Thoughts On EU's Draft E-Privacy Regulation

This article by privacy & data security partner Rohan Massey was originally published by Law360 on April 10, 2017.

Aside from Brexit, the outlook in Europe is focused on harmony and unity, measures well reflected in the Digital Single Market initiative. As part of this initiative, the European Commission recently published a proposed Regulation on Privacy and Electronic Communications. The regulation is aimed at creating a harmonious pan-European approach to e-privacy, replacing the current directive with a directly effective regulation designed to address the complexities of privacy in the age of social media and networked computing; to simplify and clarify the EU approach to the use of cookies and data harvesting; and to align e-privacy with the data protection principles enshrined in the General Data Protection Regulation, and the EU Charter of Fundamental Rights. Ultimately, the commission hopes that the proposed regulation will increase the protection of individuals’ private lives, open up opportunities for new businesses and simplify and streamline current rules on cookies, which should result in greater trust and security in the Digital Single Market.

Though the new regulation is planned to come into effect at the same time as the GDPR on May 25, 2018, it must first be formally approved by both the Parliament and the Council on a relatively ambitious timetable before it becomes law.

Objectives of the E-Privacy Regulation

There are three clear objectives underpinning the revision of the e-privacy regime in Europe. The first is a desire to protect both the privacy and confidentiality of electronic communications. This is to be achieved by controlling the ways in which network and service providers process electronic communications data, whether it be the content of electronic communications such as email or instant message, or whether it be metadata relating to the electronic communication itself, such as the place, time or identity of person sending the communication. The second objective is the protection of the individual’s right to privacy with regard to their activities when browsing the internet or using electronic devices. This is to be achieved by the regulation of tracking technology such as cookies. The final objective is the control of direct marketing communications to ensure that electronic communications are carried out efficiently without individuals being exposed to unsolicited commercial communications or spam.

Scope of the Proposed Regulation

The regulation applies to the processing of communications data carried out in connection with electronic communications services and to information related to end users’ terminal equipment. The regulation proposes extending coverage from telecoms companies and internet service providers to also include providers of over-the-top (“OTT”) services, including popular instant messaging applications. It further covers anyone using cookies or similar tracking technologies, as well as anyone engaging in electronic marketing, whether or not they are providing an electronic communications service.

The regulation does not apply to electronic communications services that are not publicly available. It also is inapplicable to government authorities engaged in detecting crime or otherwise protecting public safety.

The regulation covers almost all businesses that operate in Europe but, like the GDPR, also extends to businesses outside the EU if they provide services to users in the EU (including where such services are offered free of charge).

Electronic Communications Data

The regulation distinguishes between two types of electronic communications data: electronic communications content and electronic communications metadata. Content refers to the actual information exchanged in an electronic communication, including text, voice, videos, images and sound. For example, a picture or video sent using instant messaging is electronic communications content. Metadata refers to data processed by a network for the purposes of transmitting content, including information relating to the source and destination of a communication; the location, date, and duration of a communication; and the method of communication. For instance, data identifying that an instant message was sent at a specified time is metadata.

Many of the prohibitions set out in the regulation can be overcome where there is “end user consent.” “Consent” in this context is aligned with the GDPR and so must be “freely given, specific, informed and unambiguous.” Consent can be expressed by a statement or clear affirmative action. However, the regulation does add that, where feasible, consent may be expressed by using appropriate software settings of an application. This is intended to simplify the acceptance or refusal process for users as consent may be given by browser settings, provided that the software informs end users of privacy settings options and obliges the end user to consent to or select such privacy setting as part of the set up of the service. Software must also offer end users the option to prevent the placing of third party cookies.

What is not so clear is who the “end user” actually is for the purposes of the regulation. It is clear that an end user is a user of a service, though it is unclear whether the end user includes the sender, the recipient or both, in relation to any electronic communication.

Confidentiality

Under the regulation, both electronic communications content and metadata must be kept confidential and must not be interfered with. However, the regulation permits a limited number of exceptions to this basic rule in the following circumstances:

• Both content and metadata may be processed in order to: (1) transmit the communication; (2) maintain or restore security; or (3) detect technical faults or errors in the transmission of the communication.

• Metadata may also be processed if: (1) it is necessary to meet mandatory EU quality of service requirements; (2) it is necessary for billing; (3) it is necessary for detecting or stopping fraud or abuse; or (4) the end user consents to the processing for a specified purpose that could not be carried out using anonymized data.

• Content may also be processed: (1) for the sole purpose of providing a specific service, if the service cannot be provided without such processing and provided the end user has consented to the processing; or (2) if the end user consents to the processing for a specified purpose that could not be carried out using anonymized data and the provider consults its relevant supervisory authority for the purposes of the GDPR.

