Data Localization: The Unintended Consequences of Privacy Litigation

By Brehmer, H. Jacqueline | American University Law Review, January 1, 2018 | Go to article overview

Data Localization: The Unintended Consequences of Privacy Litigation


Brehmer, H. Jacqueline, American University Law Review


Introduction

When litigation is used to create policy, it can have unintended consequences.1 This is especially true in the data security and privacy sectors, where the law and technology are developing at different rates. Thus, when lawyers and judges do not fully consider the legal and practical repercussions of technology, they run the risk of undermining the successful advocates' original position. Nothing illustrates this risk more than the recent data privacy cases in the United States and European Union. Advocates in these cases brought their claims to defend privacy rights; however, their success before the European Court of Justice (CJEU)2 and the Second Circuit will paradoxically have the opposite effect by negatively impacting global user privacy and enterprise cybersecurity.3

Two cases-Data Protection Commissioner v. Schrems (Schrems II)4 before the CJEU and United States v. Microsoft Corp. (Microsoft Ireland) before the U.S. Supreme Court-along with pending challenges to the EUU.S. Privacy Shield, are forcing this issue. In the former case, the plaintiff, Mr. Schrems, is challenging the ability of U.S. companies to transfer EU user data from the European Union to the United States using Standard Contractual Clauses (SCCs), which are EU-issued contractual clauses that seek to establish safeguards for cross-border data transfers.6 Mr. Schrems claims that such mechanisms fail to provide adequate safeguards for transfer.7 Simultaneously, in Microsoft Ireland, Microsoft is arguing that the application of U.S. law to law enforcement's ability to compel user data stored abroad by American companies is an inappropriate extraterritorial extension of law enforcement powers.8 Though the former argument restrains commercial transfers of user data and the latter limits law enforcement access to data, they both ultimately impede cross-border data transfers such that data localization is the sole scalable legal and business solution available to U.S. companies.

while these cases do not directly cause the implementation of data localization laws or regulations, they do highlight the irreconcilable differences between the EU and U.S. approaches to data privacy. Unfortunately, these differences ultimately boil down to key aspects of the U.S. legal system, such as Article III standing.9 Thus, if the CJEU and the U.S. Supreme Court find for the original plaintiffs, the United States will be forced to either walk back foundational aspects of the U.S. legal system or put U.S. corporations in a position where they must localize data.10

Data localization is not new, and governments normally implement localization through restrictive laws and regulations that bar the movement of data in and out of a country.11 Such laws are generally criticized for being expensive for corporations and protectionist.12 Unfortunately, the costs are not only financial.13 Localization will also negatively impact user privacy and enterprise security worldwide by creating greater government access to user data,14 minimizing the efficacy of corporate privacy and security controls, and expanding the corporate network.15 The CJEU's data privacy and Microsoft Ireland cases facilitate localization by highlighting the unamenable differences between EU and U.S. approaches to privacy and by assigning a territorial identity to data. Thus, while these cases may provide an appearance of greater protection, they place user privacy and security at greater risk of exposure to good and bad actors alike.

This Note explores data localization as a key unintended consequence of the CJEU's data privacy cases and the Second Circuit's Microsoft Ireland case. It argues that these cases will undermine user privacy and global enterprise security by restricting the movement of data across borders and forcing corporations to localize by invalidating key data transfer mechanisms. Part I first outlines the concept of data localization and then details EU and U. …

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