The EU Parliament Committee in charge of reviewing the EU Commission's Proposal for an e-Privacy Regulation (Proposal) released a Draft Report¹ proposing amendments this week.

The e-Privacy Regulation will regulate new electronic communication services such as instant messaging, VOIP services, web-based email, and IoT devices, and will impose significant additional obligations on Internet services and related technologies, including cookies and similar technologies. It supplements the General Data Protection Regulation (GDPR) adopted last year,² which becomes effective May 25, 2018, and warrants a similar level of attention.

The Draft Report is the EU Parliament's first legislative step towards the adoption of the e-Privacy Regulation, after the EU Commission Proposal earlier this year. We expect the final position of the EU Parliament to come in a Fall 2017 vote. However, this week's Draft Report sets the tone for forthcoming discussions.

This WSGR Alert provides background information, identifies the main takeaways of the Draft Report, and provides an overview of the next steps. Read our previous WSGR Alert for more information on the Proposal.

Background

The EU data protection legal framework is composed mainly of two legal instruments: (1) the Data Protection Directive (to be replaced by the GDPR), which sets conditions for the processing of personal data; and (2) the e-Privacy Directive,³ which provides specific rules for the electronic communications sector. The Proposal would replace the e-Privacy Directive with an e-Privacy Regulation, giving it direct effect in all EU countries. For issues relating to electronic communications, the rules of the e-Privacy Regulation would prevail over the GDPR.

Key Points of the Draft Report

1. Broader Scope of Application. The e-Privacy Regulation applies more broadly by expanding the scope of covered electronic communication services to include services such as instant messaging, VOIP, web-based email, and the IoT. Notably, the Draft Report explicitly adds machine-to-machine communications, and thus extends the principle of confidentiality of electronic communications to these communications. The Draft Report also specifies that the confidentiality of electronic communication applies to both data in transit and at rest.
2. Stricter Conditions for the Use of Electronic Communications Data. The Draft Report further limits the legal grounds to process communications' content and metadata. In particular, when consent is the legal ground for the processing, it must be obtained from both parties to the communication (i.e., the sender and recipient of the communication), while the Proposal only requires the consent of one party. Obtaining consent from both parties to electronic communications may be difficult in practice.
3. Mandatory End-to-End Encryption. The Draft Report requires electronic communications services to guarantee the confidentiality of transmission by either: (i) "the nature of the means of transmission used"; or (ii) use of state-of-the-art end-to-end encryption of the communication. The Draft Report further prevents EU countries from "weakening the security and encryption of their networks and services," which could be interpreted as prohibiting backdoors to allow government data access.
4. Consent Cannot Be a Prerequisite to Access a Service. The Draft Report explicitly prohibits making consent to tracking users a prerequisite to using a website or service. The only exception is where tracking is necessary for the provision of the service or functionality, but this exception will most likely be interpreted narrowly.
5. Opt-In for Wi-Fi and Bluetooth Tracking. Tracking a user's location or collecting other information emitted by the user's device through Wi-Fi, Bluetooth, or similar technologies is permissible only with the user's prior (opt-in) consent.
6. Default and Legally Enforceable Do-Not-Track Mechanisms. The Draft Report requires that browser settings, by default, prevent other parties from storing information on the device or processing information stored on the device without the user's consent. Third parties are legally bound to respect these settings. In this respect, the Draft Report is a clear departure from the Proposal, under which it would be sufficient to provide users with certain privacy settings, without enabling them by default.
7. Mandatory National Do-Not-Call Lists. The Draft Report requires EU countries to implement Do-Not-Call lists. Companies will need to check their marketing lists against such lists before engaging in unsolicited marketing calls. Do-Not-Call lists already exist in several EU countries, but this amendment requires all EU countries to adopt such lists.
8. Massive Fines for Violations Involving Tracking Technologies. The Draft Report extends the maximum fines threshold (i.e., up to 20 million EUR or four percent of a company's global turnover) to violations of the rules regarding tracking technologies that involve storing information on a user's device (e.g., cookies and similar technologies), and tracking based on information emitted by a device (e.g., WiFi or Bluetooth tracking).
9. Obligation for Non-EU Companies to Designate an EU Representative. Companies offering services in the EU, but not established in the EU, must designate an EU representative. This obligation applies to electronic communication services providers and to software providers enabling electronic communications, companies sending direct marketing communications, or companies collecting information related to/stored in the user's device.
10. New Redress Mechanisms. The Draft Report introduces the possibility for users to mandate non-profit organizations to lodge a complaint on their behalf.

Next Steps

The publication of the Draft Report is by no means the end of the legislative process. Now, the EU Parliament Committee is expected to issue its Final Report after the summer. The EU Parliament will then likely adopt the final version of its amendments during the fall of 2017. In parallel, the Council of the EU will adopt its own amendments. Once both the EU Parliament and the Council of the EU have adopted their position, they will negotiate the final text of the e-Privacy Regulation together with the EU Commission.

Initially, the deadline for the adoption of the e-Privacy Regulation was set for May 2018 to coincide with the entry into force of the GDPR. As of today, this time frame seems unrealistic, and the legislative process is likely to take much longer.

We will continue to monitor developments and provide updates on any significant news.