EU regulators welcome stricter rules on cookies and direct marketing

by White & Case LLP
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The European Commission has published a draft Regulation regarding cookies and electronic direct marketing. EU regulators have publicly welcomed the proposal, which has potentially significant consequences for all businesses that engage in online commerce or electronic direct marketing.

Background

The current EU law on privacy and electronic communications is set out in Directive 2002/58/EC, as amended by Directive 2009/136/EC (together, the "ePrivacy Directive"). The intended purpose of the ePrivacy Directive is to protect the privacy of individuals in connection with electronic communications, including the use of cookies and similar technologies, and in relation to electronic direct marketing.

As part of its ongoing Digital Single Market ("DSM") Strategy, the European Commission (the "Commission") carried out an evaluation of the ePrivacy Directive (the "Evaluation"), the results of which were published in January 2017. The Evaluation noted that electronic communications technologies have evolved rapidly over the last 15 years, and consumers and businesses alike are increasingly reliant on those technologies. In light of the Evaluation, the Commission issued a draft ePrivacy Regulation, which is intended to update the law to address important changes in technology.

As noted below, the changes proposed in the draft ePrivacy Regulation are significant. If they are adopted without material amendment, the impact on certain businesses (especially providers of Over-The-Top ("OTT") communications services, and social media platforms) could be significant. For the most part, the EU regulators that will be responsible for enforcing the draft ePrivacy Regulation have welcomed the changes:

  • At a meeting on 4 April 2017, the Article 29 Working Party ("WP29") (an EU advisory body made up of representatives of the national Data Protection Authorities ("DPAs") of each EU Member State) adopted Opinion 01/2017 (the "Opinion"). The Opinion welcomes the proposed ePrivacy Regulation. Importantly, the WP29 approved of the proposal to extend many ePrivacy compliance obligations, which have historically been borne by traditional telcos, to OTT service providers as well. This would, if adopted, impose a significant compliance burden on OTT service providers.
  • The following day, the UK Information Commissioner's Office (the "ICO") issued its own press release echoing the WP29's stance, and indicating that the UK will implement the draft ePrivacy Regulation regardless of Brexit. This follows the announcement in late 2016 that the UK will also implement the General Data Protection Regulation ("GDPR") irrespective of Brexit. Enforcement of both the draft ePrivacy Regulation and the GDPR is scheduled to start on 25 May 2018. Given that the earliest date on which any Brexit settlement is likely to become effective is March 2019, it is likely that there will be a period during which the GDPR and (perhaps) the ePrivacy Regulation will be directly enforced in the UK. Once Brexit becomes effective, laws in the UK are expected to adopt standards that are almost identical to the GDPR and the ePrivacy Regulation. Consequently, these issues are of serious concern to British businesses, notwithstanding Brexit.

Key aspects of the draft ePrivacy Regulation

Important features of the draft ePrivacy Regulation include the following:

  • High fines for non-compliance: Under the draft ePrivacy Regulation, DPAs have the power to impose fines of up to the greater of €20 million or 4% of worldwide turnover. These numbers match the maximum fines under the GDPR, and are deliberately meant to attract the attention of businesses that have historically not placed much emphasis on compliance with ePrivacy requirements.
  • Extraterritorial scope: The draft ePrivacy Regulation is designed to sit alongside, and to work harmoniously with, the GDPR. Like the GDPR, the draft ePrivacy Regulation has a broad territorial scope. The draft ePrivacy Regulation applies to the provision and use of electronic communications services to end users in the EU, regardless of where the business providing those services is located. In short, if a business outside the EU provides communications services to EU users, or serves cookies to EU users, that business will be subject to the draft ePrivacy Regulation in relation to those activities.
  • Applicable to OTT service providers and other technologies: The draft ePrivacy Regulation applies to OTT services (e.g., VOIP services and instant messaging services), irrespective of whether such services are paid or free. The WP29 is in favour of the application of ePrivacy rules to OTT providers in addition to traditional telecom operators. The draft ePrivacy Regulation will also apply to any businesses using tracking technologies (like device fingerprinting or geolocation tracking) and potentially also to 'internet of things' technologies, to the extent that those technologies transmit personal data. Even services or websites that provide messaging as an ancillary feature, such as travel, dating and review sites, will be subject to the new rules.

In the Opinion, the WP29 supports the ePrivacy Regulation's wide-ranging and technology-agnostic definitions. While the WP29 considers this approach to be beneficial for the rights of individuals, businesses will need to take extra care to ensure that their products and services are not inadvertently caught by the draft ePrivacy Regulation.

