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What’s at Stake with Supreme Court’s Review of Microsoft v. U.S.

The high court's ruling is likely to affect everything from international data transfer agreements to the business of U.S. tech companies.

In July 2016, the U.S. Court of Appeals for the 2nd Circuit gave Microsoft and privacy advocates reason to rejoice. In Microsoft Corp. v. United States, the court overturned a lower court ruling, approving Microsoft’s motion to quash search warrants served to them under the Stored Communications Act (SCA) by the U.S. government.

Issued as a part of a law enforcement investigation, the SCA warrants sought user data Microsoft stored in servers in Ireland. The Second Circuit ruled, however, that SCA warrants do not apply outside the U.S., regardless of the nationality of the subject of the warrant.

The Department of Justice (DOJ) then asked the U.S. Supreme Court to overturn the Second Circuit, and a little over a year after of the Second Circuit’s ruling, the high court agreed to weigh in.

For parties on both sides of the privacy debate, a Supreme Court ruling on the scope of SCA warrants could have significant ripple effects, from potentially hindering law enforcement investigation capabilities to calling into question international data transfer treaties and the business value of U.S. tech companies.

Unraveling Data Transfer Agreements?

The case before the Supreme Court is one with potentially far reaching international consequences. In court documents filed with the Supreme Court, Microsoft argued that “extending the SCA to reach communications stored in other nations would derogate those nations’ sovereignty by allowing federal, state, and local law enforcement to bypass the carefully calibrated, comity-protective framework established through [mutual legal assistance treaties] and other bilateral or multilateral agreements.”

For Robert Cattanach, a partner at Dorsey & Whitney, this is a real, significant risk. Should the Supreme Court overturn the Second Circuit’s decision, “you could see reactions by foreign governments that would try to limit the ability of law enforcement from other countries to access information stored in their country,” he said.

David Bender, special counsel of data privacy at GTC Law Group, agreed, noting that a ruling overturning the Second Circuit would have the most impact on mutual legal assistance treaties (MLATs), bilateral agreements that allow for international law enforcement cooperation and data transfers.

“I think that a Supreme Court ruling might well stimulate discussion on revamping or replacing that process,” he said. But Bender added that such a revamp might be welcome by many countries who consider the MLATs to be unduly slow and cumbersome.

Allowing U.S. authorities access to data stored within foreign countries could lead to yet another privacy problem, among several others: Threatening the foundation of the EU-U.S. Privacy Shield Framework, an agreement heavily relied on by multinational technology and internet companies to transfer data between the EU and the U.S.

Lisa Sotto, managing partner and chair of the global privacy and cybersecurity practice at Hunton & Williams, expects EU data protection officers “to challenge at least the Privacy Shield and the data transfer mechanisms to the U.S.” should Second Circuit’s ruling be overturned.

Data transfer agreement repercussions, however, may only be the tip of the iceberg when it comes to international repercussions.

“Certainly if the Supreme Court permits the production of this data, then we will see other nations reciprocating by serving U.S. companies present in their jurisdictions search warrants for the production of data stored in the U.S.,” Bender said. “It’s almost guaranteed, I would think.”

And such a move could prove controversial, Cattanach added, given that U.S. companies might be “inclined to honor warrant types of searches from Russia, China, and others,” who may request data on dissidents or other politically sensitive persons.

U.S. Tech’s Competitiveness 

For now, Microsoft’s overseas customers can be confident that their data is being protected against unwanted collection by U.S. authorities. But take such confidence away, and those consumers might look elsewhere for their tech-related needs.

Should the Supreme Court overturn the ruling, tech companies “outside the U.S. will take advantage of this situation to tout that they can provide a higher level of data protection than U.S. [tech companies] against government access to data,” Sotto said. “This will be a tremendous marketing opportunity, regardless of the accuracy of the claim.”

But Sotto does not see U.S. tech companies being completely shut out of foreign markets in that situation, noting that there will likely be negotiations “at both the governmental level and the private sector level” to mitigate any concerns foreign consumers may have over storing their data with U.S. businesses.

Still, Bender noted that a Supreme Court ruling in favor of the DOJ may likely tarnish companies’ brands and reputations aboard. Reversing the Second Circuit decision, he said, “will probably be looked on abroad as confirmation that the U.S. government’s appetite for foreign data is insatiable, and that would not help U.S. companies set up abroad.”

“So based on foreign perception—and you know perception is the reality when it comes to the effect on sales—a reversal could moderately hurt these businesses.”

Limiting Law Enforcement’s Access

In court documents filed with the Supreme Court, the DOJ argued that affirming the Second Circuit ruling would severely limit the ability of law enforcement to conduct criminal investigations on not only foreign suspects, but U.S. ones as well.

“The decision blocks government access to foreign-stored emails even when the user is a U.S. citizen living in the United States who carries out crimes in this country against victims in this country,” the DOJ wrote.

Cattanach called such access limitations “a legitimate concern,” adding that should the Second Circuit’s ruling be upheld, he expects “at least on some level, criminals will take advantage of certain jurisdictions so as to be able to conceal their criminal activity by having data safely protected” from U.S law enforcement.

But some are less convinced. Bender noted that such a ruling does not entirely limit authorities’ ability to access data stored overseas. “If they affirm the Microsoft decision, then the SCA won’t be available to use it to get a hold of foreign data, but they will still have the MLAT,” he said.

Tim Toohey, partner at Greenberg Glusker, echoed a similar opinion, calling the argument that upholding Second Circuit’s ruling gives criminals some immunity from investigation “overblown.”

“I understand the argument much more when they make it in terms of encryption,” he said. Toohey explained that denying the SCA search warrants’ extraterritorial reach does not prevent authorities “from going through the other processes which are available under international law to obtain the emails that are located in overseas servers.”

Congress to the Rescue?

Given the broad potential effects of a Supreme Court ruling, many expect Congress to step in to address any repercussions it views as troublesome.

“This is not a constitutional question. This is a question of statuary interpretation, and bluntly stated, if Congress thinks the Supreme Court got it wrong, Congress can fix it,” Cattanach said.

Bender agreed, noting that “whichever way [the ruling] goes, it’s going to increase the pressure on Congress to enact legislation that deals with these situations.”

Indeed, there already has already been some congressional effort to address perceived shortcomings with the SCA. In May 2016, the International Communications Privacy Act was introduced in the U.S. Senate.

But given Congress’s track record, some are skeptical of such legislation ever passing both chambers.

“Congress is such a wild card these days,” Sotto said. “It’s difficult to see Congress agreeing on much of anything, particularly privacy issues that are so fraught at both ends of the aisle.”

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Rhys Dipshan

Rhys Dipshan is a journalist who covers in-house tech issues from early disruption to ghosts in the machine for Legal Tech News, The National Law...

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