its stated goals.

The Article 29 Working Party's Opinion

The WP29's opinion on the European Commission's adequacy decision concerning the Privacy Shield focused on assessing the commercial aspects of the decision and on the national security and law enforcement guarantees that would allow government access to personal data.

With respect to commercial transfers of personal data, the WP29 is particularly concerned with the lack of clarity surrounding the implementation of a number of the Privacy Shield Principles.  For example:

  • The WP29 has called for greater clarity concerning the rights of individuals to correct or delete personal data where it is inaccurate or collected in violation of the Principles. It also notes that the Privacy Shield framework does not state specifically at what point an organization must provide notice to an individual. The WP29 highlights situations in which a U.S. organization does not directly collect data from the EU data subject, and suggests that notice should be given at the point the data is recorded by the member organization.
  • The WP29 would like to see specifics regarding how and when an individual will be able to opt out of collection of personal data, and more clarity on the circumstances under which an organization's new use of personal data would be considered "materially different" from existing uses.
  • Onward transfers. The WP29 has expressed concern about onward transfers of personal data from a Privacy Shield-certified organization in the U.S. to a recipient entity in a third country. The WP29 recommends that organizations engaging in onward transfers should "be obliged to assess the mandatory requirements of the third country's national legislation applicable to the data importer prior to the transfer." If the organization finds a "risk of substantial adverse effect on the guarantees, obligations, and level of protection provided by the Privacy Shield," the WP29 calls for requiring the importing organization to promptly notify the EU data controller before carrying out the onward transfer. The WP29 also stated that if the EU data controller knows of an onward transfer to a third party outside of the U.S. before the transfer to the U.S. occurs, the transfer should be considered a direct transfer from the EU to the third country, and the EU Data Protection Directive, rather than the Privacy Shield Principles, should apply. Additionally, the WP29 has called for clarity on onward transfers to data processors (agents), "especially regarding their scope, the limitation of their purpose, and the guarantees" applied to such transfers.
  • Data integrity and purpose limitation. As drafted, the Privacy Shield limits transfer of data to that which is "relevant" to the processing at stake. The WP29 calls for limiting the processing of data to that which is necessary for the processing. It also calls for greater harmony between the Principles, noting, for example, that the Choice principle states that personal data cannot be processed in a way that is "materially different" from the purpose(s) for which it was originally collected or subsequently authorized, while the Purpose Limitation principle limits the transfer of data to that which is "relevant" for the purposes of processing. The WP29 opinion recommends making explicit that an organization "shall not be authorized to process data for a purpose materially different where this purpose is incompatible according to the Purpose Limitation principle." In other words, it should be made clear that the Choice principle is not an exemption to the Purpose Limitation principle.

With respect to the public security provisions in the Privacy Shield (that would allow for government/law enforcement access to personal data), the WP29 has expressed concern that the Privacy Shield does not prevent "massive and indiscriminate collection of personal data originating from the EU." The WP29 also is concerned that the powers of the proposed ombudsperson are not well defined, and the position is "not sufficiently independent and is not vested with adequate powers to effectively exercise its duty and does not guarantee a satisfactory remedy in case of disagreement."

The WP29 has called on the European Commission to address these points and clarify positions in its adequacy decision, specifically recommending that the Commission (1) create a glossary of terms with clear definitions to make sure key data protection provisions are applied consistently, (2) review the decision in light of the forthcoming GDPR, and (3) ensure that the proposed annual joint review of the Privacy Shield actually does occur.

Post-WP29 Opinion

Since the WP29 issued its opinion on the adequacy of the Privacy Shield, stakeholders in both the U.S. and EU have weighed in, expressing a variety of concerns about the path forward. In addition, a recent change by the U.S. Supreme Court to the Federal Rules of Criminal Procedure may further muddy the waters for European authorities wary of law enforcement access to personal data.

  • U.S. regulators. While recognizing the importance of the WP29's opinion, U.S. officials have signaled that they do not want to reopen negotiations on the substance of the Privacy Shield. Stefan Selig, U.S. Undersecretary of Commerce for International Trade, expressed that U.S. officials are "very cautious about not upsetting what was a delicate balance that was achieved when we negotiated the original text."
  • European Parliament Members (MEPs). Since the European Commission published its text of the Privacy Shield agreement, a number of MEPs have argued that the European Parliament should draft a resolution on the Privacy Shield and hold a vote. Although any such resolution would not be binding, it has been reported that many MEPs want to voice their concerns about the Privacy Shield and urge the European Commission to make changes before it becomes official. A spokesperson indicated that a group of MEPs will move to vote on a Privacy Shield resolution during a meeting scheduled for the end of May, but that may come after the Shield has been formally approved.
  • UK regulators. Acknowledging the WP29's many questions about the Privacy Shield, outgoing UK Information Commissioner Christopher Graham indicated at a recent conference that he believes their questions are reasonable, and he expects the European Court of Justice to ask questions as well. Graham urged U.S. corporations to "encourage the U.S. authorities to get answers to those questions so we can all move on safely."
  • U.S. business community. Several U.S. business associations criticized the WP29's opinion, believing it will lead to a delay in the enactment of the Privacy Shield and continue a "prolonged climate of regulatory uncertainty," according to Information Technology & Innovation Foundation Vice President Daniel Castro. And though Microsoft has indicated its support for the Privacy Shield, a number of other businesses are said to be "waiting for proof the Privacy Shield is solid."

In addition, the U.S. Supreme Court's recent changes to the Federal Rules of Criminal Procedure could hinder approval of the Privacy Shield. Under the newly amended rules, which were published on April 28, 2016, and will take effect on December 1, 2016, federal judges may issue warrants to federal law enforcement agencies to remotely search computers of unknown location if the whereabouts of the media or information at issue has been "concealed through technological means." This is seen by many as a significant change, as federal judges have been reluctant to issue search warrants on computers outside their jurisdiction. Given that European authorities are already sensitive to U.S. government surveillance and data collection activities, they may well interpret this change to the federal rules as posing yet another potential risk to European citizens' privacy.

Next Steps

As the WP29's opinion is non-binding, the European Commission may finalize the Privacy Shield without making changes, or it may revise its adequacy decision to address concerns expressed in the opinion. The next step in the process is obtaining approval for the Privacy Shield from the Article 31 Committee, which is composed of representatives of each of the EU member states and whose opinion has a binding effect. Following the Article 31 Committee's opinion, the Commission's adequacy decision must be formally adopted by the College of Commissioners. Notwithstanding the WP29's opinion, various parties have expressed concerns about altering the Privacy Shield framework given that it has already been heavily negotiated. The Commission has indicated that it intends to take the WP29's opinion into account when reworking its adequacy decision. Although it remains to be seen how significantly the Privacy Shield will be altered before it is finalized, most scholars and practitioners agree that it is likely to be subject to some sort of legal challenge almost immediately upon adoption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.