LUXEMBOURG—The European Union’s highest court ruled Tuesday that an agreement that allows companies to freely transfer data to the U.S. is invalid as it does not adequately protect consumers.
The verdict could have far-reaching implications for companies operating in Europe. It does not ban the transfer of data but will allow national authorities to review what kinds of information companies want to send to the U.S., possibly complicating business.
The ruling comes from a case that Austrian law student Max Schrems brought following revelations two years ago by former U.S. National Security Agency contractor Edward Snowden about the NSA’s surveillance programs.
Schrems complained to the data protection commissioner in Ireland, where Facebook has its European headquarters, that U.S. law doesn’t offer sufficient protection against surveillance of data transferred by the social media company to servers in the United States.
Irish authorities initially rejected his complaint, pointing to a 2000 decision by the EU’s executive Commission that, under the so-called “safe harbor” agreement, the U.S. ensures adequate data protection.
The agreement has allowed for the free transfer of information by companies from the EU to U.S. It has been seen as a boost to trade since, absent such a deal, swift and smooth data exchange over the Internet would be much more difficult.
On Tuesday, the European Court of Justice ruled that the data sharing pact is invalid. It said that the “safe harbor” deal enables interference by U.S. authorities with fundamental rights and contains no reference either to U.S. rules to limit any such interference or to effective legal protection against it.
The court said the effect of the ruling is that the Irish data commissioner will now be required to examine Schrems’ complaint “with all due diligence.”
Once it has concluded its investigation, the authority must “decide whether ... transfer of the data of Facebook’s European subscribers to the United States should be suspended on the ground that that country does not afford an adequate level of protection of personal data,” the court said in a summary of its ruling.
