ECJ invalidates the Safe Harbour agreement: will all data transfers to the US stop?

Map from http://www.submarinecablemap.com/
Map from http://www.submarinecablemap.com/

Following the recommendation of Attorney General Yves Bot, the ECJ ruled today that the Safe Harbor agreement is invalid:

the Court declares the Safe Harbour Decision invalid. This judgment has the consequence that the Irish supervisory authority is required to examine Mr Schrems’ complaint with all due diligence and, at the conclusion of its investigation, is to decide whether, pursuant to the directive, transfer of the data of Facebook’s European subscribers to the United States should be suspended on the ground that that country does not afford an adequate level of protection of personal data.

The full judgement is available here.

This means that first of all, national Data Protection Authorities (DPAs) are granted power to decide whether or not data transfers are legitimate or not. The decision by the court will thus not stop all transfers to the US, it simply means that national DPAs may now block any transfers if they so see fit, as they are no longer required to follow the Safe Harbor agreement.

The Safe Harbor agreement did not fall because it was a self-regulatory instrument with a long history of compliance issues. It fell because US public authorities would not be required to follow the agreement, and because US law would always override it.

There was even a “national security exception” in the agreement, which makes the mass surveillance of Facebook data possible:

Adherence to these Principles may be limited: (a) to the extent necessary to meet national security, public interest, or law enforcement requirements; (b) by statute, government regulation, or case law that create conflicting obligations or explicit authorizations, provided that, in exercising any such authorization, an organization can demonstrate that its non-compliance with the Principles is limited to the extent necessary to meet the overriding legitimate interests furthered by such authorization;

(EC: Commission Decision 2000/520 Annex I)

What now?

Although this does not mean that data transfers between the EU and the US will stop immediately, this means that DPAs have the power to block them. IT companies will probably start applying for Binding Corporate Rules and using model contract clauses. But the weakness of the Safe Harbour agreement, the national security exception, is present in those cases as well. If DPAs decide to crack down on IT companies this might mean that more and more data centres will have to be established on European soil. For the IT giants this will just be a huge headache, but for SMEs this might mean that EU customers are off limits if the data isn’t stored in Europe, a cost which smaller startups might not be able to cover.

It is unlikely, however, that things will go that far. The enforcement of data protection rules will probably not go that far, and trade relations are at stake if this decision is interpreted strictly. The Safe Harbour agreement was always a political solution. The Commission knew that the US would never have information privacy laws adequate by European standards, and so a self-regulatory initiative was concocted. Now they will need a new agreement, but it will be much harder to come up with one that is seen as legitimate in light of the NSA leaks. It will be interesting to see them try.

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