The European Court of Justice (ECJ) followed the core of the Opinion of the Advocate General (AG) (see our Privacy Minute dated October 3, 2015) in Schrems v. Data Protection Commissioner (Case No. C-362/14).

Summary

In sum, the ECJ held that:

1. Member State Data Protection Authorities (DPA) must be allowed to:
   • examine complaints from individuals regarding the treatment of their personal information by other countries;
   • bring cases to court to question the validity of adequacy decisions; and
   • suspend the transfer of personal information to other countries when they believe it is appropriate.
2. The Safe Harbor Decision is invalid because:
   • US companies may provide information to the US government to protect national security, public interest or law enforcement requirements;
   • The US does not provide European individuals with the ability to obtain judicial redress in the US; and
   • The European Commission overstepped its authority by limiting the bases on which DPAs could suspend transfers to the US.

Implications:

This decision opens the door for every DPA to evaluate whether other countries outside the EU provide adequate protection for personal information. The Standard Contractual Clauses (SCCs) specifically give the DPAs the authority to prohibit or suspend transfers to other countries when the DPA determines that the laws of the other country are insufficient to protect privacy. Similarly, the adequacy decisions for Switzerland, and Canada and Argentina all provide authority for the DPAs to suspend transfers to these countries. Thus, the ultimate effect of the ECJ decision is to remove certainty and disrupt harmonization across the European Union and allow each DPA to decide for itself what cross-border transfers are permissible.

Moreover, because the invalidation of the Safe Harbor Decision was based, at its core, on a finding that the US does not provide adequate protection for personal information, that same logic can be applied to every other adequacy mechanism such as Binding Corporate Rules (BCRs) and the SCCs. Thus, a second result of the decision is that none of the existing adequacy mechanisms is a safe bet at the moment because the DPAs now have authority to independently determine if the recipient country, such as India, Brazil, China or the U.S., provides appropriate security (independent of the adequacy mechanism).

This decision demands a political solution that addresses the following points:

• The EU and the US must agree on what protections will be sufficient to protect personal information. It is worth noting that on September 8, 2015, the EC and the U.S. agreed on privacy safeguards to govern the exchange of personal information in the context of cooperation between law enforcement agencies. If the safeguards that the U.S. and the EC are willing to implement are adequate in the context of direct sharing of personal information between law enforcement authorities, surely those safeguards should also be adequate when U.S. companies transfer data to law enforcement. By not agreeing to these safeguards at the appropriate governmental level, companies are forced to either violate the European data protection rules and share the personal information as lawfully ordered by U.S. authorities, or they can refuse to share the information and be at risk of penalties for not responding to a lawful request from the U.S. government. This type of catch 22 situation will not be solved under the draft Data Protection Regulation. The issue will only be exacerbated as violations of the European privacy rules will carry the risk of a fine of 2% of a company’s global revenues.
• A consensus must be reached within Europe regarding whether harmonization is a priority and how important having a single market for the sharing of data will be.

Practical Implications for Companies

Companies have only a series of bad choices before them:

• They can take steps to immediately substitute another adequacy mechanism for the Safe Harbor such as BCRs or SCCs. This, however, will leave them entirely vulnerable to any DPA taking the position that the recipient country does not provide adequate protection and thus suspending or prohibiting the transfer based on those other mechanisms.
• Companies could state that they will not allow any government access to personal information received from Europe and then potentially place themselves at risk of ignoring a valid government request such as a subpoena or court order.
• Companies could elect to seek consent from all individuals whose information is collected in Europe, which in many circumstances is expensive, difficult and impractical (and is often a problem for employee data).

In a press conference, the European Commission stated that it perceives the ECJ’s ruling as confirming the Commission’s approach to the renegotiation of the Safe Harbor and that, in the meantime, transatlantic data flows can continue using other mechanisms available or exceptions provided for under EU law (e.g., performance of a contract, public interest, consent). The Commission intends to work closely with national DPAs and will issue “clear guidance” on how to deal with data transfer requests to the US in light of the ruling, to avoid a patchwork of contradictory decisions. While reiterating the importance of protecting personal data, the Commission set as a priority to ensure that data flows can continue, as they are the “backbone” of the EU economy.

Just as with the whistleblowing hotlines a few years ago, the ECJ opinion has brought into clear view the conflict of laws between Europe and the US. Companies may spend a tremendous amount of time and money in the next few weeks seeking an alternative which just does not exist.

Waiting to see how this settles in the next few weeks may be the wisest course of action.

The full and original memorandum was published by Morrison & Foerster on October 7, 2015 and is available here.