Data Points: Privacy & Data Security Blog

On October 6, 2015, the European Union's Court of Justice (the "ECJ") invalidated the E.U. – U.S. Safe Harbor Framework (the “Safe Harbor”) -- a data transfer arrangement upon which thousands of U.S. based companies have relied for legally transferring personal data outside of the European Union to the United States.   In order to better understand the likely impact of the ECJ’s decision, it may be useful to understand the original purpose behind the Safe Harbor.

Background on the Safe Harbor

Prior to the adoption of the Safe Harbor, legally transferring personally identifiable data from the European Union to the United States was, to the say the least, complex.  Under the European Union’s 1995 Data Protection Directive (the “Directive”), transfers of personally identifiable data from the E.U. to countries outside of the E.U. were (subject to a few exceptions) prohibited, unless the destination country ensured an “adequate” level of protection for the transferred data.  Unfortunately for U.S. companies doing business with Europeans, the U.S. was not deemed to have an adequate level of data protection.

In an effort to more easily facilitate the transfer of personal data from the E.U. to the U.S., the U.S. Department of Commerce negotiated the Safe Harbor with the European Commission.  By a decision of the European Commission on July 26, 2000, the Safe Harbor became effective.  In that decision, the EU Commission indicated that U.S. companies complying with the Safe Harbor would be deemed to have adequate protections in place for protecting personal data.

The ECJ Decision Invalidating the Safe Harbor

The ECJ’s ruling invalidating the Safe Harbor sprung from a complaint made by Max Schrems, an Austrian citizen and a Facebook user.  European citizens using Facebook, such as Mr. Schrems, were required to enter into a contract with Facebook Ireland, a subsidiary of the U.S. based Facebook, Inc. (a Safe Harbor participant).  At least some personally identifiable data from European users was transferred from Facebook Ireland to Facebook, Inc.’s servers in the U.S.  Mr. Schrems complained about the U.S. transfers to the Irish Data Protection Commission.  Ultimately, Mr. Schrems’ complaint found its way to the ECJ.

In response to Mr. Schrems’ complaints, the ECJ struck down the Safe Harbor as the ECJ believed the Safe Harbor did not ensure an adequate level of protection for personal data transferred to the U.S.  The ECJ indicated that it reached this decision for the following reasons (among others):

• the EU Commission’s original decision adopting the Safe Harbor did not contain “sufficient findings regarding the measures by which the United States ensures an adequate level of protection [of personal data] . . . by reason of its law or its international commitments”;
• the Safe Harbor enables U.S. law enforcement and legal requirements to interfere “with the fundamental rights of the persons whose personal data is or could be transferred . . . to the United States”; and
• U.S. authorities have been able to access the personal data transferred to the U.S. in a manner that was incompatible for the purposes for which it was transferred.

The ECJ’s Decision: Impact and Responses

The immediate impact of the ECJ decision is less than clear.   It is likely that the data protection authorities in most E.U. member states will take time to analyze the ruling before addressing data transfers that occurred pursuant to the Safe Harbor.  Indeed, the U.K. Information Commissioner’s Office, in response to the ECJ ruling, released a statement specifically noting “that businesses that use Safe Harbor will need to review how . . . data transferred to the U.S. is transferred in line with the law [but we] recognize that it will take . . . time for them to do this”.

U.S. companies that have previously relied upon the Safe Harbor should carefully review their use of data from E.U. member states.  U.S. companies may want to consider one or more of the following actions in connection with their receipt of personal data from the E.U.:

• Stop Receiving Personal Data, or Anonymize the Data -- If the data is not essential for business, a U.S. entity should consider either stopping the flow of such data or putting in place measures to anonymize the data.
• Adopt Binding Corporate Rules for Intracompany Data Transfers – If the U.S. affiliate of a larger global enterprise is receiving data from a European affiliate, the overall enterprise may want to consider putting in place Binding Corporate Rules (“BCRs”). However, BCRs are subject to approval by the E.U. data protection authorities, and they can be time consuming to implement.
• Use Model Contracts – Model Contracts are contractual forms that have been approved for the use of data transfers by either the European Commission or a member state data protection authority. Model Contract forms, while readily available online from the European Commission’s website, are not perfect solutions.  The party receiving the data must comply with the terms of the contract.  Furthermore, in some cases, the use of Model Contracts is subject to the approval of member state data protection authorities.
• Obtain Consent – If consent has been obtained from each impacted data subject, data concerning those data subjects can be transferred outside of the E.U. However, that consent must be informed, freely given and unambiguous.

The E.U. and the U.S. have been engaged for some time in negotiations over an updated data transfer and protection framework.  It is possible that the new framework will address the concerns raised by the ECJ in its opinion. However, that new framework is not yet in place, and it is not clear when it will be formally adopted.  In the meantime, transfers of data from the E.U. to the U.S. may require more careful consideration.