Arnold & Porter Discusses Data Protection in the EU

2017 has started with a bang on the data protection front. The new EU General Data Protection Regulation (GDPR) which is intended to harmonise data protection legislation across the EU, was adopted in April last year and is due to come into force in May 2018. The UK’s data protection regulator (the Information Commissioner’s Office, or ICO) has been consistent in its support for preparation of the GDPR in the UK following the Brexit vote last year. In January this year, we saw the ICO provide an update on the GDPR guidance that it will be publishing for organisations in 2017, and the Article 29 Working Party (the EU data protection representative body, or WP29) adopt an action plan and publish guidance on three key areas of the GDPR. UK Member of Parliament (MP) Matt Hancock (Minister of State for Digital and Culture with responsibility for data protection) has also commented on the GDPR. In addition, we have seen two Communications from the European Commission (EC) relating to data protection, the establishment of a Swiss-US Privacy Shield, and a draft E-Privacy Regulation. Keep reading to find out more!

ICO Update

Two key questions arose in relation to the GDPR following the UK’s vote to leave the EU in June last year: firstly, whether the GDPR would continue to affect UK organisations even if it is not implemented in the UK, in a post-Brexit legal environment; and secondly, whether the UK would seek to implement the GDPR, despite not being legally being obliged to do so. With regard to the first question, it is clear that the GDPR would affect UK organisations under certain circumstances. If a UK company were part of a global organisation that had subsidiaries in various EU countries, clearly those subsidiaries would be subject to the GDPR provisions. Even if there were no subsidiaries in EU countries, a UK company would still fall within the scope of the GDPR if it offered goods or services to, or monitored the behaviour of, any EU citizens. This could be done by operating a website targeted at consumers in France or Germany for example.

In relation to the second question, the ICO said after last year’s referendum result that they would be “speaking to government to present [the ICO’s] view that reform of the UK law remains necessary.” The ICO has maintained that view, issuing a recent blog supporting full adoption of the GDPR in the UK, and an update indicating the scope of the guidance that the ICO plans to provide, as well as steps that organisations should be taking now.

Minister Comments

And what is the UK government saying? In a December 2016 speech in Parliament, MP Matt Hancock stressed that it is important to update the UK data protection regime. He mentioned that “the UK was successful in negotiating a more risk-based approach to the GDPR” and was “successful in negotiating a reduction in some of the red tape and bureaucracy for ordinary businesses” which suggests his support for the GDPR in its final format. Mr Hancock also said “without being able to prejudge the publication of consultations and of legislative plans, I hope I can reassure… the tech industry in the UK that we are doing all we can to ensure that our future data standards are of the very highest quality.” In the answers that Mr Hancock gave to questions on 1 February 2017, he reiterated these points and suggested that a similar agreement to the EU-US Privacy Shield could be entered into by the UK post-Brexit. Although Mr Hancock was careful not to give away the intentions of the UK government, his comments and those of the ICO do suggest that a radical departure from the GDPR provisions in the UK after Brexit is unlikely.

WP29 Guidance

Data Portability

In its guidance, the WP29 states that data portability is the right that individuals have to receive the personal data that they have provided to an organisation, in a “structured, commonly used and machine-readable format” and to transmit that data to another organisation without hindrance. The WP29 gives an example of when this right might be exercised; an individual might want to receive his/her current playlist from a music streaming service to find out how many times he/she listened to specific tracks to decide what music to purchase on another platform. For individuals to have the right of data portability, the processing of their personal data must have taken place based on their consent or a contract to which they are a party. In addition, the processing operations covered must be carried out by automated means (i.e., paper files are not covered) and information about data portability should be provided to individuals before their accounts with organisations are closed.

The guidance further states that organisations will need to provide personal data to relevant individuals who have requested it without undue delay, and in any case within one month of receipt of the request, or three months for complex cases (provided that the individual has been given reasons for the delay within one month of the original request). A fee cannot be charged for providing the personal data, unless requests are highly excessive.

The GDPR does not contain specific recommendations as to the particular form that the requested data should be in, in order to constitute a “structured, commonly used and machine-readable format.” However the guidance notes that the format needs to be “interoperable” i.e., it needs to enable the sharing of information and knowledge between organisations. If data cannot be easily extracted from a file format, for instance, it cannot be considered to be in “machine-readable format.” The WP29 envisages industry and trade associations working together to develop a common set of interoperable standards and formats to be used for data portability.

