Planned EU Data Protection Reform โ€” Effect on German and International Businesses

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The EU data protection regime is subject to comprehensive reform plans aimed at strengthening individuals' rights and creating uniformity on data protection rules in all EU member states.1 On January 25, 2012, the EU Commission published drafts of two documents that are the main pillars of the reform: (i) a Regulation "on the protection of individuals with regard to the processing of personal data and on the free movement of such data"2 ("Regulation") and (ii) a Directive "on the processing of certain criminal data by competent authorities"3  ("Directive on Processing Criminal Data by Authorities").  

The reform will have a significant effect on the daily business of any company located within the EU or doing business with EU companies or EU citizens. This Alert summarizes some of the most important new rules suggested by the EU Commission:

1. Aim of the Reform: Uniform rules on data protection in all EU Member States.

2. Key principles remain unchanged; new principles are introduced.

3. EU data protection laws also apply to non-EU/EEA companies.

4. Attribution of data to a data subject must be assessed case by case.

5. Special protection of children's rights.

6. Strong focus on transparency of data processing and the right to be forgotten.

7. Sensitive data includes data on criminal convictions and genetic data.

8. Supervisory authorities' position is strengthened; data protection officer only for companies with more than 250 employees.

9. General notification requirement abandoned.

10. Transfer of personal data to third countries slightly simplified.

11. Sanctions: Violations get more expensive.

12. Scope of the Directive on Processing Criminal Data by Authorities.

13. Effective date of the reform not before spring 2015.

 

1. Aim of the Reform: Uniform rules on data protection in all EU Member States. 
The Regulation will be binding and directly applicable in all EU Member States. No implementation of the Regulation into national law is required by the EU Member States. The Data Protection Directive 95/46/EC and its implementing national data protection laws, such as the German Federal Data Protection Act, will be replaced. This approach simplifies compliance with EU data privacy laws for multijurisdictional companies. They generally will have to comply with one set of data protection rules in all EU Member States. 
EU Member States will retain their national legislative power only in certain fields of data protection, such as protection of employee data. They also will have the right to restrict certain provisions of the Regulation in case of important national interests. 

The Directive on Processing Criminal Data by Authorities, on the other hand, will have to be implemented by each Member State in the form of a national law. 

2. Key principles remain unchanged; new principles are introduced. 
In addition to adhering to the known basic principles of data protection (e.g., principles of data economy, legality of data processing, controller as the responsible entity, processor as the "long arm" of the controller, information duties or rules on adequacy of level of data protection when transferring data outside the EU/EEA), the Regulation also introduces new principles like transparency (including the right to be forgotten (Art. 14  et seq.)), the right to object (Art. 19), special protection of children's rights (Art. 8) and amended rules for data transfer to third countries (Art. 40 et seq.).

3. EU data protection laws also apply to non-EU/EEA companies. 
The Regulation will apply to companies established within the territory of the EU and to companies located outside the EU if and to the extent they offer goods or services to data subjects in the EU or monitor their behavior (Art. 3). Non-EU companies addressing data subjects residing in the EU through the Internet may, thus, be subject to the Regulation. Such companies will also be required to designate a representative in the EU who acts as contact person for the EU data protection authorities (Art. 25). 

4. Attribution of data to a data subject must be assessed case by case.
All data relating to a data subject are personal data (Art. 4 (3)) under the Regulation. However, a "data subject" is defined either as an identified natural person or a natural person who can be identified directly or indirectly by means reasonably likely to be used by the controller. This means that certain "pseudonymized" data that falls under the scope of the EU data protection rules today may not be subject to the Regulation. For example, the IP address will only be considered personal data in certain circumstances (see Recital 24).

5. Special protection of children's rights. 
Interests of a child shall have specific weight whenever its data is processed (Art. 6 (1) et seq.). Offering "Internet society services" directly to children under the age of 13 will only be permitted on the basis of their parent's consent (Art. 8 (1)). Companies are required to implement codes of conduct that confirm the proper application of the rules on the protection of the rights of children (Art. 38 (1) e).

6. Strong focus on transparency of data processing and the right to be forgotten.
The Regulation introduces extended information rights of the data subjects, a right to obtain the data stored in a commonly used data format (to enable the data subject to, for example, transfer his/her data to another social media platform) and the individual's right to erasure and "to be forgotten" (Art. 17). Erasure shall be carried out with undue delay. In case the personal data to be erased has been made public by the data controller (e.g., through the Internet), the data controller shall take all reasonable steps to inform third parties that are processing such data to delete these data and to remove links. This is less than what had been expected: By requiring the data controller to use only all "reasonable" steps, the EU Commission acknowledges that data controllers actually do not have full control over personal data published in the Internet. 

