Does the GDPR (European Union's General Data Protection Regulation) apply to your non-EU company?
State-side, this is the million-dollar question that many US-based companies are grappling with today – some 8 months after the GDPR’s enactment. In short, the answer is yes, but a lot of unanswered questions remain.
Long-promised and much-awaited Guidance from the European Data Protection Board (“Board”) on the territorial scope of the GDPR is here and attempts to provide clarification to that question.
As adopted by the Board, the Guidance explains that the GDPR applies in situations where the “Establishment Test” or the “Targeting Test” is met – explained below.
The Establishment Test
The Board confirmed that the processing of certain personal data does not have to occur within the EU for the GDPR to apply. Indeed, the “geographical location [of processing] is not important for the purposes of Article 3(1) with regard to the place in which processing is carried out, or with regard to the location of the data subjects in question.”
What is required, as per the Guidance, is that the entity be a processor or controller that is established in the EU and that the processing occurs within the context of the activities of that establishment.
How Does GDPR Article 3 Define Establishment?
Establishment is a threshold of GDPR applicability. So, what is establishment? GDPR Article 3 defines establishment as “any effective and real exercise of activities”through “stable arrangements” in the EU. Art. 3. The Guidance further interprets the concept of establishment by citation to pre-GDPR case law from the Court of Justice of the European Union (CJEU) which found “establishment” where a company:
- Had (a) a website in the Hungarian language for the purpose of advertising in Hungary; (b) a representative in Hungary serving as a point of contact between that company and the data subjects; (c) a Hungarian postal address and a letter box; and (d)a bank account intended for the recovery of debts. See Weltimmo v. NAIH;
- Processed personal data where such processing was “inextricably linked to” and carried out “in the context of … activities” of the company’s subsidiary, which was located in an EU member state. See Google v Costeja (Google Spain).
Got it? Not quite. The Guidelines also provided a handful of helpful case studies, including the following theoretical:
- A China-based e-commerce website conducts data processing activities exclusively in China. The same company has established an office in Berlin to implement commercial prospection and marketing campaigns toward EU markets.
Does the GDPR apply? Yes, according to the Guidance. The activities of the Berlin office are inextricably linked to the processing of personal data carried out by the Chinese company, insofar as the commercial prospection and marketing campaign towards the European Union markets notably serve to make the service offered by thee-commerce service profitable.
Lest application of the GDPR feels like a law school exam. There is a second test for applicability – the Targeting Test, which the Guidance also helps to clarify.
The Targeting Test
The GDPR also applies to the processing of personal data of data subjects who are in the European Union by a controller or processor not established in the European Union where the processing activities are related to: (a) the offering of goods or services to data subjects in the European Union (regardless of whether or not payment is required); or (b) the monitoring of the data subjects’ behavior as far as their behavior takes place within the European Union.
Let’s break that down.
In the European Union
The Guidance confirms that the “in the EU” portion of the test does not require citizenship or residence in the EU. Any data subject located in the European Union is entitled to the rights and privileges afforded by the GDPR, regardless of whether that subject is an EU citizen or resident of a member state.
Offering Goods and Services
To determine whether your non-EU company is offering goods and services to data subjects located in the EU, the Guidance provides a series of factors for consideration:
- paying a search engine operator to facilitate access to consumers in the EU;
- mentioning contact details to be reached from a Member State;
- using a top-level domain name other than that of the third country where the processor or controller is established;
- offering the delivery of goods to Member States;
- using a language or currency other than that generally used in the trader’s country;
- offering a description of travel instructions from one Member State to the place where the service is provided;
- identifying international clientele in various Member States.
This Guidance, plus an earlier Recital of the GDPR, makes clear the goods and services part of the Targeting Test remains highly fact-sensitive and subjective.
Monitoring Behavior
The Guidance provides the most clarity when it comes to the monitoring behavior grounds of the Targeting Test. There are numerous methods to monitor online activities including, most notably, the use of first-party cookies. The use of cookies, or the “online collection or analysis of personal data of individuals in the EU” does not automatically constitute “monitoring” under this test. Rather, the collection must be for the purposes of profiling or analyzing the behavior of that person.
Specifically, and citing back to an earlier Recital, the Board states that to constitute monitoring, the purpose of the collection should be to “profil[e] a natural person, particularly in order to make decisions concerning her or him or for analy[z]ing or predicting her or his personal preferences, behaviors, and attitudes.” Indeed, the use of the word monitoring“implies that the controller has a specific purpose in mind for the collection and subsequent reuse of the relevant data about an individual’s behavior within the EU.” Thus, it could be argued that the GDPR would not apply to a non-EU-based company that “inadvertently” tracks EU-based persons through website cookies provided that information is not used for profiling and behavior monitoring.
The Board clarified that other types of technology involving personal data processing, such as wearable and smart devices, may also be a method by which monitoring behavior subject to the GDPR can occur. In sum, there are no hard and fast rules here. A case-by-case assessment needs to be performed in order to establish whether “monitoring” is performed.
GDPR Takeaways
While some unanswered questions remain, the Guidelines set out to clarify the criteria for determining the applicability of the GDPR to your US-based company. Octillo will continue to monitor and provide further guidance as new developments arise. If you have any questions regarding the GDPR, please contact a member of our data privacy attorney team.
The attorneys at Octillo help companies large and small navigate the territorial scope issues surrounding GDPR applicability to help reduce your risk and exposure under the new law.
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