European Commission publishes new draft Standard Contractual Clauses for consultation

Hot on the heels of the EDPB’s guidance on ‘supplementary measures’ with respect to international data transfers as a result of the Schrems II judgment (for further details see our blog post here), the European Commission has now published its long-awaited draft new Standard Contractual Clauses (the “New SCCs”) for consultation.

Legal Background

Chapter V of the GDPR prohibits the transfer of personal data out of the EEA to a third country or international organisation unless one of a number of available conditions under the GDPR is satisfied.

One of the conditions most often relied upon to legitimise the international transfer of personal data is use of the so-called Standard Contractual Clauses (“SCCs”). These are effectively a contract entered into between the data exporter and the data importer and impose certain data protection obligations on both parties. There are currently two different sets of SCCs which have been approved by the European Commission to cover transfers from: (i) a controller to another controller; and (ii) a controller to a processor.

However, the existing SCCs did not get updated when the GDPR came into force and so still refer to the old EU Data Protection Directive rather than the GDPR. There has also been criticism of the SCCs for a number of reasons, including because they don’t cover processor to processor transfers, leaving organisations the difficult task of trying to fit a square peg into a round hole when it comes to transfers from an EEA processor to a non-EEA sub-processor. The recent Schrems II case (see our blog post on the case here) also raised the question of whether or not contractual ‘supplemental measures’ are required when using the SCCs in order to further protect personal data being sent to countries which don’t otherwise provide adequate protection.

The New SCCs have therefore been eagerly awaited.

In this blog post we ‘summarise’ some of the key changes (both good and bad) and what they could mean for organisations and international data flows. With apologies for the length of this post, there is (fortunately or unfortunately) quite a lot to comment on! We have tried to limit our comments below to some of the more ‘big ticket’ issues. However, as always the devil is in the detail and there is an awful lot of detail with devils in it.

Grace period

The New SCCs contemplate a one year grace period for implementation, from the date of the European Commission’s implementing decision. Whilst this may seem positive in contrast to, for example, the ECJ’s decision in the Schrems II case to invalidate the EU-US Privacy Shield with immediate effect, it is important to note that the one year grace period applies because the New SCCs will repeal the existing clauses, meaning that organisations will have no choice but to re-paper their contracts to put the New SCCs in place. See further our ‘repapering’ section below.

Structure

The New SCCs adopt a modular format, allowing organisations to include or exclude particular modules depending on the factual scenario in question. Whilst at first blush, this appears to be a sensible and perhaps surprisingly flexible approach, it does appear to result in a particular sting in the tail as it means that it is not easily possible to ‘rip and replace’ and swap out the SCCs with the New SCCs. See further our ‘repapering’ section below.

Scope (data transfers)

As mentioned above, the SCCs only cover controller to controller (“C2C”) transfers or controller to processor (“C2P”) transfers. This created significant hurdles when an EEA controller was transferring data to an EEA processor who then wanted to onwards transfer to a non-EEA sub-processor, as there were no processor to processor (“P2P”) clauses available. In addition, since implementation of the GDPR, it has been unclear how the SCCs were supposed to apply in the context of a non-EEA controller subject to the GDPR as a result of the extra-territoriality provisions in Article 3. The SCCs only contemplated controllers/exporters located in the EEA.

The New SCCs contemplate all transfer scenarios, being C2C, C2P, P2P and even processor to controller (“P2C”). They also contemplate transfers where the data exporter is located outside of the EEA. This extended scope is likely to be good news for organisations who have long struggled to make the existing scope fit for purpose in the context of complex supply chains.

Scope (processor clauses)

As well as updating the SCCs for international data transfer purposes, the European Commission has also used the opportunity to incorporate into the New SCCs a set of processor clauses required by Article 28 GDPR. The GDPR mandates the inclusion of certain provisions in contracts between controllers and processors so, once again, at first blush it seems absolutely sensible to include such provisions in an international data transfer contract between a controller exporter and a processor importer.

