TrustArc Blog

Update: EU-U.S. Data Transfer Mechanisms Legal Challenges

June 18, 2019

As previously described on the TrustArc Blog (“ Privacy Shield Approaching Its 3 Year Anniversary”, the European Union (EU)-U.S. Privacy Shield Framework has received two successive annual approvals from the European Commission (EC) since its July 2016 adoption, and currently serves as an EU-to-U.S. personal data transfer mechanism for more than 4,700 U.S. organizations.

Separately, pre-approved standard contractual clauses (SCCs), the most recent version of which was issued in 2010, are also recognized by the EC as valid transfer mechanisms to non-European Economic Area “third countries.” On June 13th, the European Commissioner for Justice and Consumers confirmed in a speech that SCCs are in the process of being updated for the post-GDPR world: “We are already working to modernise standard contractual clauses. This will make it easier for companies to share data when they contract processing services, within the EU or abroad.”

This update to SCCs is occurring concurrently with a legal action challenging the validity of SCCs as a transfer mechanism to the United States, in a case brought against Facebook Ireland by Austrian privacy advocate Maximillian Schrems. The case, dubbed Schrems II?—following the 2015 decision of the European Court of Justice (ECJ) that resulted in the invalidation of the EU-U.S. Safe Harbor Agreement on grounds that it did not provide EU citizens with protections “essentially equivalent” to that of the EU due to U.S. intelligence agencies’ surveillance practices, and thus that any EU-to-U.S. personal data transfers made on that basis were not legal–proceeds to oral arguments before the ECJ on July 9th. In this case, the Irish High Court has referred eleven questions to the ECJ relating to whether entering into SCCs, by itself, provides an adequate level of data protection for EU personal data transferred to the U.S. The Irish Supreme Court recently dismissed Facebook’s appeal of the Irish High Court’s decision to refer these items to the ECJ.

Meanwhile, the EU-U.S. Privacy Shield Framework is similarly undergoing a legal challenge on grounds that the United States does not adequately protect EU citizens’ personal data by virtue of U.S. intelligence agencies’ activities. The case, brought by three French non-governmental organizations, seeks to revoke Privacy Shield as a valid EU-to-U.S. personal data transfer mechanism as occurred with Safe Harbor in Schrems I. On July 1-2, the NGOs will argue before the General Court of the EU that Privacy Shield is not “essentially equivalent” to EU data protection law, even if it is more protective than Safe Harbor was. The losing party in this matter could then appeal to the ECJ for a final determination.

Decisions in both matters are expected within a year or less. It is unclear what effect, if any, the entry into force of new European Commission-approved SCCs would have on the ripeness of the case if introduced prior of the ECJ’s Schrems II ruling. Moreover, in the event the ECJ were to eventually invalidate both SCCs and Privacy Shield–the latter of which was specifically drafted by EU and U.S. officials to withstand judicial scrutiny—it is uncertain what course of action most organizations–small and medium-sized enterprises in particular—would undertake to effectuate their data transfers. With binding corporate rules (BCRs) and reliance on derogations such as explicit consent for cross-border data transfers being expensive, time-consuming or disfavored options for many businesses, it remains to be seen what effect on digital commerce such legal actions would have in practice (including with respect to data transfers to the U.K., in the event of an eventual “Brexit”). TrustArc will continue to follow developments closely and will provide regular updates.

This update was provided by the TrustArc Privacy Intelligence News and Insights Service, part of the TrustArc Platform. To learn how you can get full access to the daily newsfeed, contact us today!