On September 28, 2015, we released a client alert noting that European Commission Decision 2000/520, known as the “Safe Harbor” for U.S. companies handling the private data of EU citizens, was under attack in the advisory opinion issued by Advocate General Yves Bot of the European Union Court of Justice in the case of Schrems v. Data Protection Commissioner.

On October 6, 2015, in a decision with far-reaching implications, the EU Court of Justice  adopted Advocate General Bot’s opinion, holding that the Safe Harbor program does not provide adequate protection for data transfers from the European Economic Area (EEA) to the United States.  Simply put, the Safe Harbor program is now invalid and does not alter the responsibility of member states to assess the transfer of EU citizens’ private data to the United States.

In applying this oversight standard, the Court determined that the Safe Harbor program, being primarily a self-certification process taken by U.S. companies, does not offer adequate privacy protection to EU citizens, especially due to the fact that U.S. public agencies are not required to comply with it. The Court concluded that the Safe Harbor program is incompatible with enabling Directive 95/46/EC, and is therefore invalid because it  allows U.S. national security, public interest and law enforcement requirements to have primacy over EU citizens’ privacy.

Although the Court held the Safe Harbor program invalid, it noted that the requirements of Directive 95/46/EC, under which Safe Harbor was devised, account for the fact that some third-party countries might use different means of security than those used in the European Union. The Court ruled that security practices in third-party countries should be assessed in light of the privacy rules of that country resulting from its domestic laws, international commitments and compliance practices. So long as the third-party country's security measures result in providing the same level of protection of the fundamental right of privacy as provided in the European Union, then they may be deemed adequate.

It is important to remember that the Schrems suit was initiated in light of the concerns brought forth by Edward Snowden (an American computer professional, former CIA employee and former government contractor who leaked classified information from the U.S. National Security Agency in 2013) regarding warrantless investigation of the private data of Facebook users by the U.S. National Security Agency (NSA). The Court found that this level of access by U.S. public agencies to the private data of EU citizens is incompatible with the purposes for which the data was transferred and beyond what was necessary and proportionate to the protection of national security.

The Schrems decision has been met with vigorous debate in the European Union over its implications and the future of U.S.-EU trade relations. On October 14, 2015, European Commissioner Vera Jourová opened up debate before the European Parliament with assurances that the Schrems decision will not result in fragmented member-state privacy policies and practices. Despite Commissioner Jourová’s assurances, many members of Parliament voiced skepticism about the United States’ respect for private data and the fundamental rights of EU citizens in light of the Snowden revelations. A common theme in the debate of October 14 emerged – namely, that the United States needs to do more to assure that EU citizens are protected against the mass collection of private data by the U.S. intelligence community. The skepticism of many members of the European Parliament suggests that a consensus on how best to move forward is still far away.

Commissioner Jourová attempted to assuage the concerns of many members of Parliament by referring to portions of the USA Freedom Act and the Judicial Redress Bill as indications that U.S. privacy law was moving in the right direction. The USA Freedom Act, enacted June 2, 2015, contains provisions that limit the bulk collection of telecommunications data. The Judicial Redress Act of 2015, currently working its way through Congress, extends many of the benefits of the Privacy Act of 1974 to EU citizens. While this legislation is a step in the right direction, the Schrems decision will undoubtedly put further pressure on Congress to pass stronger federal privacy legislation that is mindful of trade relations with the European Union and other world powers.

This decision will likely have tremendous consequences for the cross-border trade in data between U.S. companies and EU citizens for years to come. No longer will U.S. companies be able to rely on Safe Harbor program participation and self-certification as a layer of protection when handling the data of EU citizens.  While Commissioner Christopher Graham of the UK’s Information Commissioner’s Office (ICO) suggested on October 8, 2015, that organizations keep calm and not panic regarding the Schrems decision, he also recognized the significance of the decision. At least in the United Kingdom, Commissioner Graham advises that the ICO does not intend to be “knee-jerking into sudden enforcement of a new arrangement.” In his comments, Commissioner Graham reminded companies that there are still standard contractual clauses and Binding Corporate Rules (BCRs) that companies may be able to use to ensure the appropriate handling of private data. Nevertheless, in light of the debate of October 14, it is clear that the final word has not yet been spoken on this matter of great international import.

In a move that provides some short-term clarity to U.S. companies doing business in the European Union, the EU Article 29 Working Party on the Protection of Individuals released a statement  on October 16, 2015, that provides guidance on the Schrems decision. In its statement, the Working Party announced a grace period until the end of January 2016, during which time Standard Contractual Clauses and BCRs could still be used to facilitate the transfer of private data to the United States.  Acknowledging the need for clear rules applicable across the European Union, the Working Party made it clear that it is “absolutely essential to have a robust, collective and common position on the implementation of the judgment.”  The Working Party acknowledged that the United States’ “massive and indiscriminate surveillance [was] a key element of the Court’s analysis,” but called on the European Union and its member states to open dialogue with their U.S. counterparts to develop legal and technical solutions that develop EU citizens’ fundamental rights.  This dialogue could include negotiation of a new Safe Harbor agreement or an intergovernmental agreement that takes into account governmental access needs, but also provides for transparency, proportionality and a redress mechanism. In the event that no solution is put in place by the end of the grace period, the Working Party has indicated that member-state data protection authorities would be committed to taking all necessary and appropriate actions, including coordinated enforcement actions, to carry out the judgment in Schrems.

Data privacy continues to be a quickly evolving landscape. The only certainty provided by the new EU invalidation of Safe Harbor is that there will be more uncertainty in the short term for companies that wish to hold or process the personal information of EU citizens.