Obtaining Discovery From EU After GDPR's Passage

New York Law Journal

In April 2016, the European Union (EU) adopted a major overhaul of its data privacy laws to better address new technologies and provide a more coherent approach across different EU Member States. The new law, known as the General Data Protection Regulation (EU) 2016/679 (GDPR) takes effect on May 24, 2018. It will replace the patchwork of national laws created under the old Directive 95/46/EC with a more unified law directly binding each Member State and threatening significant fines amounting to 4 percent of a company's global turnover for non-compliance.

Significantly, the GDPR includes new provisions addressing litigation-related international data transfers. These new provisions create both new perils and opportunities when personal data must be transferred from the EU to the United States for use in discovery.

Article 48: The Good and Bad

When drafting the GDPR, EU legislators recognized the pressure U.S. authorities often place on companies subject to EU data privacy laws and wanted to send a clear signal that companies should resist such pressure and better respect EU privacy restrictions. The result was Article 48, which notes that "any judgment of a court or tribunal and any decision of an administrative authority of a third country requiring [an entity holding EU data] to transfer or disclose personal data may only be recognizable or enforceable … if based on an international agreement, such as a mutual legal assistance treaty (MLAT) … ." The provision presents an obstacle because most Member States do not have MLATs with the U.S., and even those that exist often do not always cover U.S. pretrial discovery. Article 48 further notes that it is without prejudice to other grounds for international transfers set forth in Chapter V of the GDPR.

Grounds for Transfers

Although Chapter V lists several options for legitimizing international data transfers, Articles 46 and 49 will likely provide the most useful mechanisms for transfers to the United States during discovery. This includes:

  • Standard Contractual Clauses (Article 46(3)(a)): The EU's Standard Contractual Clauses (SCCs) offer a way to facilitate data transfers on an as needed basis for smaller companies or one-off data transfers. Indeed, because it is possible for multiple entities to enter into SCC agreements, they are particularly well suited for data transfers related to litigation where a variety of U.S.-based entities may need access to the data, such as an e-discovery vendor, a document review provider, contract attorneys, or multiple law firms. The main limitation to using SCCs is that they can only be used if data is being transferred for reasons considered legitimate under the GDPR. Any such use must therefore be assessed within the context of the GDPR's general principles for data transfers and the limitations set forth in Chapter V. For example, a transfer undertaken for national security reasons would not be acceptable unless there were other legal permissions which either standing-alone or in combination with the SCC permitted the transfer.
  • Transfer for the Establishment, Exercise or Defense of Legal Claims (Article 49(1)(e)): In U.S. civil proceedings, including pretrial discovery, this provision may in many instances offer the best justification for data transfers. While under 26(1)(d) of the old directive, Member States such as Germany passed national implementing legislation that narrowly limited the 'legal claims' justification to legal matters pending before a court—thereby excluding pre-trial discovery because it was considered to be between the parties and not truly before the court. Since the GDPR does not need to be implemented by separate national legislation, Article 49(1)(e) will apply directly within each Member State and it doesn't contain any such restriction. As a result, German or other European parties to U.S. discovery requests may be able to use this provision.
  • Transfer for Important Reasons of Public Interest (Article 49(1)(d)): While this alternative will not apply to data transfers in a civil proceeding, it could apply to U.S. law enforcement requests. However, the scope is not unlimited. According to Article 49(4), the "important reason" cited must be acknowledged by either the EU or the Member States' laws. Examples where data transfers might be in the interest of both U.S. and EU laws would be transfers needed to combat money laundering; for antitrust proceedings; for requests by financial supervisory authorities; or for the purpose of public health.