Data Erasure

Electronic communications service providers must either erase or anonymize content after its receipt by the intended recipient. Metadata must similarly be erased or anonymized when it is no longer needed for transmitting the communication. The same exceptions of confidentiality listed above also apply to erasure of data. Metadata may be further retained until the end of a period in which a bill or payment may be lawfully challenged under national law.

Cookies and Terminal Equipment

The regulation is technology neutral and thus covers PCs, laptop, smartphones and tablet devices. Across all devices it prohibits the use of cookies (and similar tracking technologies, such as hidden identifiers and device fingerprinting) unless: (1) it is necessary for the sole purpose of transmitting the communication; (2) the end user has consented; (3) it is necessary for providing an information society service (e.g., to add items to an online shopping basket) requested by the end user; or (4) it is necessary for web audience measuring if carried out by the information society service requested by the end user. No consent is needed for first-party cookies used by a website to carry out web audience measuring.

In addition, if cookies are used, the regulation prohibits collecting device information unless: (1) it is done only to establish a connection; or (2) users are notified how the data will be collected, the purposes for which it will be used; and certain other information.

All communications software (e.g., web browsers and other applications allowing the retrieval and presentation of information on the internet) must offer functionality to prevent the use of third-party cookies. Upon installation, the software must inform the end user about the privacy settings options. To continue with the installation, the end user must consent to one of the settings. For software already installed as of May 25, 2018, these requirements must be complied with by the first update of the software and no later than Aug. 25, 2018.

Direct Marketing

The rules in relation to electronic direct marketing are broadly equivalent to current legislation under the e-privacy directive. However, “direct marketing communication” is defined as any form of advertising whether written or oral, sent to one or more identified or identifiable end users of electronic communication services, which include communications sent through instant messaging applications and Bluetooth. Subject to limited soft opt-in exceptions as under the current regime, opt-in consent will still be required before businesses are permitted to send electronic direct marketing.

Comment

Is the scope too broad for effective enforcement?

The commission has flagged that reform is necessary to keep up with recent developments in IT-based services such as voice over internet protocol as well as the forthcoming GDPR. In particular, the commission has specifically named key OTT service providers, as needing to offer the same level of confidentiality as traditional telecommunication operators. The proposed scope of the regulation is consequently quite broad, encompassing almost all modern businesses and providers of electronic communications services — the likely result being that, if adopted as drafted, the regulation will provide for a more level playing field among traditional, modern and future electronic communications service providers.

However, as with the GDPR, there still remain concerns over data protection authorities’ ability to successfully enforce the extraterritorial effect of the proposed new rules. European electronic communications service providers may therefore, quite legitimately, question whether the rules are actually stacked against them. It will remain to be seen what action, if any, European data protection authorities can and do take against entirely non-EU electronic communication service providers who fail to comply with the regulation’s requirements. If the rules are not, or cannot be, successfully enforced against such providers, then there is potential for the regulation to stifle business and innovation in the EU, as non-EU jurisdictions consequently become more attractive.

In line with the GDPR, penalties for infringement may be severe, with fines for infringement of the cookies and unsolicited communication rules potentially amounting to the greater of €10 million or up to 2 percent of the worldwide annual revenue. Infringements of the rules relating to confidentiality of content and metadata may be higher, with fines capped at the greater of €20 million or up to 4 percent of the worldwide annual revenue. How “proportionate and dissuasive” fines will be assessed for noncompliance for the proposed rules on cookies and similar technologies remains to be seen. Historically, this area has not been heavily enforced under the current regime, with very few examples of fines being levied for infringement (and even then the level of those fines has been generally low), which has been a major criticism of the current regime, with those who are playing by the rules understandably arguing that more needs to be done to ensure the rules are actually enforced. This may have an impact on the quantum assessment however, given that many European data protection authorities already have limited resources and will likely be concentrating on the GDPR enforcement. For this reason, it is difficult to see this situation changing substantially.

Will a borderless Digital Single Market be hampered by national security protections?

By replacing the current e-privacy directive with a regulation, the commission aims to provide a uniform set of rules that protect the privacy of people and businesses. However, as with the GDPR, specific national (i.e., member state) derogations may still apply.

In particular, similarly to the GDPR, the regulation fails to provide for specific provisions in relation to data retention, and individual member states are free (subject to compliance with EU law) to provide for their own retention rules and to limit the confidentiality of communications in order to safeguard “general public interests.” This general position is likely to conflict with the balance of necessity, legality and proportionality set out in recent rulings of the Court of Justice of the European Union. The result may be that although there is an overarching general compliance regime across the EU, communications service providers may still have to navigate a patchwork of different member-state national rules as far as data retention is concerned.

Privacy for communications content and metadata?