Data Protection Officers

The WP29 guidance reminds organisations that they need to designate a Data Protection Officer (DPO) if they are (i) public organisations, or (ii) as a core activity, monitor individuals systematically and on a large scale, or process special categories of personal data on a large scale. Such special categories of personal data include information revealing racial or ethnic origin, political opinions, religious beliefs, trade union membership, health, biometric or genetic data, or data concerning an individual’s sex life. Examples of organisations which will need to appoint a DPO are hospitals, which process health data on a large scale, and private security companies, which process personal data through their core surveillance activities.

A DPO is expected to monitor compliance with the GDPR generally and to assist their organisation with carrying out data protection impact assessments. They are not, however, personally responsible for compliance with the GDPR; that responsibility lies with the controller or processor organisation.

Lead Supervisory Authority

Organisations have to identify a lead supervisory authority (the ICO in the UK, or its equivalent in other EU countries) if they carry out the “cross-border processing of personal data.” An organisation that has establishments in two EU countries, and undertakes the processing of personal data in the context of the activities of those establishments, is carrying out cross-border processing of personal data. An organisation also carries out such processing if it only has one establishment in one EU country, carries out processing of personal data in the context of that establishment, and the processing substantially affects, or is likely to substantially affect, individuals in that country and any other EU country. The WP29 guidance points out that the GDPR does not define “substantially” or “affects” but suggests that the dictionary meanings of the words can be used, and the likelihood of substantial effect, as well as actual substantial effect, should be considered. The WP29 gives examples of processing substantially affecting individuals by causing them distress, denying them opportunity, affecting their health or peace of mind or damaging reputation.

The lead supervisory authority has primary responsibility for dealing with a cross-border processing activity, such as when an individual complains about the processing of his/her data. The lead supervisory authority will coordinate any investigation and reach out to supervisory authorities from other countries involved. Organisations should pick their lead supervisory authority from the country where they have their “main establishment” or “single establishment” in the EU. The “main establishment” is where an organisation has its central administration in the EU, unless decisions on the purposes and means of the processing of personal data are taken in another establishment in the EU; in which case, the other establishment is to be taken as the main establishment. It is likely that the location of an organisation’s main establishment would usually be the EU headquarters of an organisation, but the WP29 guidance acknowledges that “there will be borderline and complex cases where it is difficult to identify the main establishment or to determine where decisions about data processing are taken” for example, where there is cross-border processing in the EU, but decisions about that processing are taken exclusively outside of the EU. In such situations, the WP29 suggests that the organisation designate an EU establishment that has sufficient assets and the authority to take decisions on and accept liability for the processing. If there is dispute between supervisory authorities about which should be the lead authority, as a last resort the matter can be referred to the European Data Protection Board (which is to replace the WP29).

Communications from the European Commission

On 10 January 2017, the European Commission (EC) issued two Communications: “Exchanging and Protecting Personal Data in a Globalised World” and “Building a European Data Economy.” These documents are not legislation but are interesting to show the EC’s current approach in these changing areas.

Exchanging and Protecting Personal Data in a Globalised World

In this Communication, the EC recognises that an increasing number of non-EU countries have been adopting new data protection legislation. The EC states that “this offers new opportunities, notably through adequacy findings, to further facilitate data flows while guaranteeing the continued high level of protection of personal data.” Under EU law, an adequacy finding by the EC in respect of a non-EU country signifies that that country has comparable data protection rules to the EU, and can receive personal data from EU countries without the exporting company having to implement any additional safeguards. The EC will be engaging in discussions with Japan and the Republic of Korea, as well as potentially India, some Latin America countries, and other countries close to Europe, about possible EC adequacy findings for those countries.

The EC also discusses how, in certain situations, rather than take a “country-wide approach” to adequacy findings, it could consider “partial” (e.g., EU-US Privacy Shield) or “sector-specific” (e.g., for financial or IT sectors) adequacy findings. The EC explains that these approaches would need to be considered in light of factors such as the exposure of particular sectors to personal data flows from the EU and the constitutional structure of the relevant non-EU country.

In addition, the EC stresses that adequacy decisions are “living” documents that the EC needs to monitor and adapt if levels of protection implemented by the non-EU country change.

Building a European Data Economy

In this Communication, the EC states its objective of creating “a clear and adapted policy and legal framework for the data economy, by removing remaining barriers to the movement of data and addressing legal uncertainties created by new data technologies.” The EC criticizes data location restrictions, through regulations or guidelines, that introduce digital borders between EU countries. According to the EC, any action by a member state that affects data storage or processing “should be guided by a principle of free movement of data within the EU.” This vision is clearly consistent with the adoption of the GDPR and the EU’s Digital Single Market plans, and is likely to persist as the EC widens the original formative “single market” concept to take account of technology and data flows today.

