Europe’s Highest Court Strikes Down Privacy Shield

The agreement that has been allowing US companies to transfer the personal data of EU residents to the US was found to be invalid under EU law. The EU’s highest court seem to indicate standard contractual clauses, a frequently used means to transfer data, may be acceptable.

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In the second major ruling from the European Union (EU) this week, earlier today, its highest court invalidated the agreement that has allowed multinational corporations and others to transfer the personal data of EU citizens to the United States (US) for commercial purposes since 2016. The court did not, however, find illegal standard contractual clauses, the means by which many such transfers are occurring. This is the second case an Austrian privacy activist has brought, alleging that Facebook was transferring his personal data into the US in violation of European law because US law, especially surveillance programs, resulted in less protection and fewer rights. The first case resulted in the previous transfer agreement being found illegal, and now this case has resulted in much the same outcome. The import of this ruling is not immediately clear.

Maximillian Schrems filed a complaint against Facebook with the Data Protection Commission (DPC) in 2013, alleging that the company’s transfer of his personal data violated his rights under EU law because of the mass US surveillance revealed by former National Security Agency (NSA) contractor Edward Snowden. Ultimately, this case resulted in a 2015 Court of Justice of the European Union (CJEU) ruling that invalidated the Safe Harbor agreement under which the personal data of EU residents was transferred to the US by commercial concerns. The EU and US executed a follow on agreement, the EU-US Privacy Shield, that was designed to address some of the problems the CJEU turned up, and the US passed a law, the “Judicial Redress Act of 2015” (P.L. 114-126), to provide EU citizens a way to exercise their EU rights in US courts via the “Privacy Act of 1974.”

However, Schrems continued and soon sought to challenge the legality of the European Commission’s signing off on the Privacy Shield agreement, the adequacy decision issued in 2016, and also the use of standard contractual clauses (SCC) by companies for the transfer of personal data to the US. The European Data Protection Board (EDPB) explained in a recent decision on Denmark’s SCC that

• According to Article 28(3) General Data Protection Regulation (GDPR), the processing by a data processor shall be governed by a contract or other legal act under Union or Member State law that is binding on the processor with regard to the controller, setting out a set of specific aspects to regulate the contractual relationship between the parties. These include the subject-matter and duration of the processing, its nature and purpose, the type of personal data and categories of data subjects, among others.
• Under Article 28(6) GDPR, without prejudice to an individual contract between the data controller and the data processor, the contract or the other legal act referred in paragraphs (3) and (4) of Article 28 GDPR may be based, wholly or in part on SCCs.

In a summary of its decision, the CJEU explained

The GDPR provides that the transfer of such data to a third country may, in principle, take place only if the third country in question ensures an adequate level of data protection. According to the GDPR, the Commission may find that a third country ensures, by reason of its domestic law or its international commitments, an adequate level of protection. In the absence of an adequacy decision, such transfer may take place only if the personal data exporter established in the EU has provided appropriate safeguards, which may arise, in particular, from standard data protection clauses adopted by the Commission, and if data subjects have enforceable rights and effective legal remedies. Furthermore, the GDPR details the conditions under which such a transfer may take place in the absence of an adequacy decision or appropriate safeguards.

The CJEU found

• Regarding the level of protection required in respect of such a transfer, the Court holds that the requirements laid down for such purposes by the GDPR concerning appropriate safeguards, enforceable rights and effective legal remedies must be interpreted as meaning that data subjects whose personal data are transferred to a third country pursuant to standard data protection clauses must be afforded a level of protection essentially equivalent to that guaranteed within the EU by the GDPR, read in the light of the Charter. In those circumstances, the Court specifies that the assessment of that level of protection must take into consideration both the contractual clauses agreed between the data exporter established in the EU and the recipient of the transfer established in the third country concerned and, as regards any access by the public authorities of that third country to the data transferred, the relevant aspects of the legal system of that third country.
• Regarding the supervisory authorities’ obligations in connection with such a transfer, the Court holds that, unless there is a valid Commission adequacy decision, those competent supervisory authorities are required to suspend or prohibit a transfer of personal data to a third country where they take the view, in the light of all the circumstances of that transfer, that the standard data protection clauses are not or cannot be complied with in that country and that the protection of the data transferred that is required by EU law cannot be ensured by other means, where the data exporter established in the EU has not itself suspended or put an end to such a transfer.

The CJEU stated “the limitations on the protection of personal data arising from the domestic law of the US on the access and use by US public authorities of such data transferred from the EU to that third country, which the Commission assessed in [its 2016 adequacy decision], are not circumscribed in a way that satisfies requirements that are essentially equivalent to those required under EU law, by the principle of proportionality, in so far as the surveillance programmes based on those provisions are not limited to what is strictly necessary.”

The CJEU found the process put in place by the US government to handle complaints inadequate. The 2016 Privacy Shield resulted in the creation of an Ombudsman post that EU citizens could submit their complaints. This position is currently held by Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach.

