Revised Guidelines on the Territorial Scope of the GDPR and Local Representatives

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The European Data Protection Board (EDPB) recently published an updated version of its guidelines on the territorial scope of the GDPR, which were initially issued just over a year ago.  The revised Guidelines do not significantly change the EDPB’s essential framework for determining whether or not the GDPR applies to a given data processing activity.  The revised Guidelines do provide a few additional (and reasonably useful) examples as well clarifying a few points that were a bit hazy in the original formulation of the EDPB’s framework.  But the most important change has to do with the potential liability of local representatives for GDPR violations by the controllers or processors that they represent.

Updates on how to determine whether or not the GDPR applies to your activities

The revised Guidelines adhere closely to the EDPB’s original formula for determining whether or not the GDPR applies in various situations.  However, the EDPB has tried to drill home the message that the jurisdictional analysis is activity-by-activity rather than entity-by-entity.  To recap, there are three main jurisdictional triggers for the GDPR:

1.  If a company is “established” in the European Union [1], the GDPR applies to all of its processing activities conducted in the context of its EU establishment regardless of where in the world the processing takes place and regardless of the geographic origin of the personal data.  “Establishment” covers both formal corporate entities, such as a company formed under the laws of and EU Member State, and informal but “stable” business arrangements in the EU, such as a continuous business presence via an on-the-ground sales agent. 

2.  If a company is not established in the EU, the GDPR will apply to its processing of personal data that is performed in the context of an offer of goods or services to people who are in the EU (whether offered for profit or free).

3.  If a company is not established in the EU, the GDPR will apply to its monitoring of the behavior of people who are in the EU. 

The revised Guidelines emphasize some key points for companies that are not established in the EU:

  • When determining whether an offer of goods or services is being made to people in the EU, the data protection authorities will look for evidence of intentional targeting of people in the EU.  Some relevant factors include whether the company advertises its goods or services specifically to people in the EU (including through geographically targeted online advertising), offers to ship goods to the EU, or takes payment in Euros or other EU currencies.
  • The data protection authorities will distinguish between “intentional” and “inadvertent” offers of services to people in the EU.  In a key example, if a non-EU company offers a service to someone when the person is outside the EU, and the company continues to provide the service when that person travels to the EU, the data protection authorities would consider that an inadvertent rather than intentional offer to someone in the EU, so the GDPR would not apply.
  • Monitoring the behavior of people in the EU most typically occurs in the online context, although other scenarios may also qualify as monitoring behavior, such as operating remote CCTV services or providing a health and fitness app.  It’s important to recall that under the GDPR and related e-privacy legislation, many indirect online identifiers and profiles qualify as personal data even when the individual’s name is not known.  However, the EDPB stresses that not all online data collection qualifies as “monitoring.”  Instead, it’s vital to consider what is done with the personal data.  Creating profiles for behavioral advertising or other purposes generally will quality as monitoring behavior.  But the revised Guidelines at least imply that if personal data are collected for other purposes such as determining the most popular content on a website, without profiling the users, that would not trigger the GDPR.  (That said, the e-Privacy Directive will nonetheless apply to the use of cookies and similar technologies.)
  • Processors both within and outside the EU face a couple of conundrums.  The revised Guidelines state that a processor that is located outside the EU and does not, on its own, do anything to trigger the application of the GDPR, will nonetheless be deemed to be caught by the GDPR if the controller for which it processes personal data is caught by the GDPR.  Effectively, the processor is brought under the GDPR’s jurisdiction solely by the controller’s activities.  This is new, and potentially very important for processors outside of the EU to consider when entering into contracts with customers.
  • Processors located within the EU that process personal data on behalf of controllers that are not established in the EU will need to comply with all relevant provisions of the GDPR.  Somewhat problematically, that includes the GDPR’s restrictions on transfers of personal data from the EU to countries outside of the EU (known as “third countries”).  The Guidelines do not provide any exceptions for personal data that originates from a controller that is not subject to the GDPR, is processed within the EU, and then is re-transferred to the controller – which means that the processor cannot re-transfer the personal data without meeting the GDPR’s requirements.  Since the current standard contractual clauses (the main data transfer mechanism for most countries) do not contemplate a processor acting as the “data exporter,” processors will be forced in most cases to rely on one of the Art. 49 “derogations” – which the EDPB has separately stated should be used only as a last resort and not for routine transfers.  Considering the GDPR and the EDPB’s guidance collectively, this puts EU-based processors at a competitive disadvantage vis-à-vis their non-EU competitors.

