Data Transfer Pact Between U.S. and Europe Is Ruled Invalid

Data Transfer Pact Between U.S. and Europe Is Ruled Invalid
By MARK SCOTT OCT. 6, 2015

Europe’s highest court on Tuesday struck down an international agreement that had allowed companies to move people’s digital data between the European Union and the United States.

The ruling, by the European Court of Justice, could make it more difficult for global technology giants — including the likes of Amazon and Apple, Google and Facebook — to collect and mine online information from their millions of users in the 28-member European Union.

The court declared the data-transfer agreement, which is known as Safe Harbor, immediately invalid.

Although most big multinational companies and their lawyers have hammered out side agreements with the European Union that should allow them to continue moving data across borders for now, the court’s ruling could hold significant implications down the road.

It will empower data-privacy regulators in each of the bloc’s nations to evaluate how data is moved from their countries to the United States, and it will permit national authorities to impose tougher restrictions on data transfers, if they decide to.

The biggest American tech companies face intensifying scrutiny by European regulators, with — pressure that could potentially curb their sizable profits in the region and affect how they operate around the world.

Europe’s privacy watchdogs remain divided over how to police American tech companies. France and Germany, where companies like Facebook and Google have huge numbers of users and have already been subject to other privacy rulings, are among the countries that have sought more aggressive protections for their citizens’ personal data. Britain and Ireland, among others, have been supportive of Safe Harbor, and many large American tech companies have set up overseas headquarters in Ireland.

The European Court of Justice is the highest legal authority in the European Union, and its decision cannot be appealed.

At issue is the sort of personal data that people create when they post something on Facebook or other social media; when they do web searches on Google; or when they order products or buy movies from Amazon or Apple. Such data is valuable to companies, which use it in a broad range of ways, including tailoring advertisements to individuals and promoting products or services based on users’ online activities.

Efforts to block the movement of such data across national borders could not only impose technical complexities on technology companies but could also require those companies to rethink the ways they make money in some parts of Europe.

The United States government had lobbied aggressively in Brussels in recent months to keep the Safe Harbor agreement in place.

The data-transfer rules do not only apply solely to tech companies. They will affect any organization with international operations, such as when a company has employees in more than one region and needs to transfer payroll information or allow workers to manage their employee benefits online.

“This is extremely bad news for E.U.-U.S. trade,” said Richard Cumbley, a tech lawyer at Linklaters in London. “Thousands of U.S. businesses rely on the Safe Harbor as a means of moving information. Without Safe Harbor, they will be scrambling to put replacement measures in place.”

In its ruling, the court said that the Safe Harbor agreement was flawed because it allowed American government authorities to gain routine access to Europeans’ online information. Such access infringes on Europeans’ rights to privacy established under the region’s tough data protection rules, the court said.

“Legislation permitting the public authorities to have access on a generalized basis to the content of electronic communications must be regarded as compromising the essence of the fundamental right to respect for private life,” the European Court of Justice said in a statement on Tuesday.

The European Commission, the executive arm of the European Union that will be charged with carrying out the ruling, said it would hold a news conference in Brussels on Tuesday.

After the European court made its ruling, several technology executives said they were checking with their companies’ legal teams to ensure users’ data could still be transferred outside the bloc, based on the side agreements already in place.

Facebook said on Tuesday that it was one of thousands of companies that relied heavily on the ability to share data between its European and American operations.

“It is imperative that E.U. and U.S. governments ensure that they continue to provide reliable methods for lawful data transfers and resolve any issues relating to national security,” Sally Aldous, a Facebook spokeswoman, said in a statement.

The Safe Harbor data-sharing agreement has been in place since 2000, enabling American tech companies to compile data generated by their European clients in web searches, social media posts and other online activities.

Under the deal, more than 4,000 European and American companies have been expected to treat the information moved outside the European Union with the same privacy protections the data had inside the region.

But European privacy campaigners have contended that American rules do not offer the same data protections to individuals.

In its ruling, the European court noted that the region’s 500 million citizens did not have the right to bring legal cases in United States courts if they believed their privacy had been infringed by American companies or by the United States government. A bill to provide this legal recourse is being debated in Congress, though analysts said it was unlikely to become law before the American elections next year.

