EU's Highest Court: Data-Transfer Pact With U.S. Violates Privacy

Decision will affect about 4,500 companies that move, store personal data

The European Union’s highest court on Tuesday struck down a trans-Atlantic pact used by thousands of companies to transfer Europeans’ personal information to the U.S., throwing into jeopardy data traffic that underpins the world’s largest trading relationship.

Max Schrems waits for the verdict of the European 

Court of Justice in Luxembourg on Tuesday. Schrems 

filed a data-privacy-infringement lawsuit against 

Facebook. Photo: European Pressphoto Agency

In a victory for privacy advocates, the European Court of Justice ruled that national regulators in the EU can override the 15-year-old “Safe Harbor” pact used by about 4,500 companies, including Apple Inc. and Alphabet Inc. ’s Google, because it violates the privacy rights of Europeans by exposing them to allegedly indiscriminate surveillance by the U.S. government.

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The decision now sets off a costly effort by companies and privacy lawyers to preserve companies’ ability to transfer Europeans’ personal data to the U.S. before regulators move in with fines or orders to suspend data flows. Hanging in the balance is billions of dollars of trade in the online advertising business, as well as more quotidian tasks such as storing human-resources documents about European colleagues.

U.S. and European regulators are negotiating an updated Safe Harbor agreement, but the timetable is unclear.

Many large technology companies, including Alphabet Inc., Amazon.com Inc., Facebook Inc. and Microsoft Corp. say they already have set up backup legal mechanisms in a bid to avoid clashes with regulators.

For instance, Alphabet’s Google is expanding the size of its data center in Belgium and is building one in the Netherlands that should come online in the first quarter of 2016. It also has data centers in Finland and Ireland.

However, smaller companies may find it prohibitively expensive to build their own European facilities or pay companies that already have them, said Chris Babel, chief executive of TRUSTe, which advises startups on data-protection laws. Setting up servers in Europe could double operations costs, he said.

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