  • A single set of rules across the EU: The existing ePrivacy Directive had to be implemented at a national level in each EU Member State. This means that businesses currently face a patchwork of similar but inconsistent ePrivacy compliance requirements from one EU Member State to the next. The draft ePrivacy Regulation, on the other hand, will apply automatically in all EU Member States (because it is a Regulation not a Directive) without the need for national implementation. In principle, this should mean that businesses face a more consistent set of rules across the EU.

It should be noted that the draft ePrivacy Regulation will not introduce complete uniformity across the EU. There remains some scope for divergence amongst Member States in some areas. For example, Member States are free to keep or create national data retention frameworks that provide, inter alia, for targeted retention measures, in so far as such frameworks comply with EU law, taking into account the relevant case-law.1

To minimise the potential for divergence from one EU Member State to the next, Recital 38 of the draft ePrivacy Regulation states that the same authority that monitors GDPR compliance should also monitor compliance with the draft ePrivacy Regulation (i.e., national DPAs will be responsible for enforcing both regimes). This development was welcomed by the WP29 in the Opinion and should, in principle, mean that businesses face a more consistent approach from regulators across the EU.

  • Data breach Reporting: A major criticism of the GDPR's data breach reporting mechanism had been that it was inconsistent with the requirements of the existing ePrivacy Directive, potentially requiring communications service providers to comply with conflicting data breach reporting regimes. The draft ePrivacy Regulation does away with that difficulty by removing ePrivacy data breach notification requirements (i.e., the GDPR's data breach reporting requirements will apply to all breaches of personal data regardless of context). It should be noted that this approach only works because EU law takes an extremely expansive view of the term 'personal data'. The courts confirmed last year that IP addresses are personal data in most circumstances, and in the Opinion the WP29 states that device identifiers such as MAC addresses are also generally personal data. Businesses should be aware that under the GDPR they will have 72 hours from the point at which a data breach is discovered to report it to the relevant DPA.
  • Narrow definition of 'consent'. The draft ePrivacy Regulation aligns the meaning of 'consent' with the definition provided in the GDPR. In practice, consent is harder to obtain under the GDPR compared to the existing law. In addition to the familiar requirements of 'freely given', 'specific' and 'informed' consent, the GDPR adds that consent must be 'unambiguous' (i.e., if there is any doubt as to the validity of any consent, that doubt will be construed against the relevant business claiming to rely on consent). The GDPR also states that consent must be a 'clear affirmative act' (i.e., silence, inaction, or failure to opt out is not valid consent under the GDPR, therefore will not be valid consent under the draft ePrivacy Regulation).

The WP29 states that communication service providers cannot 'force' their customers to consent to the processing of personal data. Processing that is necessary for the delivery of the service, or the security of the network, is permitted, but the limits of these activities are narrow. To process personal data for any service or activity that is not strictly necessary to provide the relevant service (e.g., advertising) businesses will likely need the consent of the end user.

  • Web audience measuring: One positive development for businesses is that the draft ePrivacy Regulation specifically permits the processing of data for the purposes of 'web audience measuring', which appears to include analytics and statistical analysis. However, as the WP29 notes in the Opinion, the term 'web audience measuring' is not defined. The WP29 considers that this permission should not be used to justify profiling activities (which are restricted under the GDPR). The outcome for businesses appears to be that aggregated statistical analysis will be permitted under the ePrivacy Regulation, but analytics based on individually identifiable data will not.
  • New rules on cookies: The draft ePrivacy Regulation applies to cookies and all other device-identifying technologies (e.g., clear pixels, web bugs, hidden identifiers, device fingerprinting, etc.). Under the draft ePrivacy Regulation, businesses cannot access users' devices, or collect information (e.g., device type, browser type, etc.) unless either: (i) the information is directly necessary for the delivery of the service; or (ii) the user has consented to such access. This represents an evolution of the current rules towards stricter consent requirements, which businesses will need to satisfy before tracking users.
  • Browser-based cookie consent: The draft ePrivacy Regulation imposes obligations on the makers of browsers and connectivity apps to include an option for rejecting all cookies by default, by 25 August 2018 at the latest. The aim appears to be for browsers and connectivity apps to become 'gatekeepers' of cookie consent. This is a potentially onerous compliance obligation for browser makers and app developers, and is likely to require a significant investment of time and resources.
  • Prohibition on electronic direct marketing without consent: The draft ePrivacy Regulation prohibits all types of unsolicited electronic direct marketing communications, unless the sender has first obtained the end-user's opt-in consent. The definition of direct marketing includes emails, instant messaging applications, SMS, MMS and Bluetooth messages. Direct marketing via live voice calls is subject to national legislation regarding telephone marketing. Many EU Member States permit such marketing, but allow end users to opt out through a single national scheme (see, for example, the Telephone Preference Service in the UK). The foregoing restrictions only apply to electronic direct marketing. Direct marketing by post or other physical means remains unaffected.   
  • The 'soft opt-in': In line with the current rules, there is a 'soft opt-in' exception to the general prohibition on the sending of electronic direct marketing materials without prior consent. Where a business has obtained an individual's electronic contact details in the context of the sale of a product or service, the business may send electronic direct marketing materials to that customer, providing that: (i) the materials will be sent by the same entity that dealt with the individual previously (i.e., the soft opt-in does not extend to the sending of marketing materials by other entities within the same corporate group); (ii) the materials relate to similar products and services to those previously purchased; (iii) the individual is provided with an easy and free means of opting out at the point of collection of the data, and in each subsequent marketing communication; and (iv) the individual has not yet exercised their right to opt-out at the time of sending the relevant marketing communication.