Swiss-US Privacy Shield

On 11 January 2017, the Federal Council of Switzerland announced that there would be a new framework for transferring personal data from Switzerland to the US; the Swiss-US Privacy Shield. As with the EU-US Privacy Shield, the Swiss-US Privacy Shield has been agreed as a replacement of the Swiss-US Safe Harbor framework. The establishment of the new Swiss-US Privacy Shield means that Switzerland will apply similar standards for transfers of personal data to the US as the EU, and organisations which transfer personal data from Switzerland to the US will be able to rely upon it as a legitimate transfer mechanism. The Privacy Shield can be seen as a structural model for how the EU and non-EU countries can seek to harmonise their data protection regimes.

Organisations can sign up to the Swiss-US Privacy Shield with the US Department of Commerce from 12 April 2017. If organisations have already self-certified to the EU-US Privacy Shield, they will be able to add their certification to the Swiss-US Privacy Shield on the Privacy Shield website from 12 April 2017.

The EU-US Privacy Shield has been subject to challenge by two privacy groups, which filed separate actions for its annulment at the Court of Justice of the European Union at the end of last year. Section 14 of a recent executive order (“Enhancing Public Safety in the Interior of the United States”) issued by Donald Trump also appeared to threaten the underlying principles of the Privacy Shield. This has been downplayed by some legal experts, though several tech companies are calling on Trump for clarification and reassurance. In relation to the EU-approved standard contractual clauses, a separate mechanism for transferring personal data outside of the EU, the Irish Data Protection Commissioner has stated that it plans to refer clauses to the Irish High Court and European Court of Justice to determine their legitimacy. It is not yet clear how successful these challenges will be, though clearly this is an area to keep an eye on.

Draft E-Privacy Regulation

On 10 January 2017, the European Commission published a draft E-Privacy Regulation. The new Regulation will govern the protection of personal data in relation to electronic communications, and will sit alongside the GDPR framework. The E-Privacy Regulation is being designed as an update to the E-Privacy Directive (2002/58/EC) and you can read more about its background here. The draft is now subject to discussions between the European Parliament and Council.

There are several key provisions of the draft Regulation, the first one relating to its scope. The draft Regulation extends the scope of the E-Privacy Directive to modern communications service providers, such as WhatsApp, Skype, Gmail, and Facebook Messenger. It also extends the scope to non-EU service providers that provide electronic communications to users in the EU, so it is likely that many organisations may be subject to both the new GDPR and a new E-Privacy Regulation in the future. This is being addressed by the legislators, who are aligning the relevant provisions of the E-Privacy Regulation (such as those relating to consent, fines and scope) with the GDPR.

There are new stricter consent provisions in the draft Regulation, which have been drafted to complement the consent provisions set out in the GDPR. For example, information such as the location and duration of a call, or browsing history, will need to be anonymised by service providers unless users have given specific consent to the retention of that information, or identifiable information is required for certain purposes, such as billing. The draft Regulation also builds in provisions that are aimed at giving more protection to users, for instance, Internet users must be offered simple ways of choosing and varying their levels of privacy through their browser settings. The maximum fine that can be imposed by data protection authorities for the most serious breaches of the E-Privacy Regulation mirrors that of the GDPR: the greater of 20 million Euros or 2% of the worldwide annual turnover of an organisation.

Although the new E-Privacy Regulation may not come into force at the same time as the GDPR (though this is hoped for by the European Commission), its scope is likely to be very wide. Like the GDPR, the new Regulation is likely to have extra-territorial affect and will thus apply to many organisations, irrespective of whether they have establishments in the EU. Its scope will cover most companies providing online communication services or conducting electronic marketing that provide their services to EU citizens, so it is very likely that they will need to adhere to the new E-Privacy Regulation.

What Now?

The key take-away for companies that are or will be outside of the European Union, including the UK and the US is to think about how the GDPR and progressing E-Privacy Regulation could affect them, due to the extra-territorial effect of the legislation. Companies that transfer personal data from Switzerland to the US should also consider whether their US office should self-certify under the Swiss-US Privacy Shield, when they are able to do so from 12 April 2017. We will be monitoring the items mentioned in this advisory, as well as other developments that come into focus on the changing data protection landscape.

This post comes to us from Arnold & Porter Kaye Scholer LLP. It is based on the firm’s advisory, “A Busy Start to the (Data Protection) Year,” dated February 27, 2017, and available here.