Another aspect of the extended transparency are duties to report data breaches to the supervisory authority within 24 hours irrespective of the intensity of the breach or the nature of the personal data affected.

7. Sensitive data includes data on criminal convictions and genetic data. 
The definition of sensitive data, so-called "special categories of data", now shall include information on criminal convictions and genetic data, in addition to the known special categories of data race or ethnic origin, political opinions, religion or beliefs, trade-union membership, health or sex life (Art. 9). These special categories of data may only be processed in a very limited number of cases, e.g., with consent of the data subject, as required in employment law situations or to protect vital interests of the data subject. Including information on criminal convictions into the special categories of data may limit the possibilities of companies to perform background screenings of business contacts or employees. 

Like today, processing of special categories of data by non-EU data processors (e.g., IT service providers) will generally not be permitted under the Regulation. This will remain an obstacle for global cloud computing.

8. Supervisory authorities position is strengthened; data protection officer only for companies with more than 250 employees. 
The appointment of a data protection officer will only be mandatory for companies with 250 employees or more or where the core activities of the company consist of processing operations that require regular and systematic monitoring (Art. 35 (1)). As a consequence, in most small and medium-sized companies there is no longer need to appoint a data protection officer. Supervisory authorities will play an even more important role to ensure compliance with the Regulation. 

9. General notification requirement abandoned.
The current Directive 95/46/EC provided for a general obligation to notify processing of personal data to the supervisory authorities. These obligations were implemented differently in the Member States and, thus, were a burden for internationally operating companies. This general obligation will be superseded. However, the Regulation provides for the obligation of controllers and processors to consult the supervisory authority at their main establishment in certain cases prior to processing personal data, e.g., if processing operations are likely to present a high degree of specific risks (Art. 34). 

10. Transfer of personal data to third countries slightly simplified. 
Today, a transfer of personal data from the EU to third countries requires establishment of an adequate level of data protection (Art. 37 et seq.). This will not change. Under the proposed Regulation, the EU Commission shall be entitled to confirm the adequate level of protection with binding effect for the future (this will include the Safe Harbor Model). Alternatively, the familiar data transfer vehicles (in particular Standard Contractual Clauses or Binding Corporate Rules) will be means to establish an adequate level of protection. Implementing binding corporate rules will be extremely simplified as the Regulation provides specific guidance for the content of such rules and requires approval of these rules by only one EU data protection supervisory authority. 

There will be exceptions where no adequate level of data protection needs to be established. These exceptions will be relevant mainly in case of data transfers to non-EU authorities or non-EU public bodies. They include the familiar exceptions (e.g., defense of a claim or safeguarding vital interests of the data subject), plus the following new exception that will facilitate data transfers, for example, to the US Department of Justice or the US Securities and Exchange Commission (SEC) in cooperation proceedings: "where the transfer is necessary for the purposes of the legitimate interests pursued by the controller or the processor, which cannot be qualified as frequent, or massive ..." (Art. 44 (1) h).

11. Sanctions: Violations get more expensive. 
Art. 79 sets forth the sanctions that the supervisory authority may impose against controller and/or processors committing certain breaches of the data protection rules. These sanctions include fines of up to EUR 1,000,000.00 or up to two percent of a company's annual worldwide profits. 

12. Scope of the Directive on Processing Criminal Data by Authorities. 
In contrast to the Data Protection Regulation, the Directive on Processing Criminal Data by Authorities applies to data processing of and data transfers to public authorities. This directive will be less relevant for data processing by businesses in the private sector.

13. Effective date of the reform not before spring 2015. 
The Regulation still needs to pass the EU legislative process. We expect this to take one or two years. Once this is completed, it shall enter into force two years and three weeks after official publication in the Office Journal of the European Union. The same timeline shall apply to the implementation of the Directive on Processing Criminal Data by Authorities into national law. Therefore, application of the reformed EU data protection rules is not expected before spring 2015.

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1 More background information on the reform can be found at: http://ec.europa.eu/justice/newsroom/data-protection/news/120125_en.htm. 
2 http://ec.europa.eu/justice/data-protection/document/review2012/com_2012_11_en.pdf.
3 Directive of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data by competent authorities for the purposes of prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and the free movement of such data, 2012/0010 (COD), accessible athttp://ec.europa.eu/justice/data-protection/document/review2012/com_2012_10_en.pdf. 
4 Citations of Articles refer to Articles of the Regulation unless otherwise stated.

 

Published In: Consumer Protection Updates, International Trade Updates, Privacy Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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