Further changes sought by the WP29

Notwithstanding the fact that the WP29's response to the draft ePrivacy Regulation has been generally positive, the Opinion identifies several areas of the draft ePrivacy Regulation that the WP29 would like to see made more restrictive. In particular, the WP29 is seeking the following changes:

  • Application of direct marketing rules to social media platforms: As drafted, the ePrivacy Regulation only applies to the 'sending' of electronic direct marketing messages. In the Opinion, the WP29 concedes that 'sending' refers only to traditional communication methods (e.g., emails or SMS messages) but does not cover the presentation of messages to users over social media websites. The WP29 demands that this provision should be revised, to cover all means of sending, directing or presenting messages directly to end users, including through social media and other online services. If these changes are adopted, the impact on social media providers could be significant.
  • Prohibition on tracking via Wi-Fi or Bluetooth: The WP29 considers that the rules in the draft ePrivacy Regulation regarding the tracking of the location of users' devices via Wi-Fi or Bluetooth should match the requirements set out in the GDPR. The WP29 considers that users' opt-in consent would be required before such tracking could be permissible.
  • Prohibition on 'tracking walls': In the Opinion, the WP29 advocates for an explicit prohibition of 'tracking walls' (i.e., where access to a website or service is blocked unless individuals agree to be tracked across the internet). The WP29 considers that a 'take it or leave it' approach is rarely legitimate. The Opinion recommends that access to content on websites and apps should not be conditional on an individual accepting intrusive processing activities (such as cookies, device fingerprinting, injection of unique identifiers or other monitoring techniques). It should be noted that such marketing techniques commonly generate the revenue used to provide these websites and services to end users for free. If these methods become unlawful, service providers may have no option but to charge users for access to their services. Unfortunately, the WP29 does not offer any clear solutions to this issue.
  • Analysis of content and metadata: The WP29 recommends that businesses should be prohibited from processing content and metadata of communications without the consent of both the sender and the recipient, except for specific permitted purposes (including security and billing purposes, as well as spam filtering purposes). The WP29 believes that the analysis of content and metadata for analytics and advertising purposes should be subject to prior opt-in consent. This proposal clearly has the potential to impact online services (e.g., web email services) that are funded by such advertising techniques.

It is worth noting that the WP29's suggestion that communications service providers should provide filtering of spam marketing at a network level appears to contradict the Guidelines on net neutrality issued by the Body of European Regulators of Electronic Communications ("BEREC"), which indicate that such filtering would amount to an unlawful interference with the flow of data across a network. It is unclear how this issue will be resolved.

Timing and Next Steps

The European Parliament and the Council of Ministers will now debate the draft ePrivacy Regulation. The aim of implementing the ePrivacy Regulation by 25 May 2018 (the same date on which enforcement of the GDPR begins) looks ambitious, given that it took four years to complete the same process in relation to the GDPR. In addition, many of the provisions of the draft ePrivacy Regulation (particularly those around communications data and tracking technologies) are highly contentious and are likely to be subject to significant lobbying efforts by regulators, industry bodies and politicians.

Although the ePrivacy Regulation is not yet finalised, it is clear that the law in this area is moving toward a more restrictive regime, which will impose stricter consent requirements. Businesses should prepare accordingly, and should keep a close eye on developments in this area over the next twelve months.

1 See, in particular, Joined Cases C-293/12 and C-594/12 Digital Rights Ireland; and Joined Cases C-203/15 and C-698/15 Tele2 Sverige AB and Secretary of State for the Home Department.

Kimberly Sharp, a Trainee Solicitor at White & Case, assisted in the development of this publication.

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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