The regulation aims to guarantee the privacy of communications content and metadata, particularly since both can potentially reveal highly sensitive information and personal data about end users and other legal persons (e.g., businesses). It will be interesting to see how many OTT service providers attempt to obtain user consent for the retention and further processing of such data and how they do this — ultimately this could lead to new privacy banners and pop-ups when using OTT services. However, the regulation makes no provision for standardized security measures to be applied, such as the requirement for end-to-end encryption and instead references the appropriate technical and organizational security measures of the GDPR. The obligation or lack of obligation to provide security is likely to be a point of tension in the EU Parliament as there are clear voices from politicians, law enforcement, privacy campaigners and consumer bodies supporting both sides of the argument.

Will this be the end of the cookie consent pop-up?

The commission believes that the rules on cookies have been simplified, for example by not requiring consent for strictly necessary cookies, nor first-party cookies used to simply monitor web traffic. Together with the ability to accept or refuse cookies through web browser settings, this is intended, at least partly, to remove or reduce the need for cookie banners and pop-ups. This is welcome news, but in reality, is likely to present further complications.

In particular, most websites use third-party and other nonstrictly necessary cookies, especially for the purposes of advertising on free-to-use internet services, in order to monetize internet content and services. As a result, such websites will likely prefer control of cookie consent at a website level, as opposed to relying on choices made by end users at a browser level. For instance, it would be reasonable to assume that if end users choose not to accept third-party cookies within their browser settings, websites using such cookies will therefore want, and need, to obtain end users’ consent to do so. This means that it is unlikely that cookie consent banners will disappear under the regulation, which somewhat defeats the purpose of the new changes in the first place.

A similar issue arises in respect of certain third-party cookies. For example, if an end user consents to certain businesses using their analytics cookies on third-party websites, or similarly to use cookies for upvoting or liking content on other websites — will such consent apply across all third-party websites in which those cookies are used, or will the relevant websites need to obtain consent again if such cookies are used on their sites? If the former, it is unclear how both web browsers and websites would be able to determine whether such consent has been given, again potentially resulting in the need to obtain consent in any case.

In addition, it is currently difficult to predict how the concept of “necessity” will be applied under the current draft of the regulation, as this could severely impact many information society service business models. For example, if a free news website, as with most such sites, is funded by advertising revenues and uses cookies to display videos, which may or may not include advertisements, it is arguable whether such cookies are necessary for the provision of the service. If they are not, this would leave consent as the only alternative to use such cookies in accordance with the regulation. Given that the conditions for consent under the regulation are proposed to be the same as under the GDPR, we know that consent will be presumed to not be freely given if the provision of the service is dependent on the consent, despite such use of cookies not being necessary for the provision of the underlying service. While perhaps being economically necessary to use such cookies in this scenario, it is unlikely to be technically necessary; meaning any consent could be deemed invalid. The regulation therefore clearly threatens such business models if there is no valid way to legitimize the use of such cookies.

Furthermore, there is also the technical question as to how websites will recognize what cookie choices end users have made in their web browsers. This process may be facilitated by the key browser players agreeing on a common, universal standard, meaning websites would not have to code for each and every browser available. However, assuming the relevant players are amenable to this approach, this is a process that would likely take time, and may be difficult to reconcile with the commission’s aggressive timetable.

The above suggest that the “simplified” changes within the regulation may not actually provide for the “streamlined” mechanisms envisaged. We expect many businesses will lobby the commission on these points, requesting for rules that closer reflect the balance between commercial practicality and individuals’ rights. However, it remains to be seen whether this will result in any changes to the draft.

Conclusion

The regulation sets out to align the requirements of e-privacy and data protection in Europe for the benefits of the Digital Single Market initiative, with an aggressive timetable for implementation to coincide with that of the GDPR in May 2018. This combination of factors may not work in the draft’s favor. There is also a risk that in wanting to find an acceptable compromise EU Parliament may seek material changes in certain areas of the draft, which could delay the adoption of the regulation. However, there is clearly a desire to try and make this work and so much will depend on the exactly what pushback the EU parliament seeks.

As with the GDPR, the intention of harmonization is somewhat undermined by the number of derogations contained within the legislation giving each member state a general power to restrict obligations and rights where necessary and proportionate to safeguard general public interests. Therefore, it will be interesting to see if the EU Parliament seeks to restrain the scope and/or derogations contained in the draft or accept them to facilitate swift passage of this piece of legislation, relying on the jurisprudence of the CJEU to find a balance not set out in the regulation.

In parallel with preparations for the GDPR, and for those affected, the Network Information Security Directive, it would be wise to bear in mind the requirements of the regulation when reviewing policies, procedures and services in the next 12 months. If the regulation is adopted as intended, those taking this approach will mitigate the risks of the greatly increased administrative fining regime set out under both the GDPR and the regulation.