The court said on Tuesday that national data protection regulators could limit data-sharing activities if they believed their citizens’ data could be used in ways not guaranteed under European law, the court said.

Big companies like Google and Facebook might then have to store the information solely within their European operations. Those two companies already operate data centers in Europe. But smaller businesses on both sides of the Atlantic might have more trouble complying with the court order.

The ruling was foreshadowed two weeks ago, when an adviser to the court called the data pact insufficient. In anticipation of the ruling, many companies tasked teams of lawyers with figuring out how to continue their operations largely unimpeded. For large tech companies, other data transfer methods, including internal company agreements and clauses inserted into terms and conditions of service, could allow them to continue moving data to the United States.

The implications of the ruling remain unclear. Some privacy lawyers said that the court’s judgment could give national privacy watchdogs greater say over who has access to their citizens’ data and to where that information can be sent. A number of European data protection authorities, for example, have already started their own investigations into whether Facebook’s new terms and conditions violate national data protection rules. Privacy experts say such ad hoc investigations could become more frequent.

“Companies may not be able to move people’s data until domestic data protection authorities give their approval,” said Marc Dautlich, a privacy lawyer at Pinsent Masons in London. “In some of Europe’s 28 countries, that is not going to be easy.”

Smaller companies, though — with fewer legal resources to comply with Europe’s tough privacy rules — may not be able to respond quickly to the decision.

The United States and the European Union have worked for roughly two years on a new Safe Harbor agreement. The court’s ruling now puts pressure on negotiators to complete an agreement.

Any new deal would be expected to give Europeans greater say over how their online information is collected, transferred and managed by tech companies. But the talks have stalled over what type of access to European data American intelligence agencies should be given, according to several people with direct knowledge of the matter, who spoke on the condition of anonymity.

Sophie Coremans, a spokeswoman for the United States mission to the European Union, declined to comment on the court’s ruling. The United States Commerce Department is expected to issue a response later on Tuesday.

DigitalEurope, a trade body that represents many American tech companies, said on Tuesday that it was disappointed by the court’s decision, which the group said might harm consumers and companies by limiting how they gain access to online services.

“We urgently call on the European Commission and the United States government to conclude their long-running negotiations to provide a new Safe Harbor agreement as soon as possible,” said Peter Olson, DigitalEurope’s president.

Before the court’s ruling, the United States mission to the European Union had criticized proposals to invalidate the trans-Atlantic data agreement, saying that it would jeopardize Europe’s business and diplomatic relations with other countries, including the United States.

The lengthy negotiations highlighted the different approaches to online data protection by the United States, where privacy is viewed as a consumer protection issue, and Europe, where it is almost on a par with such fundamental rights as freedom of expression.

Those differences became more pronounced after Edward J. Snowden, a former contractor for the National Security Agency, revealed how American and British intelligence agencies had seemingly unfettered access to people’s online activities.

“The United States safe harbor scheme thus enables interference, by United States public authorities, with the fundamental rights of persons,” the judges said in a statement on Tuesday, referring to access to European data by American intelligence agencies.

The case reviewed by the European Court of Justice related to a complaint brought by Max Schrems, a 27-year-old Austrian graduate student, who argued that Europeans’ online data was misused when Facebook was said to have cooperated with the N.S.A.’s Prism program.

That program is reported to have given the American agency significant access to data collected by several American tech companies, including Facebook and Google.

Mr. Snowden on Tuesday, after the court ruling, posted a message on Twitter praising Mr. Schrems: ‘‘Congratulations, @maxschrems. You’ve changed the world for the better.’’

Mr. Schrems, who is pursuing a separate civil class-action lawsuit against Facebook in an Austrian court, said the N.S.A.’s access to information about Facebook’s users in Europe broke the region’s privacy rules. He has also argued that the data-sharing agreement between Europe and the United States does not give Europeans sufficient recourse if their data is misused by companies or national governments.

Facebook denies that the United States government had unlimited access to its users’ data.

“This judgment draws a clear line,” Mr. Schrems said in a statement released on Tuesday. “It clarifies that mass surveillance violates our fundamental rights.”

“Governments and businesses cannot simply ignore our fundamental right to privacy,” he continued, “but must abide by the law and enforce it.”


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