The CJEU stated “the Ombudsperson mechanism referred to in that decision does  not  provide  data  subjects with any  cause  of  action  before  a  body  which  offers guarantees substantially equivalent to those required by EU law, such as to ensure both the independence  of  the Ombudsperson  provided  for  by  that  mechanism  and the  existence  of rules  empowering  the  Ombudsperson  to  adopt  decisions  that  are  binding  on  the US intelligence services.”

The decision on SCCs is more ambiguous as it is not entirely clear the circumstances under which they can be used. In its decision, the CJEU made clear that SCCs are not necessarily legal under EU law:

although there are situations in which, depending on the law and practices in force in the third country concerned, the recipient of such a transfer is in a position to guarantee the necessary protection of the data solely on the basis of standard data protection clauses, there are others in which the content of those standard clauses might not constitute a sufficient means of ensuring, in practice, the effective protection of personal data transferred to the third country concerned. That is the case, in particular, where the law of that third country allows its public authorities to interfere with the rights of the data subjects to which that data relates.

Reaction from the parties was mixed, particularly on what the CJEU’s ruling means for SCCs even though there was agreement that the Privacy Shield will soon no longer govern data transfers from the EU to the US.

The DPC issued a statement in which it asserted

Today’s judgment provides just that, firmly endorsing the substance of the concerns expressed by the DPC (and by the Irish High Court) to the effect that EU citizens do not enjoy the level of protection demanded by EU law when their data is transferred to the United States. In that regard, while the judgment most obviously captures Facebook’s transfers of data relating to Mr Schrems, it is of course the case that its scope extends far beyond that, addressing the position of EU citizens generally.

The DPC added

So, while in terms of the points of principle in play, the Court has endorsed the DPC’s position, it has also ruled that the SCCs transfer mechanism used to transfer data to countries worldwide is, in principle, valid, although it is clear that, in practice, the application of the SCCs transfer mechanism to transfers of personal data to the United States is now questionable. This is an issue that will require further and careful examination, not least because assessments will need to be made on a case by case basis.

At a press conference, EC Vice-President Věra Jourová claimed the “CJEU declared the Privacy Shield decision invalid, but also confirmed that the standard contractual clauses remain a valid tool for the transfer of personal data to processors established in third countries.” She asserted “[t]his means that the transatlantic data flows can continue, based on the broad toolbox for international transfers provided by the GDPR, for instance binding corporate rules or SCCs.” Jourová contended with regard to next steps, “[w]e are not starting from scratch…[and] [o]n the contrary, the Commission has already been working intensively to ensure that this toolbox is fit for purpose, including the modernisation of the Standard Contractual Clauses.” Jourová stated “we will be working closely with our American counterparts, based on today’s ruling.”

European Commissioner for Justice Didier Reynders stated

• First, I welcome the fact that the Court confirmed the validity of our Decision on SCCs.
  • We have been working already for some time on modernising these clauses and ensuring that our toolbox for international data transfers is fit for purpose.
  • Standard Contractual Clauses are in fact the most used tool for international transfers of personal data and we wanted to ensure they can be used by businesses and fully in line with EU law.
  • We are now advanced with this work and we will of course take into account the requirements of judgement.
  • We will work with the European Data Protection Board, as well as the 27 EU Member States. It will be very important to start the process to have a formal approval to modernise the Standard Contractual Clauses as soon as possible. We have been in an ongoing process about such a modernisation for some time, but with an attention to the different elements of the decision of the Court today.
• My second point: The Court has invalidated the Privacy Shield. We have to study the judgement in detail and carefully assess the consequences of this invalidation.

Reynders stated that “[i]n the meantime, transatlantic data flows between companies can continue using other mechanisms for international transfers of personal data available under the GDPR.”

In a statement, US Secretary of Commerce Wilbur Ross

While the Department of Commerce is deeply disappointed that the court appears to have invalidated the European Commission’s adequacy decision underlying the EU-U.S. Privacy Shield, we are still studying the decision to fully understand its practical impacts.

Ross continued

We have been and will remain in close contact with the European Commission and European Data Protection Board on this matter and hope to be able to limit the negative consequences to the $7.1 trillion transatlantic economic relationship that is so vital to our respective citizens, companies, and governments. Data flows are essential not just to tech companies—but to businesses of all sizes in every sector. As our economies continue their post-COVID-19 recovery, it is critical that companies—including the 5,300+ current Privacy Shield participants—be able to transfer data without interruption, consistent with the strong protections offered by Privacy Shield.

The Department of Commerce stated it “will continue to administer the Privacy Shield program, including processing submissions for self-certification and re-certification to the Privacy Shield Frameworks and maintaining the Privacy Shield List.” The agency added “[t]oday’s decision does not relieve participating organizations of their Privacy Shield obligations.”

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