Local Representatives

Most companies whose activities fall under the GDPR on the basis of Art. 3(2) (offering goods/ services or monitoring behavior) are required to appoint a local representative.  Article 27 specifies that the representative must be established in one of the Member States where the relevant data subjects are located.  The main function of the representative is to serve as an EU-based contact point for data subjects and the data protection authorities.  The GDPR does not provide much detail about the role of the representative, but Art. 30 does specify the representatives must maintain a record of the data processing activities of the controllers or processors that they represent.  (That can be accomplished by providing the representative a copy of the records, or direct access to records maintained by the controller or processor.)  Controllers must include the name and contact information of their representative in the data protection notices required by Articles 13 and 14. 

One vexed question relating to representatives is whether they can be held liable for GDPR breaches by the companies they represent.  As we commented in a prior post on the original version of the Guidelines, even though the binding Articles of the GDPR did not specify that local representatives are vicariously liable for breaches by the entities they represent, the EDPB had construed the statement in Recital 80 that “[t]he designated representative should be subject to enforcement proceedings in the event of non-compliance by the controller or processor,” as meaning that representatives could be held liable for any breaches by the controller or processor that they represent, and that the full weight of the GDPR’s extensive fines can be brought to bear on the representative. That was an aggressive position to take on the basis of a recital to a regulation, given that recitals are not a binding part of the regulation (although recitals are, of course, very important in establishing legislative intent).  Unsurprisingly in light of the risk of massive fines under the GDPR, relatively few companies have entered the market to serve as local representatives. [2]

In the revised Guidelines, the EDPB appears to have backed off of its position on vicarious liability – although the updated language still as not as clear as one might wish.  The EDPB now states that:

it was the intention to enable supervisory authorities to initiate enforcement proceedings through the representative designated by the controllers or processors not established in the Union. This includes the possibility for supervisory authorities to address corrective measures or administrative fines and penalties imposed on the controller or processor not established in the Union to the representative . . . . The possibility to hold a representative directly liable is however limited to its direct obligations referred to in articles 30 and article 58(1) a of the GDPR (Guidelines v2.0, p. 28, emphasis added)

If “address[ing]” corrective actions and fines to the local representative simply means providing notice to the processor or controller via the local representative, then the legal exposure of local representatives becomes much more manageable, and we can hope that more services providers will enter the market at a reasonable price point to serve the demand of foreign controllers and processors – and thus improve foreign companies’ compliance with the GDPR.  Of course, the local representative remains liable for its own express obligations under the GDPR, specifically, cooperating with the data protection authorities and ensuring their access to the controller’s or processor’s data processing records.  We would expect local representatives to control these (now quite reasonably limited) risks via contracts with the companies that they represent.

[1] This post uses the terms “European Union” and “EU” for consistency with the terminology of the GDPR, but readers should recall that the GDPR also applies to the three additional EEA Member States, Norway, Iceland and Liechtenstein.  The United Kingdom has effectively adopted the GDPR into its national laws regardless of Brexit, via the UK’s Data Protection Act 2018, so the same rules will continue to apply to the UK.  However, after Brexit (but subject to the Withdrawal Agreement, if adopted), the UK will become a “third country” and UK companies may need to appoint local representatives in the EU (and vice versa).  It may become necessary for non-EU companies to appoint a local representative both in the EU and the UK. 

[2] Based on our periodic Internet searches to identify companies offering local representative services, versus our informal assessments of the potential demand from companies required by the GDPR to engage a local representative.

[View source.]

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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