However, the Article 28 provisions in the New SCCs are not a ‘module’ in and of themselves, meaning they cannot easily be extracted. In addition, the New SCCs make it clear that, in the event of a conflict between the provisions of the New SCCs and the provisions of any other agreement between the parties, the terms of the New SCCs will prevail. For organisations who have spent significant time and resource over the last 2-3 years negotiating data protection provisions into their commercial contracts, it is unlikely to be welcome news to understand that at least some of those negotiated positions may be superseded by the version of Article 28 that the European Commission has decided to incorporate into its New SCCs. See also our ‘liability’ section below.

Extending the extra-territorial reach of the GDPR?

The New SCCs (in the C2C module) contain an interesting requirement for non-EEA data importers who are controllers to notify the competent EU supervisory authority of any personal data breach likely to result in ‘significant adverse effects’. This would apply even to a non-EEA controller not otherwise subject to the GDPR, therefore extending the extra-territorial reach of the GDPR even beyond Article 3(2). In addition, the threshold is ‘significant adverse effects’ rather than the thresholds referred to in the GDPR. Thresholds aside however, this is likely to be a challenging obligation for controller importers who would otherwise have no interaction or relationship with any EU supervisory authority.

Schrems

It was almost inevitable that the New SCCs would include provisions to try and deal with some of the challenges brought about by the Schrems II case. Indeed, many commentators have suggested that the reason it has taken the European Commission such a long time to publish the New SCCs is because it wanted to be able to publish a version which responded to the Schrems case. It is therefore not surprising that the New SCCs include ‘supplementary measures’ to address concerns about the transfer of personal data to countries which don’t provide adequate protection.

The Schrems-related provisions in the New SCCs include: (i) a warranty from the parties that they have no reason to believe that the laws in the importer country prevent the importer from fulfilling its obligations under the New SCCs; (ii) a requirement to assess the laws of the importer country; (iii) a requirement to document the assessment referred to in (ii); and (iv) a requirement to make the documented assessment available to a competent supervisory authority on request. In addition, there are obligations on the data importer to challenge requests for access received from an authority and only provide the minimum amount of personal data possible once such challenges have been exhausted.

These types of obligations are a fairly logical consequence of the Schrems judgment but they are nonetheless onerous on the parties to the transfer. For small/medium data importer organisations in particular, the requirement to exhaust legal challenges in response to access requests is likely to be expensive and challenging. Similarly, the requirement on data exporters to assess the relevant laws in the importing country appears to place an obligation on private sector companies that the European Commission itself hasn’t been able to discharge other than with respect to a handful of countries that have obtained an adequacy decision. The final sting in the tail here would also appear to come in the form of the recently published EDPB Schrems guidance which suggests that contractual supplementary measures are nonetheless unlikely to enable a data exporter to transfer data to a third country that does not have essentially equivalent laws (i.e. the inclusion of these clauses in the New SCCs could make no difference whatsoever to the ability of a data exporter to transfer the data in a compliant manner).

Repapering (again)

As mentioned several times above, there appears to be no escaping the fact that the New SCCs are going to require every single organisation in Europe that transfers data outside of the EEA to undertake a mass repapering effort. Coming so soon after data protection repapering exercises undertaken to deal with: (i) the invalidation of the Safe Harbor; (ii) the implementation of the GDPR; (iii) the invalidation of the EU-US Privacy Shield; and (iv) the upcoming expiry of the Brexit transition period, this is likely to be particularly unwelcome news. The prospect of asking for additional budget to undertake such an exercise is also unlikely to be particularly appetising for many privacy professionals within organisations.

However, the modular structure of the New SCCs means that a simple ‘rip and replace’ for existing SCCs in unlikely to be possible. In addition, the introduction of P2P and P2C clauses will require the papering of new relationships as these clauses didn’t exist previously.

As well as the administrative burden of a repapering exercise though, it appears that this latest project is also likely to require more careful legal analysis than those that went before it. The interplay between commercially negotiated C2P positions and the provisions in the New SCCs will need to be carefully considered to understand the extent to which existing positions conflict with the New SCCs. There will also likely end up being a divergence between the processor terms negotiated between controllers and processors based in the EU, and those negotiated between controllers in the EU and processors outside of the EEA. In summary, it won’t be simple.