    The transfer of data for national security interests is not likely to be covered because the GDPR doesn't address the use of personal data for national security. In addition, a mere abstract acknowledgment of a public interest is unlikely to be sufficient. The GDPR sets high thresholds for meeting the principle of proportionality.
  • Transfer Based on Consent (Article 49(1)(a)): Consent can justify a transfer of personal data for use in discovery. However, attorneys should be aware of the following limitations:
    • Consent must be obtained from the data subject, not merely the entity holding the data.
    • Article 49(1)(a) requires that consent be explicit, informed and voluntary. Implied consent is not sufficient. Nor are pre-checked boxes or general consents obtained in the abstract.
    • Employee consents are often seen as coerced because employees may not feel free to refuse an employer's request. Only where one can document that the transfer cannot harm the employee and where the employee can truly give voluntarily consent without fear of retaliation will employee consent be an option.
    • Consent will be hard to obtain where a company does not have direct relationships with customers or third parties whose data will be transferred.
    • Consent is not an option where full disclosure regarding the purpose of the transfer can't be given to the data subject, such as in internal investigations.

      Thus, while consent is viable in certain situations, in practice there will be many scenarios where it can't be used.
  • Limited Transfer of Individual Data in Case of Compelling Legitimate Interests of the Data Transferring Party (Article 49(1)(2)): If all other means noted above for legitimizing a transfer fail, this provision can be used if the following criteria are met:
    • the transfer is not repetitive and concerns only a limited number of data subjects;
    • the transfer is necessary for compelling, legitimate interests of the data transferring entity that are not overridden by the interests or rights and freedoms of the data subject;
    • the transferring entity has assessed all the circumstances surrounding the data transfer and has provided suitable safeguards;
    • the relevant data protection authority has been informed of the transfer; and
    • the data subjects have been informed of the intended data transfer.

The scope of this exception is not entirely clear and its meaning cannot be discerned by interpreting existing statutes or case law. As a result, use of this provision may entail significant risk for the transferring entity.

While many of these methods for legitimizing a data transfer will seem familiar to experienced practitioners, the GDPR has fundamentally changed the implementation of these procedures, opening new possibilities for their use in discovery and wiping the slate clean of localized interpretations of their predecessors under the old directive. Of course, useful guidance issued under the old directive is also no longer binding, so practitioners must be careful not to assume what worked under the directive still works under the GDPR.

In addition, none of these provisions, including Article 49(1)(e), provide carte blanche permission to transfer data irrespective of how broad the request is or what measures are taken to protect the data. Appropriate measures must still be put in place, and the amount of data transferred should be the minimum necessary to achieve the purpose for which the data is being transferred. Among other things, this means that when a transfer is needed for response to a discovery request or subpoena, the scope of the request will almost certainly need to be narrowed. European law does not accept the broad concept of responsiveness used in U.S. discovery. Requests must be tightly focused on only the information and custodians directly relevant and critical to the matter in question.

What Should Companies Do?

In light of the draconian fines possible under the GDPR, companies should make a careful case-by-case assessment of the basis for transferring data discussed above before transferring any data to the United States for use in discovery, law enforcement matters or internal investigations. One size does not fit all.

Companies should also follow the measures recommended by the Sedona Conference and the EU Article 29 Working Party. These will include, among other things, using international treaties for justifying transfers (if so available), entering into the SCCs proposed by the EU Commission, minimizing the amount of data actually transferred, redacting or anonymizing personal data wherever feasible, entering into a strong protective order with provisions directly addressing documents subject to EU data privacy laws, processing and hosting the data in the country of origin if possible, or at the very least, filtering the data heavily in the country of origin before transferring it, and meticulously documenting any steps taken to protect the data subjects' privacy.

Finally, companies must be prepared to accept that there is no such thing as a risk-free data transfer from the EU to the United States. While taking appropriate measures can substantially reduce the risk, particularly of a large fine, the GDPR is new and much about the law's implementation remains unclear. Only time will provide more concrete guidance.

Christian Schröder is a cybersecurity and data privacy partner, Jeffrey McKenna is a senior e-discovery and privacy attorney, and Renee Phillips is an employment law partner at Orrick in the Düsseldorf, San Francisco and New York offices, respectively.

Reprinted with permission from the February 6, 2017 edition of New York Law Journal © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].