What Now? What Next? FAQs and Answers Regarding the Safe Harbor Decision

by BakerHostetler

As we discussed in our blog post last week, on October 6, 2015, the Court of Justice of the European Union issued a judgment that invalidated the EU-U.S. Safe Harbor Framework. For the past 15 years, thousands of companies have been using the Safe Harbor Framework to transfer personal data from the EU to the U.S. in accordance with EU data protection law.

Although many unanswered questions remain at this time, we have prepared the following list of frequently asked questions to offer insights on what affected organizations can expect, and how such companies may begin to address the practical effects of the decision while awaiting further guidance from regulators.

We discussed these issues in greater depth during our October 14 webinar, co-presented with UK counsel from Holman Fenwick & Willan LLP.

  1. Does this decision apply retroactively to personal data that our company previously transferred to the U.S. from the EU under the Safe Harbor Framework?

Unclear, but unlikely. Several EU data protection authorities, including the UK Information Commissioner’s Office, have indicated that they intend to issue compliance guidance and will not take rash enforcement action. Regarding retroactivity specifically, on October 8, a German attorney wrote that German data protection authorities (among the most aggressive, historically) have stated “unofficially” that the invalidity of Safe Harbor will apply going forward, and not retroactively, in line with paragraph 52 of the CJEU decision. Paragraph 52 states:

“…Measures of the EU institutions are in principle presumed to be lawful and accordingly produce legal effects until such time as they are withdrawn, annulled in an action for annulment or declared invalid following a reference for a preliminary ruling or a plea of illegality [citing authorities].”

That said, at least one media outlet has reported that various unidentified “EU officials” have indicated that (1) the decision is retroactive; (2) companies will need to prove that a number of other guarantees were in place at the moment of past transfers to demonstrate compliance with EU data protection rules; and (3) companies without alternative compliance mechanisms could face penalties if harm has come to an individual as a result.

  1. Our online privacy policy indicates that the company has certified to the Safe Harbor – should we remove that section of the privacy policy? Is that a material change that requires notification to individuals whose personal data was collected through the site?

Given that Safe Harbor has been invalidated by the CJEU, companies likely should update their privacy policies (and effective dates) accordingly, to remove references to Safe Harbor certification. This may constitute a material change, but it would not be a material retroactive change unless and until EU authorities provide greater clarity concerning retroactive applicability, as discussed above. As such, organizations do not necessarily need to obtain consumers’ affirmative express consent to the change per the well-established principles set forth by the Federal Trade Commission in its 2004 settlement with Gateway.

  1. What other options are available to comply with EU data protection law when transferring personal data from the EU to the U.S.?

There are a number of other data transfer mechanisms that may be used as an alternative to the Safe Harbor Framework.

  • Standard contractual clauses (SCCs), sometimes referred to as model clauses, are one of the most common data transfer mechanisms, and they are often the least costly on a short-term basis. SCCs are boilerplate provisions that can be used, for example, to transfer data intra-company (e.g., for employee personal data), or between a company and a vendor (controller-processor).
  • Binding Corporate Rules (BCRs) are another existing option for cross-border data transfers. BCRs may be an appropriate choice for some companies, but they typically take months to implement, in part because the organization must have its proposed BCRs approved by the data protection authorities in each EU jurisdiction where it operates.
  • Finally, the EU Data Protection Directive contains other derogations that allow for personal data transfers across borders, but there are considerable challenges associated with the application of these derogations to many common data transfer activities.
  1. But doesn’t the CJEU’s judgment apply to any transfer of data to the U.S.? If the CJEU is concerned about U.S. government access to data, wouldn’t other data transfer mechanisms also be problematic?

No, the CJEU’s judgment specifically addresses the validity of the European Commission’s adequacy finding with respect to the Safe Harbor Framework. The CJEU invalidated the Safe Harbor based on certain deficiencies it identified in the Commission’s adequacy decision. The CJEU did not address other data transfer mechanisms, such as SCCs or BCRs, in its judgment.

  1. What’s involved with putting model contracts/standard contractual clauses in place to cover EU-U.S. data transfers?

If implemented word for word, the standard contractual clauses issued by the European Commission are “automatically” approved to cover transfers of personal data to non-EU jurisdictions. Organizations must consider whether they should be using controller-controller or controller-processor SCCs, a determination which often depends on the circumstances of the transfer. For companies that had been transferring data pursuant to the Safe Harbor Framework, it may be necessary to revisit existing contracts that involve data transfers and amend the terms to incorporate SCCs and related protections (e.g., limits of liability).

Further, the SCCs include appendices that are not boilerplate. These sections must be completed by the parties to describe, inter alia, the type(s) of personal data at issue and how it will be processed, and the technical and organizational security measures that the recipient of the data will have in place to protect the data consistent with European law. Importantly, SCCs make European data subjects third-party beneficiaries with a right of action against the parties.

  1. Should my company consider implementing Binding Corporate Rules to cover our EU-U.S. data transfers?

Developing and implementing BCRs can be a time-consuming and expensive proposition, depending on the size and scope of the company and how internal corporate agreements are negotiated. The process has become somewhat easier over the years, and there is now a mutual recognition procedure for purposes of obtaining EU data protection authorities’ approval once the BCRs have been finalized. Organizations may want to consider leveraging their existing internal Safe Harbor compliance program as the basis for BCRs, essentially transforming the policies and procedures the company implemented for Safe Harbor purposes into BCRs.