Liability

It perhaps follows on from the point above regarding potential conflict between negotiated commercial positions and the New SCCs that the issue of liability is likely to become a particular sticking point. The New SCCs contain more detailed liability provisions than are currently set out in the SCCs, and many organisations will already be aware of the complex negotiations undertaken commercially with respect to processor liability in particular. For example, the interaction between commercial agreed liability caps and the ‘uncapped’ liability position in the New SCCs is unclear – would an agreed liability cap be viewed as being in ‘conflict’ with the position in the New SCCs?

Conclusions

The New SCCs are not all bad news. It is clear that the European Commission has tried to address many of the criticisms of the existing clauses with its new drafting and flexible modular structure. However, regardless of whether or not the drafting has been improved, the fact that their implementation will require yet another resource-heavy and expensive repapering exercise is possibly a disadvantage that many will consider outweighs any possible benefit. In combination with the recent EDPB guidance on Schrems, it seems to make for a rather bleak outlook for organisations trying to balance data protection compliance with the commercial reality of global data flows.

Miriam Everett
Miriam Everett
Partner, Head of Data Protection and Privacy, London
+44 20 7466 2378
Alasdair McMaster
Alasdair McMaster
Associate, Digital TMT, Sourcing and Data, London
+44 20 7466 2194

European Commission Publishes GDPR Roadmap

On 1 April 2020, almost two years after the General Data Protection Regulation (GDPR) entered into force, the European Commission published a roadmap for evaluating its application.

The roadmap specifically asks for feedback on the Commission’s strategy in dealing with the issue of international transfer of personal data to third countries, focussing on existing adequacy decisions, and the cooperation and consistency mechanism between national data protection authorities.

Why has the roadmap been published?

Article 97 of the GDPR requires the Commission to submit a report on the evaluation and review of the Regulation to the European Parliament and the Council by 25 May 2020.

The GDPR specifies that the Commission must examine the application and functioning of the mechanism for (i) transfers of personal data to third countries or international organisations under Chapter V and (ii) ensuring consistency and cooperation under Chapter VII.

Further, under Article 97 the Commission is required to take into account the positions and findings of the European Parliament and the Council, and if necessary to submit appropriate proposals to amend the GDPR in light of any technological developments.

What does the roadmap say?

The Commission has announced its intention to publish a report identifying issues in the application of the GDPR as requested by Article 97. The report will build on input from the Council, the European Parliament and the European Data Protection Board, as well as two earlier reports published by the Commission in 2017 and 2019, which both considered the protection of personal data since the GDPR had entered into force.

Publication of the roadmap launches a consultation process to gather input from citizens and stakeholders. As part of that process, the Commission will be sending detailed questionnaires to data protection authorities and the European Data Protection Board, as well as to the GDPR Multi-Stakeholder Group, a group made up of business and civil society representatives. The Commission will also conduct bilateral dialogues with the authorities of the relevant third countries.

Individuals, businesses or interested parties can register with the Commission here to provide feedback by 29 April 2020. Feedback will be published to the Commission’s website alongside a synopsis report explaining how any input will be taken on board or why some suggestions cannot be actioned.

What happens next?

The Commission has already received feedback from the Council on the application of the GDPR in a report setting out its position on 19 December 2019. In its report the Council raised a number of concerns, including the challenges of determining or applying appropriate safeguards in the absence of an adequacy decision and the strain of the additional work for supervisory authorities resulting from the GDPR cooperation and consistency mechanisms.

The Council’s report also flagged issues raised by individual Member States, such as the importance of considering the application of the GDPR in the field of new technologies and big tech companies, and the development of efficient working arrangements for supervisory authorities in cross-border cases.

The deadline for providing feedback on the roadmap from citizens and stakeholders is 29 April 2020. Following consultation with the relevant parties and receipt of any online feedback, the Commission will publish its report by 25 May 2020. There is no obligation on the Commission to take any steps following publication of the report. However, Article 97(5) states that the Commission shall ‘if necessary’ submit appropriate proposals to amend the GDPR.

