U.S. and European Officials Fail to Reach Agreement for New Data Transfer Deal

by Patterson Belknap Webb & Tyler LLP

American and European officials failed to meet the January 31st deadline for a new agreement on the transfer of data between the United States and Europe, disappointing hopes that the two sides would broker a deal to replace the now-invalidated U.S.-EU Safe Harbor Framework.  Over the past few months, European Union and United States officials have been locked in intense negotiations for a new deal on the Safe Harbor, which would allow companies to resume safely transferring data across the Atlantic.  Thousands of U.S. companies doing business in the EU, including technology giants such as Apple and Google, have been eagerly awaiting guidance since the previous Safe Harbor Framework was invalidated on October 6, 2015.  While an agreement was not reached by the Sunday deadline, as of Monday evening, the two sides were continuing to negotiate in the hope of reaching a deal within the week.

The background of these framework negotiations is the European Union’s 1995 directive on data protection (the “EU Directive”), which prohibits transfer of personal data from the EU to non-EU countries that lack “adequate” data protections.  “Adequacy” is defined as being commensurate with EU standards.  Personal data “include[s] any information relating to an identified or identifiable natural person,” so even routine business records such as payroll data might be considered personal data under the EU Directive.

In 2000, the European Commission and U.S. government agreed to create the U.S.-EU Safe Harbor Framework to facilitate an open flow of data from the EU to the United States without requiring the implementation of comprehensive privacy legislation.  That framework provided a streamlined method for U.S. organizations to comply with the EU Directive by self-certifying their compliance with seven Safe Harbor Privacy Principles.  U.S. organizations that self-certified enjoyed a binding presumption of “adequacy” and could lawfully transfer personal data from the EU to the U.S.  By 2015, approximately 5,500 companies were regularly transferring data across the Atlantic under the Safe Harbor Framework.

On October 6, 2015, the Court of Justice of the European Union (CJEU) issued a decision in Maximillian Schrems v Data Protection Commissioner, which declared the Safe Harbor Framework invalid.  In that decision, the CJEU concluded that the Framework exposed EU citizens’ privacy rights to interference by U.S. authorities, failed to provide EU citizens effective legal protections in the United States, and prevented EU authorities from intervening on behalf of citizens to address complaints about privacy infringements.  EU data protection officials declared that they would “take all necessary and appropriate actions, which may include coordinated enforcement actions,” if EU and U.S. officials could not reach a new agreement by January 31, 2016.  The CJEU’s decision set off a flurry of activity by companies seeking to preserve the ability to transfer personal data between the EU and the United States, and created considerable uncertainty around cross-border data transfers for companies that opted to wait for a new agreement rather than implement alternative mechanisms for compliance.

In the months since the decision, EU and U.S. officials have been negotiating toward a new agreement.  Although those negotiations were subject to a January 31st deadline, American and European officials were still far apart on specific details.

European national regulators promised that, in the absence of an agreement between the U.S. and EU by the deadline, they would take swift action to publish their own judgments on the correct safeguards for trans-Atlantic data transmissions.  Some European national regulators have indicated that they may issue those judgments as early as Wednesday.  But U.S. and EU officials have indicated that they hope to reach a broad deal before these national regulators take action.

Simultaneously with the Safe Harbor negotiations, U.S. lawmakers have been taking their own steps to facilitate data transfers between the U.S. and EU.  Last Thursday, the Senate Judiciary Committee passed the Judicial Redress Act, which (if passed by the full Senate) would give EU citizens the same rights U.S. citizens have to challenge privacy infringements by the U.S. government, predicated on the EU member states’ allowing data transfers from the EU to the U.S. for commercial purposes.  The European Commission, however, has expressed concern that the version of the Judicial Redress Act currently before the Senate may not meet the requirements set forth in Schrems, and echoed the Electronic Privacy Information Center’s critiques of that legislation.

We are following these developments and will provide updates during the week as more details emerge.

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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