Court: Stored Communications Act Warrant Cannot Be Used to Seize Data Held Overseas

by Ballard Spahr LLP

Ballard Spahr LLP

In a case that may have significant impact for companies providing public Internet and cloud services, the Second Circuit has ruled that a federal court may not issue a criminal warrant ordering a U.S. company to produce emails held on servers in Ireland. Microsoft v. United States is the first time a U.S. Court of Appeals has held that the Stored Communications Act (SCA), which authorizes search warrants for data held by electronic communications and remote computing services in criminal investigations, does not apply extraterritorially to data held abroad. The decision is being described as a victory for proponents of Internet privacy.

In Microsoft, in connection with a New York-based narcotics trafficking investigation targeting an unidentified individual, the U.S. government sought disclosure of emails held in a cloud-based account provided by Microsoft, which utilizes data centers around the world to provide Internet email services to its customers. In this case, the suspect's emails were stored on a server in Ireland. Microsoft produced basic subscriber information for the account, which resided on servers in the United States, but resisted the warrant directing it to produce the suspect's emails stored on Microsoft servers in Ireland. Microsoft argued that doing so constituted an "extraterritorial" application of the SCA and would violate Irish data privacy law. The government countered that the warrant was not extraterritorial because Microsoft owned and controlled the Irish servers and was able to access and produce the emails from computers in the United States. The U.S. District Court for the Southern District of New York agreed with the government's position regarding extraterritoriality, relying on precedent holding that U.S. companies can be compelled by subpoena to produce business records stored abroad.

On appeal, the Second Circuit reversed, noting that there is a presumption against the extraterritorial application of federal statutes, including the SCA. The Second Circuit ruled that the key question is not where the warrant is executed (United States) but where the data sought by the warrant is stored (Ireland). One concern raised by the concurring opinion is that the court's ruling could allow companies or individuals to evade warrants for electronic data by claiming to Internet and cloud service providers that they reside overseas. Microsoft, like other such providers, does not verify the location of a customer and instead relies on the customer's statements about location when determining the country where the customer's data will be stored. The majority opinion addressed this concern, noting that the presumption against extraterritorial application of the SCA may be rebutted where the overwhelming majority of relevant contacts are domestic, such that issues of international privacy are not clearly implicated. The record before this court contained no evidence of the identity, nationality, or location of the suspect whose email account was at issue.

Although the case has been heralded as a significant victory for proponents of Internet privacy, the Second's Circuit opinion did not address Irish data privacy law. The opinion, instead, focused on whether Congress intended for the SCA to apply to data held outside of the United States. The case also leaves a number of questions open, including whether extraterritorial application of a criminal subpoena is authorized by the SCA.

The impact on civil discovery requests and subpoenas to U.S. companies holding data overseas is also unclear. Under the Second Circuit's reasoning, future courts should look to whether Congress intended for the statute authorizing such requests or subpoenas to apply to data under the control of U.S. companies, but held outside of the United States. To the extent the decision limits the power of U.S. courts to issue warrants for data stored abroad in criminal cases, it may augur a shift in federal courts' thinking about the proper balance between discovery in U.S. civil litigation and foreign privacy concerns. On the flip side, most civil defendants are not subject to the SCA (because they do not provide public Internet services) and the propriety of a request for foreign documents on a U.S. company will face the traditional possession, custody, and control analysis and balancing tests, which U.S. federal courts have used when ruling on requests for foreign documents, electronic or otherwise.

This may not be the last word from this or a higher U.S. court in this case. We now await a possible petition for rehearing en banc and a petition for certiorari by the U.S. Department of Justice.

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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