Miriam Everett
Miriam Everett
Partner, Head of Data Protection and Privacy, London
+44 20 7466 2378
Katie Collins
Katie Collins
Trainee Solicitor, London
+44 20 7466 2117

Airbnb, TripAdvisor, Booking.com and Expedia strike data sharing deal with the EU

5 March 2020 saw the European Commission (EC) announce an unprecedented agreement with short-stay accommodation titans Airbnb, Booking.com, Expedia and TripAdvisor to share and publish data (on the number of nights booked and the number of guests staying) with the EC via Eurostat (the EU’s statistical office) (press release here). Eurostat will then aggregate the data by municipality and publish that data on a Member State and individual region level.

This collaborative venture represents an initial step by the EC in tackling the absence of regular and reliable data in this area, and recognises the need to balance: (a) the opportunities for micro-entrepreneurs using these growing platforms; and (b) adverse societal effect on local communities of landlords using their properties for short term lets, e.g. increasing property prices.

While this agreement has been universally welcomed, it is noted that there are other categories of information that could also be useful from a policy-making perspective, such as the number of listings, hosts, beds and types of accommodation.

A number of cities including Paris, Barcelona, Berlin and Amsterdam have previously sought to place restrictions on the use of short-stay accommodation platforms, but this has not always been successful. For example, on 19 December 2019, the Court of Justice of the European Union (the EU’s most senior court) ruled that Airbnb did not have to meet particular regulatory requirements as it was correctly classified as an intermediation service rather than an estate agent (a stark contrast to their ruling on Uber with respect to the transportation services space). This new data sharing agreement does not tackle the limited regulatory restrictions that can be placed on online platforms. However, the EC hopes that this data collaboration will allow for more informed and balance policymaking.

With a 2019 survey showing that 21% of EU citizens use a website or app to arrange accommodation, there have been numerous calls for a digital regulator to better police this space. It is thought that the much anticipated Digital Services Act will make some progress on this front, but the slow development of this legislation may struggle to match the evolving issues face by online platforms. That said, this remains an interesting example of big tech companies collaborating with supranational bodies on regulation, as well as regulators seeking to become better informed on the nature and effect of new technology platforms to ensure informed decision making in this space.

This information on short-stay accommodation is anticipated to be publicly available as soon as Q3 2020.

David Coulling
David Coulling
Partner, Digital TMT and Sourcing, London
+44 20 7466 2442
Miriam Everett
Miriam Everett
Partner, Head of Data Protection and Privacy, London
+44 20 7466 2378
Jonathan Stephenson
Jonathan Stephenson
Associate, London
+44 20 7466 2655

UK Maintains Adequacy Status in Japan Post-Brexit

Summary

  • UK will maintain its adequacy status in Japan even after it withdraws from the European Union.
  • Japan recognises that the UK has relevant legislation in place to maintain its adequacy assessment.

The Personal Information Protection Commission (“PPC”) in Japan has announced that, with respect to the transfer of personal data between Japan and the UK, the UK will maintain its adequacy status even after it withdraws from the European Union (“EU”).

Background

The UK withdrew from the EU on 31 January 2020 and has entered into a transition period until 31 December 2020, during which time it will remain subject to EU rules including the General Data Protection Regulation (“GDPR”).

Currently, European Economic Area member states, which includes those member states within the EU but does not include the UK, are included in Japan’s white list of countries which Japan recognises as having an adequate level of personal data protection. This recognition enables personal data to be transferred out of Japan and into white-listed countries without the requirement for any further safeguards to be in place.

The PPC’s Announcement

The PPC’s announcement on 28 January 2020 confirms that the UK will continue to maintain its adequacy status in Japan now that it has withdrawn from the EU because it has the relevant legislation in place to maintain its adequacy assessment. The PPC also confirms that this will apply to the UK even after the transition period.

This is a welcome indication that countries outside of the EU recognise the ability of the UK’s data protection laws to enforce international data protection requirements and that cross-border data transfer with the UK can continue after the transition period.

