It’s not just establishment it’s context!

There is an urgent need to clarify the GDPR’s territorial scope. Of the many changes the GDPR will usher in this May, the expansion of EU privacy law’s territorial scope is one of the most important. The GDPR provides for broad application of its provisions both within the EU and globally. But the fact that the GDPR has a broad territorial scope does not mean that every company, or all data processing activities, are subject to it. Rather, the GDPR puts important limitations on its territorial scope that must be acknowledged and correctly analyzed by those interpreting the regulation for the global business community. Otherwise, it could lead to absurd implementation and bad policy which no one wants.

EU Establishment

In essence:

• Where registrars are established in the EU, the registrars’ use and processing of personal data is subject to the GDPR. That is no surprise to anyone.
• Where registrars have no establishment in the EU, but offer domain name registration services to data subjects in the EU, the processing of personal data in the context of such offer will also be subject to the GDPR. Again no surprise and logical.
• However, where a registrar is based outside the EU, without an establishment in the EU, and uses a processor in the EU, such non-EU based registrar (as a controller) will not be subject to the GDPR due to the EU based processor’s establishment in the EU. The GDPR only applies to the controller according to Article 3 (1) GDPR where the processor in the EU would be considered the controller’s establishment. If the controller uses an external service provider (no group company), this processor will generally not be considered an establishment of the controller. It would only be caught by GDPR if the processing is done “in the context” of that establishment. That is the key, and I’ll discuss an example of potentially absurd results if this is not interpreted correctly. NB All obligations directly applicable to the processor under the GDPR will, of course, apply to the EU based processor.

WHOIS

If we look at the example of WHOIS (searchable registries of domain name holders) where there is presently much debate amongst the many and varied actors in the domain name industry over whether public WHOIS databases can remain public under the GDPR. The second part of ICANN’s independent assessment of this issue offered an analysis of the GDPR’s territorial reach that deserves closer scrutiny. Addressing the territorial limits of the law, the authors state: “Therefore, all processing of personal data is, no matter where it is carried out, within the territorial scope of the GDPR as long as the controller or processor is considered established within the EU; the nationality, citizenship or location of the data subject is irrelevant.” In other words, the authors conclude that as long as a controller or processor has an “establishment” in the EU, all processing of personal data it undertakes, regardless of the location or nationality of the data subject and regardless of whether the processing has any nexus to the EU, is subject to the GDPR.

This is wrong. The analysis overlooks key language of the GDPR. Under Article 3.1, the law applies not to any processing that is done by a company that happens to have an establishment in the EU, but to processing done “in the context of” that establishment.

This distinction makes a difference. Imagine, for example, a Canadian company that has an office in Paris. Under the authors’ analysis, the GDPR would apply to all processing done by that company simply by virtue of it having a Paris office, whether the data subjects interacting with it were French, Canadian, or even American, whether they accessed the company’s services from France, Canada, or the U.S., and even if all the processing occurred outside of the EU. This would be an absurd result inconsistent with the text of the GDPR and sound policy. In order to determine whether the GDPR applies, one must look not only at whether the company has an establishment in the EU but also at whether the processing occurred within the context of that establishment. If the processing occurs in the U.S. or Canada for a Canadian data subject without any link to the EU establishment, clearly the processing is not done in the context of the EU establishment. Thus, the GDPR does not apply.

Understanding the territorial reach—and the limitations of that reach—of the GDPR is critical. The GDPR has the potential to shift global data privacy law and policy. As such, stakeholders must be well-informed on both the substance as well as the reach of the law’s protections.