The Third Annual Review on the U.S.-EU Privacy Shield Notes the U.S. Is Doing Well, Are You?

On October 23, 2019, the European Commission published a report on its third annual review of the Privacy Shield. The results are generally positive with no immediate risk to the Privacy Shield’s existence (as a regulatory matter) for at least another year. While you can read the full report here, the following serves as a brief summary, which will be reviewed in more detail in the weeks to come.

Recall that the Privacy Shield works together in a closely integrated manner with the GDPR. It is not a separate law or a substitute for GDPR compliance. More specifically, and to use a bit of regulatory jargon (we’ll leave unexplained for now in the interest of brevity), the Privacy Shield serves as what is known as a “partial adequacy decision” falling under Article 45 of the GDPR.

Per the US-EU bilateral agreement that resulted in the Privacy Shield, it is subject to annual review by the relevant authority in the EU. If the review goes badly, it would be an existential threat to the Privacy Shield. Thankfully, that did not happen. It is important to note that, this report is, of course, unrelated to the Schrems II case (which we posted on here) and its anticipated follow-on cases which are likely to judicially challenge the Privacy Shield.

Since there’s a lot of confusion, even amongst some practitioners, about what the Privacy Shield is and how it fits in with GDPR, we always feel it’s a good idea to give a reminder whenever we post on the Privacy Shield. So here goes:

Under the Privacy Shield, U.S.-based companies who self-certify can lawfully receive GDPR-governed personal data from companies based in the European Economic Area. Equally as important, Privacy Shield also signals to the marketplace that your company has what we refer to at the end of this post as the “Pareto Principle” of data security and privacy policies – procedures and programs in place that are not only required by GDPR, but are fairly universal across global regulatory regimes. As a result, Privacy Shield self-certification is definitely a plus, but it is not fatal to your company’s ability to receive personal data from the EEA. If you aren’t Privacy Shield self-certified, it just means you can’t rely on GDPR Article 45 to receive personal data.

Instead, you have to look to GDPR Article 46. That Article enumerates a handful of mechanisms that also can be used to lawfully receive EEA personal data transfers. They range from the so-called Standard Contractual Clauses (which are currently under attack in Schrems II) to a costly and complex mechanism called Binding Corporate Rules.

The key take away from today’s report is this: For the third year in a row, Privacy Shield has proven its viability. Becoming Privacy Shield self-certified is worth considering if your business requires regular receipt of GDPR-governed data. It also has some independent value beyond EEA transfers insofar as it shows your company’s security and privacy practices have at least some minimum level of maturity. As we all know and preach, it is essential in today’s global privacy evolution to ensure the development, implementation and continued monitoring and improvement of sound data security and privacy policies and practices.

Should you have any questions before our more detailed post is published, please contact Rich Green for more information.

How Many Schrems Does It Take to Stop a Data Transfer?

The so-called “Schrems II” case was heard earlier this week. It’s impossible to give this topic the treatment it deserves in a single blog post. So for now, here’s a quick FAQ:

What’s this case about?

Collecting personal data from the European Economic Area (aka, the “EEA”) and transferring to other countries is restricted by law. It can be done, but companies have to use certain statutorily prescribed mechanisms. Those, more or less, have been the rules of the game since at least 1995 continuing through today under the new GDPR which you’ve probably heard a lot about.

The prescribed mechanisms have varied over the years, but one constant has been what are known as “Standard Contractual Clauses” or “SCCs.” SCCs are a set of data protection contract terms that have been pre-approved by the EU data protection regulators. In the “old days” (by which we mean the mid- to late 1990s) they were called “model clauses.”

If each of the EEA- and US-based counterparties to a data transfer transaction agree to bind themselves to the SCCs, then an otherwise prohibited transfer becomes permissible.

In simplest terms, the Schrems II case is trying to stop companies from being able to do that. The plaintiff’s claim is that the SCCs are not valid under EU law because they fail to provide adequate levels of protection for personal data.

Why do they call it Schrems II?

Schrems is the surname of an EU qualified attorney and political and privacy activist. He and the ecosystems of activist organizations around him are serial plaintiffs. This is their second (and definitely not final) attack on EU-US data transfers.

Back under the old 1995 law, one way to conduct a permitted personal data transfer was to use the EU-US Safe Harbor Framework. If a company took a couple of (pretty minimal) steps and signed up with the US Department of Commerce to be part of the Safe Harbor, it could receive personal data from the EEA.