This announcement follows the recent adoption by the European Commission of its adequacy decision in favour of Japan on 23 January 2020.

As we noted in our 2020 data protection predictions blog, we expect the discussions around the UK’s adequacy decision to be one of the key developments in the year to come for data protection. Despite the GDPR being enacted into UK law, it remains to be seen whether the EU will recognise the UK as providing adequate levels of data protection following the transition period. In this regard, the European Data Protection Supervisor (“EDPS”), Wojciech Wiewiórowski, noted that the UK is “13th in the row” for an adequacy decision. Even though the EDPS does not participate directly in adequacy decisions, his comments may indicate a general reluctance to let the UK skip the queue in terms of an adequacy decision.

 

Miriam Everett
Miriam Everett
Partner, Head of Data Protection and Privacy, London
+44 20 7466 2378
Angela Chow
Angela Chow
Associate, London
+44 20 7466 2853

European court to rule on validity of GDPR Standard Contractual Clauses

  • The long-running challenge to the so-called EU Standard Contractual Clauses and the EU-US Privacy Shield, both used to lawfully transfer personal data outside of Europe, is now going to be heard by the European Court of Justice (“ECJ“) after an attempt to block the referral was rejected by the Irish Supreme Court.
  • The ECJ will now assess and opine on whether these methods of international data transfer satisfy the requirements of the GDPR, with the potential for either or both mechanisms to be struck down like the US Safe Harbor was in 2015.
  • If the court finds either method to be invalid, it would have a major impact on the cross border transfer of personal data, leaving companies with significant GDPR compliance issues and extremely limited options to be able to lawfully transfer data across national boundaries.

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Data protection if there’s no Brexit deal

On 13 September 2018, the UK Government published a series of technical notes setting out the implications in various sectors and areas of a ‘no deal’ scenario (i.e. a scenario in which the UK leaves the EU without an agreement), including a note specifically covering data protection. The note sets out the actions UK organisations should take to enable the continued flow of personal data between the UK and the EU in the event that the UK leaves the EU in March 2019 with no agreement in place.

Transferring data from the UK to the EU

Even in the event of a ‘no deal’ scenario, the technical note confirms that there should not be any impact on the transfer of personal data from the UK to the EU and beyond. A combination of the UK Data Protection Act 2018 and the EU Withdrawal Act would incorporate the GDPR into UK law. As such, the provisions currently found in Chapter V of the GDPR, which prohibit the transfer of personal data outside of the EEA without adequate safeguards in place, would remain. UK entities would therefore continue to be able to freely send personal data from the UK to the EU, and would continue to need to satisfy an appropriate legal basis to legitimise the transfer of personal data beyond European borders.

The technical note further confirms that, “in recognition of the unprecedented degree of alignment between the UK and EU’s data protection regimes, the UK would at the point of exit continue to allow the free flow of personal data from the UK to the EU”. However, there is a potential sting in the tail as the technical note provides that the UK will keep this under review – once the UK data protection regime is no longer required to mirror the GDPR, it would in theory be possible for the UK Government to amend the UK rules to provide that, for example, no personal data could be transferred outside of the UK without additional safeguards in place – meaning that this could potentially change in the future.

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EU-US Privacy Shield first annual review announced following a challenging introduction

On 12 July 2016, the European Commission adopted an “adequacy decision” allowing for the transatlantic transfer of personal data from the EU to the US in accordance with the framework and principles of the EU-US Privacy Shield (the “Privacy Shield“).

Two privacy advocacy groups have however since filed actions in the European General Court to annul the adequacy decision. On 28 October 2016 the Irish privacy advocacy group, Digital Rights Ireland, filed an “action for annulment” on the basis that the Privacy Shield does not sufficiently protect the privacy rights of EU citizens. If successful, the action would invalidate the European Commission’s adequacy decision that approved and adopted the Privacy Shield. The group filed the challenge in the General Court based in Luxembourg, the second highest EU Court after the CJEU. A further challenge was also filed in the General Court by a French civil society group at the end of October 2016. It could take the General Court twelve months or more before a decision is handed down.

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