EU Data Regime May Face More Regulatory Scrutiny(1)

By Daniel R. Stoller

Sept. 16 — U.S. companies that are preparing for the upcoming General Data Protection Regulation and the European Union-U.S. Privacy Shield may see increased regulatory scrutiny and potentially high implementation costs, privacy professionals said Sept. 15.

Companies may face increased regulatory scrutiny and implementation costs associated with the GDPR and the Privacy Shield because of the uncertainty behind the programs, Phil Lee, privacy partner at Fieldfisher and head of the firm's Palo Alto, Calif. office, said at an International Association of Privacy Professionals conference in San Jose, Calif.

For example, the GDPR's 72-hour breach notification window, which takes affect May 25, 2018, doesn't explicitly outline when the window kicks in. It remains to be seen whether the 72-hour window kicks in when the company thinks that a breach occurred or is it when the company can confirm the data breach, Lee said

Failure to comply with the standard can bring reputational and monetary damage. Companies that don't comply could face fines up to 10 million euros ($11.29 million) or 2 percent of a company's worldwide revenue, whichever is higher.

Lothar Determann, privacy partner at Baker & McKenzie LLP, said that as more and more companies trade in a global market they will face various data privacy regulations each with their own rules and fines.

To help alleviate fears and costs associated with the patchwork of regulations, companies should “build global programs that have the highest standards,” Determann said. A global data plan should include mechanisms from the GDPR, Privacy Shield and other data privacy regimes, he said.

Enforcement Actions May Increase

Both European regulators and U.S. agencies are expected to increase the amount of data privacy enforcement actions, the privacy professionals said.

Todd Hinnen, privacy partner at Perkins Coie LLP in Seattle, said that the Federal Trade Commission was highly criticized for not bringing more actions against U.S. companies that weren't in compliance with the U.S.-EU Safe Harbor program or lacked another adequate data transfer mechanism. Other U.S. agencies that have recently increased their data security enforcement action may see increased pressure to bring more regulatory actions, such as the Consumer Finance Protection Bureau, the Federal Communications Commission and the U.S. Securities and Exchange Commission, he said.

Additionally, companies that haven't used the Privacy Shield, binding contractual clauses or another privacy certification may face the brunt of enforcement actions, Hinnen said.

Time will tell if U.S. regulators will feel the pressure from critics to bring more regulatory enforcement actions for the lack of an adequate data transfer mechanism.

Privacy Shield = Badge of Honor?

Although the Privacy Shield is main data transfer certification for U.S. companies that do business in the EU or transfer data to the EU, it may also have a major impact as a marketing mechanism.

Large U.S. tech companies have already certified under the Privacy Shield, including Microsoft Corp. and Salesforce Inc. Microsoft is the third largest technology company in the world with a market capitalization of $451.5 billion and Salesforce is the eighth largest application software company with a market capitalization of $55.3 billion, Bloomberg data show.

Lee said that companies may look to the larger U.S. tech companies as a reason to sign up for the Privacy Shield and wear the certification “as a badge of honor.” As more and more large tech companies join the program, there will be a rush of smaller tech companies who will feel the need to sign up, he said.

Ultimately, companies shouldn't panic when deciding to sign up for the Privacy Shield, Lee said. Companies just need to do their due diligence and decide what is the best data transfer mechanism under their circumstances, he said.

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