Spurred on by the intelligence agency surveillance scandals that occurred during the Obama administration, Schrems, then a law student, brought a series of cases trying to invalidate the EU-US Safe Harbor. After a few procedural losses and a bit of forum shopping, he finally succeeded in 2015. That case became instantly known as “Schrems I” because Schrems and his supporters were already preparing their challenge to the SCCs. And, again, that’s exactly what’s happening now under Schrems II.

Didn’t the EU-US Privacy Shield replace the Safe Harbor

Yes. A detailed analysis of the Privacy Shield (and its all-important relationship to the GDPR) is beyond the scope of this post, so here’s the summary version:

The Privacy Shield is considered a “partial adequacy decision” under GDPR Article 45. As such, it allows companies to collect/transfer EEA personal data to the US as long as the US-based recipient company is Privacy Shield self-certified.

But this case isn’t about the Privacy Shield (at least not nominally—more on that in a minute) or even GDPR Article 45. As stated in the prior two FAQs, this case is about one of the other prescribed mechanisms, the long-standing SCCs which have been in existence for nearly 25 years and today fall under the aegis of GDPR Article 46.

That said, while we’re still waiting on our own confirmation, it’s being reported by reliable news sources that, in open court this past Tuesday, Schrems’ lawyers asked the court to also invalidate the EU-US Privacy Shield—despite not having actually pled or argued for it previously (in fact there is an entirely separate case for that) and despite the fact that it derives from a statutory mechanism (GDPR 45) that is separate and distinct from the SCCs (which, again, are GDPR 46).

What happens if the European Court of Justice invalidates the SCCs

Déjà vu all over again. Things will very likely look pretty much the same as they did in 2015 when the Schrems I court invalidated the Safe Harbor. Which means there will be a long interregnum during which there will be less regulation, more unfettered transfers and lots of confusion.

You see, like the too-clever-by-half Wile E. Coyote character of Warner Brothers cartoon fame, in the first case that bears his name, Schrems thought he was going to dynamite, and thereby halt, EU-US data transfers by invalidating the Safe Harbor. But in the end, the only thing that went up in smoke was his goal of protecting data transfers.

Invalidating the Safe Harbor didn’t stop transfers out of Europe to the US at all. Instead, the result in Schrems I combined with the already looming specter of Schrems II, led companies to conclude that European law was, to put it colloquially, a hot, unenforceable mess.

EU regulators, already under-staffed, under-funded and overwhelmed, were more or less paralyzed after Schrems I. So responsible, law abiding companies had to more or less make it up as they went along. Most did their best to self-regulate and relied on SCCs. Others, knowing Schrems II was imminent and SCCs thereby in doubt, used ad hoc data export/import contracts. Meanwhile, the less law abiding were all too happy to flout the spirit of the law entirely and were doing pretty much whatever they wanted with impunity.

That same environment of confusion and virtual lawlessness, rather than Schrems’ goal of stopping or better protecting US transfers, will play out again if the Schrems II court invalidates SCCs. It’ll happen a thousand-fold if the Schrems II court decides, sua sponte, to invalidate the Privacy Shield too

What can we do now to prepare?

For starters, keep reading this blog! In addition to that, remember our recurring mantra about applying the Pareto Principle to data security and privacy compliance.

Sure it’s true that there are variations between laws and some laws have real quirks (CCPA anyone?!). But it’s even more true that just about every data sec or privacy law (from HIPAA to the NY Cyber-reg to GDPR) has the following (or a very similar) set of building blocks at its foundation:

  • adopt a risk-based technical and administrative data protection program,
  • tell your employees and customers what you’re doing with the data you collect about them and why,
  • give your employees and customers some degree of access to and autonomy over that data,
  • keep a close eye on third parties (including vendors) with whom you share that data, and
  • respond swiftly to, and be honest with those affected by, unauthorized use if it occurs.

So put that foundation in place, and check on it periodically, and you’ll be well on your way to achieving 80% compliance no matter what the Schrems II court decides.

Google Faces European Consumer Group Complaints Alleging GDPR Violations for Improper Collection of Location Tracking Data

On Tuesday, November 27th, consumer groups filed complaints with the data protection authorities in seven European countries, accusing Google of improperly collecting location tracking data in violation of the new General Data Protection Regulation (“GDPR”). The complaints, filed in the Czech Republic, Greece, Netherlands, Norway, Poland, Slovenia, and Sweden, cite to a study by the Norwegian Consumer Council, which reviews the various methods used to track consumers’ location when they use Google services on their smart phones.

