Expert analysis provided by UpCounsel Privacy and IP attorney Sue Dunbar.

Last week, Microsoft won a significant, if not landmark case, against the U.S. government – a victory that should also secure it droves of new fans among privacy advocates and cloud companies.

For more than a year, the two sides have locked horns, doing battle over whether or not a company’s need to protect customer privacy should take precedence over Uncle Sam’s right to access information that could act as evidence in criminal cases.

The number of high-profile “privacy vs. security” battles has been steadily growing in recent years, with this case following closely on the heels of a tug-of-war between Apple and its CEO Tim Cook and the FBI over unlocking a cell phone. While Apple and the FBI’s squabble garnered significant media attention, the case against Microsoft has largely taken place under the radar.

But it might be argued that the case will have far more significant implications for cloud computing companies and digital privacy.

After two years of playing defense, the federal appeals court ultimately ruled that the government could not force Microsoft, or any other domestic company for that matter, to turn over data stored on its servers overseas. According to Reuters, Judge Susan Carney said in her decision that communications “held by U.S. service providers on servers outside the U.S. are beyond the reach of domestic search warrants issued under the Stored Communications Act, a 1986 federal law.”

The federal appeals court ruled that the government could not force any domestic company to turn over data stored on its servers overseas.

In other words, warrant provisions from the Stored Communications Act only apply to data stored within the United States, and do not, in Carney’s words, “apply extraterritorially.” That’s because the design of those provisions is “protection of a user’s privacy interests,” the judge wrote in her decision. 

The case, oddly enough, actually began with a narcotics investigation in Ireland, in which the government had obtained a warrant to search emails stored on Microsoft’s servers in Dublin. The company immediately challenged the warrant and continued to do so after a 2014 ruling by the U.S. district court, which ordered Microsoft to hand over the emails.

According to Reuters, in so doing, Microsoft became the first U.S. company “to challenge a domestic search warrant” seeking digital information “stored outside of the country.”

While it may have been the first challenger, Microsoft wasn’t alone, as a litany of companies and organizations, both foreign and domestic, filed briefs in support of the tech industry giant – from the U.S. Chamber of Commerce, CNN and Fox News to Amazon, Apple and Verizon.

The reason being that many technology companies, especially those offering cloud services, along with many other organizations, operate clusters and data centers that are housed all over the world. Customer and business data is often transferred from one location, or data center, to another in an effort to optimize efficiency and make that data more accessible. In so doing, it’s not unusual for data or information to cross international boundaries. 

Microsoft was the first U.S. company to challenge a domestic search warrant seeking digital information “stored outside of the country.

As a result, Microsoft argued turning over data stored on its servers in Dublin could potentially open the floodgates, and, if the precedent were set and the policy continued, could eventually put the privacy of millions of Americans at risk.

The company also reasoned that the precedent would be a dangerous one because it would mean that the same would be true of international governments seeking American citizens’ private data stored in the U.S. In other words, as Microsoft contended in its brief, the government would “have no ground to complain when foreign agents … raid Microsoft offices in their jurisdictions and order them to download U.S. citizens’ private emails from computers located in this country.

Although government and law enforcement officials countered by saying that the precedent will force its agencies to resort to cumbersome and time-consuming avenues to attain foreign-stored data needed as part of investigations, “the judge’s decision recognizes the ‘strong and binding’ presumption against extraterritorial application of U.S. law,” said UpCounsel Privacy and IP attorney Sue Dunbar.

“Neither an individual’s privacy nor a country’s sovereignty can be sidestepped in the name of efficiency. Nonetheless, companies such as Microsoft should consider what additional measures they can take to ensure that their services aren’t being used to escape the lawful reach of U.S. warrants, such as verifying a customer’s location before relocating data outside of the United States.”

One impact of Microsoft’s ruling – a sentiment echoed in Judge Lynch’s concurrent judgment – is that this may give politicians and lawmakers the necessary incentive to revise (and modernize) the Stored Communications Act. The SCA is often cited in cases like these, but given the changing privacy needs and expectations of the country and its citizens in an increasingly digital world, the legislation could be amended to “strike a better balance” between privacy and security needs, Lynch said. 

“Neither an individual’s privacy nor a country’s sovereignty can be sidestepped in the name of efficiency. Nonetheless, companies such as Microsoft should consider what additional measures they can take to ensure that their services aren’t being used to escape the lawful reach of U.S. warrants, such as verifying a customer’s location before relocating data outside of the United States.” – UpCounsel Privacy and IP Attorney Sue Dunbar

Furthermore, the Senate is currently considering a bipartisan bill designed to better “clarify when and where law enforcement may access electronic communications of U.S. citizens,” and the Justice Department is reportedly working on a plan “to streamline how U.S. and British authorities request data from companies in each other’s countries,” according to Reuters.

As the first corporation to challenge the U.S. government on digital information privacy in this way, Microsoft sees wide-ranging implications of the verdict.

In an email to The Washington Post, Microsoft Chief Legal Officer Brad Smith said, “The decision is important for three reasons: It ensures that people’s privacy rights are protected by the laws of their own countries; it helps ensure that the legal protections of the physical world apply in the digital domain; and it paves the way for better solutions to address both privacy and law enforcement needs.”

About UpCounsel Privacy Attorney Sue Dunbar
Putting more than 20 years of experience to use, Sue represents clients in internet, business, intellectual property and contract-related matters. Whether you are an independent contractor, startup or a thriving business owner, Sue can provide “big law firm” experience with a “small law firm” price. She is committed to providing high-caliber work product in a timely and responsive manner. Sue’s clients have included Medtronic, Cox, Time Warner Cable and Best Buy.

“I can’t say enough about what a joy it is to work with Sue. Working with other lawyers has sometimes been overwhelming and confusing – this has never been so with Sue, which speaks volumes. She always delivers what/when she promises and takes the time to walk through and explain everything effectively (read-actually doesn’t go over your head!). You can tell Sue cares a ton about her work, but more so her clients and that is just one more reason why I will continue to work with her.”

Click here to request a free proposal from Sue.

About the author

Rip Empson

Rip Empson

Before a stint at a venture capital firm in Silicon Valley, Rip spent four years as a staff writer at TechCrunch, researching and reporting on technology news and the exciting array of startups, entrepreneurs and technologies that are reshaping our world. He also loves The Boston Red Sox, drinks too much coffee, and wants to be an astronaut when he grows up.

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