  1. Can we rely on consent as a mechanism for transferring EU personal data to the U.S.? What if we’re transferring employee data?

Although it is legally permissible to transfer personal data with the data subject’s consent (under one of the derogations to the EU Data Protection Directive), most data protection authorities have found that it is not possible to obtain meaningful consent from employees, given the lopsided nature of the employer-employee relationship. It also may be difficult to demonstrate that consumers have provided meaningful consent in the B2C context, especially for large organizations that collect vast amounts of personal data and embed the relevant notice(s) in a lengthy privacy policy that end users may never read. A click-through (as opposed to a browsewrap) privacy policy may bolster the credibility of consent obtained in this manner.

  1. Does this decision require companies to store all of their EU personal data in the EU? Would eliminating cross-border data transfers to the U.S. be a good option for companies that can afford to establish data centers in the EU?

The CJEU decision does not require data localization within the EU, but eliminating transfers of EU personal data to third countries by storing all such data in the EU could “solve” the problem for companies that have the ability to silo their operations in this manner. It may be difficult for companies to accomplish this type of segregation on a technical level, and isolating EU data could lead to significant operational inefficiencies on multiple fronts.

  1. Third-party service providers that process EU personal data on our behalf were transferring the data to the U.S. under the auspices of the Safe Harbor Framework. What happens now?

Companies should talk with their service providers about how those vendors intend to transfer data going forward in light of the CJEU decision, and amend existing agreements as appropriate. Many service providers are likely to adopt SCCs, and/or will follow the data protection authorities’ forthcoming guidance.

  1. We act as a vendor to data controllers located in the EU and have signed contracts that include clauses regarding Safe Harbor certification. What happens now?

Vendors that have certified to the Safe Harbor Framework should continue to adhere to the Safe Harbor principles with respect to personal data, even though the CJEU’s judgment invalidated the framework for data transfer purposes. In addition, watch for anticipated compliance guidance from EU data protection authorities, and consider on a case-by-case basis whether implementing SCCs would be appropriate. In general, vendors should keep customers updated on developments in this area, and work with customers to address any specific data protection concerns they may have.

  1. Isn’t this going to harm trade relations between the U.S. and the EU?

The loss of the Safe Harbor Framework certainly could give rise to a variety of economic and political problems, though it is difficult to predict the severity of the consequences. Needless to say, vibrant trade continues across the Atlantic – data flows have not come to a halt since last week’s decision. Nevertheless, the CJEU judgment has created legal and practical uncertainties that need to be resolved as soon as possible. Government authorities in the U.S. are working with regulators in the EU to attempt to develop a workable solution going forward. It is unclear how long this process may take, but the discussions have been underway for some time, since well before the CJEU’s decision.

  1. Our Safe Harbor certification is up for renewal soon. Do we need to recertify?

At this time, there is little point in renewing a Safe Harbor certification since the Framework has been invalidated by the CJEU’s decision.

  1. My company was in the process of preparing to certify to the Safe Harbor, but has not yet done so. How does this affect us?

Similarly, there is little point in certifying to the Safe Harbor at this time. Companies in this position may consider using the Safe Harbor program they have developed in preparation for certification as the basis for implementing SCCs or BCRs. Time and effort spent on data protection compliance efforts will not have been wasted.

  1. What steps has the U.S. government taken to address concerns about this decision?

Some U.S. authorities have expressed disappointment with the CJEU’s judgment, and last week Senator Chris Murphy (D-Conn.) and Senator Orrin Hatch (R-Utah) both called for Congress to pass the Judicial Redress Act of 2015, jointly introduced by the Senators earlier this year to extend “core benefits of the Privacy Act of 1974 to citizens of major U.S. allies for information shared for law enforcement purposes.”

As noted above, U.S. government authorities are working with regulators in the EU to attempt to develop a workable solution going forward. It is unclear how long this process may take, but the discussions have been underway for some time and are not tied directly to the CJEU’s October 6 decision.

  1. Does this decision require a change in U.S. law? If so, what kind of law(s) would need to be passed, and how is this likely to play out?

The decision does not explicitly mandate a change to U.S. law, no. That said, absent a change offering protection from U.S. government access to EU citizens’ personal data that is closer to European standards, companies will continue to face legal obstacles with respect to transferring personal data from the EU to the U.S. (and beyond). The CJEU decision clearly intends to encourage the U.S. to restrict governmental access to EU personal data without a warrant or other meaningful legal process.

  1. What are EU data protection authorities saying about this decision?

As noted above, certain EU data protection authorities, including those in the UK, Germany and Italy, have issued statements noting (at least unofficially) that they intend to provide compliance guidance and will not take enforcement action with respect to activity that predates the decision. However, not all of the data protection authorities have spoken to the decision at this time.

  1. Have any regulatory authorities issued guidance on next steps for Safe Harbor-certified companies? Is further guidance expected in the future?

Official guidance has not yet been issued at the time of this writing, but we do expect such guidance in the coming weeks. We will continue to monitor statements from the authorities regarding such guidance, and will post information as soon as it becomes available.

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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