Consumer groups claim that Google has been using a variety of techniques to “push or trick” users into allowing themselves to be tracked when they use Google services. These techniques include “withholding or hiding information, deceptive design practices, and bundling of services.” Complainants specifically allege that tracking is accomplished through the “Location History” and “Web & App Activity” features built into Google accounts, and these issues are particularly pronounced on mobile devices that use the Android platform.

The complainants go on to allege that Google does not have a valid legal basis for processing users’ location data and is processing personal information in violation of GDPR. Assuming Google will attempt to rely on consumer consent, complainants argue consent from Google users is inadequate because users are not given sufficient information to make informed choices, default settings are hidden, and users are repeatedly nudged to turn on features that track location.

In response to a request for comment, a Google spokesperson said: “Location History is turned off by default, and you can edit, delete, or pause it at any time. If it’s on, it helps improve services like predicted traffic on your commute.

“If you pause it, we make clear that—depending on your individual phone and app settings—we might still collect and use location data to improve your Google experience.”

These recent complaints are significant for several reasons. First, GDPR only recently took effect on May 25, 2018. Enforcement to date has been limited and there is little legal precedent that can be relied on to ascertain a potential outcome for these complaints. It is difficult to predict how the data protection authorities in these seven countries will respond.

Second, penalties for violations of GDPR are prohibitive. Current regulations provide for fines of up to 4% of global annual revenue, so Google, and its parent company Alphabet, could face fines in the billions of dollars.

Third, Google is facing lawsuits in United States federal court over the same location tracking data. The plaintiffs in those suits allege Google continued to track users’ locations through their phone, even after location tracking features were disabled. Google has filed a motion to dismiss, which will be heard in January 2019. It is unclear what impact, if any, these new complaints in the European Union will have on ongoing US litigation, and vice versa.

What’s ‘Hot’ in GDPR this Week

Here’s a quick Friday afternoon post on five noteworthy developments the first week after GDPR go-live:

  • Surprising no one, Google figured out a way to monetize the GDPR through compliant ads https://tinyurl.com/y9xzxrhs
  • And just as unsurprisingly, Max Schrems figured out a way to monetize Google (and others) by suing for billions under the GDPR https://tinyurl.com/yazdrbg4
  • Japan took one step closer to getting an adequacy decision, we all knew this would progress post-GDPR what’s surprising is how fast (keep an eye on the PPC rulemaking) https://tinyurl.com/JapanEUadequacy.
  • Both the US Department of Commerce and the US Chamber of Commerce are picking fights with the European Commission over GDPR’s extra-territoriality and un-intended consequences, among other things https://tinyurl.com/yb7kw8xl and https://tinyurl.com/y8vxqeg4
  • But one US Senator apparently thinks Commerce and the Chamber are getting it wrong and introduced a resolution to prove it https://tinyurl.com/y9xawr9c

GDPR Go-Live: The End of the Beginning

Today is May 25th. Unless you’ve been living in a cave without a hotspot for the last year, you know that means today is the go-live date for Europe’s new General Data Protection Regulation or “GDPR.” With its controversial extraterritorial reach, the GDPR has been causing much commotion around the world and along with that commotion, a whole lot of breathless hyperbole in the popular and professional trade media.

We haven’t done much writing on any of it in this space because, well, we’ve been busy doing GDPR preparedness work for our clients. And lots of it! (Article 28 anyone?) But the occasion of the go-live date has given us a brief respite, so here’s a quick run down on what’s going to happen now that the law is finally in effect, and what to do if you’ve, well, done nothing so far.

What’s going to happen on May 26th?

We can say for certain that the sun is going to rise, the earth is going to rotate on its axis and life will go on. There’s been so much myth and hype about the GDPR it seems worth pointing all that out. More importantly, it’s also worth pointing out you’re not going to wake up tomorrow morning with the equivalent of a subpoena from an EU member-state data protection regulator in your mailbox. To date, more than half the EU member states had not adopted the GDPR into law (which doesn’t affect its validity, but does raise questions about enforcement), and in a recent survey of most of the relevant regulators, about two-thirds said they won’t be ready to start enforcement activities any time soon. Among those regulators who do feel ready, most have stated publicly that there will be few fines in 2018 unless something is very wrong.

So come dawn tomorrow, things will feel an awfully lot like any other Saturday. If your company’s been doing its GDPR homework for the last years/months that will be especially true. If not, then keep reading….

We haven’t done anything to prepare. Now what?

You have some work to do and soon. That said, we’re calling for clients newly discovering GDPR to act with thoughtful urgency, not panic.

The first thing you’ll need to do is determine whether you’re subject to the GDPR. There are two ways than can happen: direct and indirect. If it meets the requirements for being a data “controller” or “joint controller” that is “established” in the EU, your company is directly covered. If it does not meet those requirements, but does meet the requirements of a data “processor,” your company will be indirectly covered.

How Do We Know If We’re A “Controller” Who’s “Established” In the EU?

The language of the GDPR can make this a difficult question to answer, particularly with regard to the “established” element. There are, however, a few obvious tests. For instance, if you answer “yes” to any of the following questions you are likely directly covered:

  • do you have a physical presence in the EU?
  • do you have employees or paid contractors in the EU?
  • do you sell products that are designed to meet EU market requirements (220 volt products are a simple example)
  • are any of your sales and marketing activities purposefully directed at the EU market? Some examples of being purposefully directed include if you:
    • have distributors/resellers in the EU
    • accept Euros or member state currency
    • translated your website, brochures, product manuals or other collateral or documentation into member state languages
  • do you monitor the behavior of customers based in the EU?
    Some examples of what it means to “monitor behavior” include:

    • use of technologies to track EU website users
    • using predictive analytics to anticipate buying patterns
    • operating affinity or loyalty programs in the EU

It Looks Like We Are a Controller Established in the EU. Are we in Trouble?

Based on what the regulators are saying about enforcement, as long as well-planned steps are taken to immediately start a compliance program, your company will probably be ok in the very near-term. Below is a brief, simplified list of what you’ll need to accomplish for GDPR compliance:

  • identify and assess risks by personal data types
  • identify who you share personal data with and where it’s stored
  • determine which of the six GDPR-permitted reasons you are relying on to possess personal data
  • update public privacy policies and internal adverse event policies and procedures, especially regarding response and notification
  • be able to respond to requests from people whose personal data you hold (such as providing copies or erasing their data)
  • review/amend your vendor agreements and remediate any gaps between existing terms and those GDPR requires

We are not Directly Covered. How do we Determine if we are Indirectly Covered?

This analysis is a bit easier than the direct coverage analysis, but there are still many variations and nuances. The easiest way to determine whether your company is indirectly covered is if you collect (via the phone, internet etc.) personal data (which, be forewarned, is very broadly defined under the GDPR) from your customers’ employees, clients, etc. You will also be indirectly covered as a processor if all of the following are true:

  • your customers collect, for themselves or for their own upstream customers, personal data from employees, consumers or others in the EU,

then

  • send all or part of that personal data (again, broadly defined) to your company no matter where it’s located including in the United States,

and

  • you “process” it on behalf of that customer, noting that “processing” is also very broadly defined to include recording, organizing, structuring, storing, transmitting, adapting and the like.

We Are Indirectly Covered, What Do We Need To Do?

As with companies who newly discover they are directly covered, if you’re indirectly covered it’s time for thoughtful urgency, but not panic. As an indirectly covered entity, your company’s GDPR obligations will come in the form of so-called “flow-downs” from the obligations that directly covered entities have with respect to their vendors, agents, and sometimes even their affiliates, known under GDPR as “processors.”

Directly covered entities do have a small degree of latitude in determining which obligations to flow-down and how to do so, based on the nature and types of work you do for them. At a minimum, however, a directly covered entity will require you to enter into a written contract, or if you already have one, add an addendum, under which the directly covered entity “instructs” you in what elements of their personal data you can process and the scope of your authorization to so.

You also should expect directly covered entities to impose most of the following obligations on you (at least some of which you may be able to satisfy if you are ISO 27001 certified or receive unqualified SOC 2, Type 2 reports):

  • restrict you from subcontracting without their consent
  • require you to obtain confidentiality commitments from employees who are directly involved with the “processing” for that covered entity
  • implement data security safeguards to protect their personal data (which may include encryption)
  • assist them in meeting their own GDPR obligations to provide data subjects with access to their data and the right to have it deleted

Some processors choose to be proactive and send their own form of Data Protection Agreement or GDPR policy statement to their customers. This can be a viable strategy, but should be assessed on a case-by-case basis.