On Tuesday, April 22, 2014, the U.S. Department of Health and Human Services Office for Civil Rights (“OCR”) announced that Concentra Health Services Inc. (“CHS”) and QCA Health Plan Inc. (“QCA”) have agreed to pay a total of $1,975,220, collectively, to resolve potential violations of the Health Insurance Portability and Accountability Act (“HIPAA”) Privacy and Security Rules stemming from the theft of unencrypted laptops. Specifically, CHS has agreed to pay $1,725,220, and QCA has agreed to pay $250,000, to OCR to settle potential HIPAA violations and will adopt corrective action plans to evidence their remediation of the potential violations. The clear message from both settlements is that OCR expects covered entities to encrypt mobile devices that store electronic Protected Health Information (“ePHI”).
On February 3, 2014, the U.S. Department of Health and Human Services (HHS) released a long-awaited final rule that amends the Clinical Laboratory Improvement Amendments of 1988 (CLIA) regulations and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy regulations to permit patients and their personal representatives to access laboratory test reports. By requiring expanded access, HHS rejects what some have characterized as “paternalistic” arguments that such reports are complicated and should be provided only through treating physicians. HHS justifies the rule as necessary to empower patients to take an active role in managing their health and healthcare. As anyone who has tried to interpret a laboratory test report can attest, whether the stated objectives of the new rule will be achieved has yet to be seen.
The European Parliament’s Civil Liberties Committee (the “LIBE Committee”) has after several delays finally voted on the European Commission’s proposed EU Data Protection Regulation and adopted all amendments. The LIBE Committee also approved a mandate to start negotiations with the Council of Ministers (which represents EU Member States) and the Commission – the so called trilogue process. The Regulation was published by the European Commission in January 20121 and has been described as the most lobbied piece of European legislation in history receiving over 4,000 amendments in opinions from other Committees in the European Parliament as well as from numerous industries.
The Council of Ministers has also been very active and a compromise text containing amendments to the Proposed Regulation was published in June 2013. The LIBE Committee have during its vote urged the Council to finalize its position quickly. The race is now on to see if the European Commission, the European Parliament and Council of Ministers can agree the text of the proposed Regulation before the European Parliamentary elections in May of next year. The Proposed Regulation once adopted will have a significant impact on governments, businesses and individuals for the rest of this decade and beyond. Based on the latest amendments of the LIBE Committee the main elements of the proposed Regulation are summarized below.
In a surprise move the amount of the maximum fines for non compliance with the proposed Regulation has been dramatically increased, from the Commission’s proposed 2% of annual worldwide turnover, to 5% with an ability for individuals and any association, acting in the public interest, to bring claims for non compliance.
Scope of Regulation
The Regulation will apply to the processing of personal data in the context of the activities of a data controller or a processor in the EU and to a controller or processor not established in the EU, where the processing activities are related to (a) the offering of goods or services to EU citizens; or (b) the monitoring of such individuals. This means that most non EU companies that have EU customers will need to comply with the proposed Regulation once implemented.
One Stop Shop
The latest amendments provide for a new regulatory “one stop shop” so where a company operates in several EU countries the DPA where it is established will be the lead DPA which must consult with other DPAs before taking action which can be decided upon by the European Data Protection Board in the case of a dispute between DPAs.
Significantly for online companies under the Regulation, every individual will now have a general right to object to profiling. In addition, the Regulation imposes a new requirement to inform individuals about the right to object to profiling in a “highly visible manner”. Profiling which does significantly affect the interests of an individual can only be carried out under limited circumstances such as with the individual’s consent and should not be automated but involve human assessment. These provisions if adopted could have a major impact on how online companies market their products and services.
Consent for processing personal data should be explicit with affirmative action required under the proposed Regulation. So the mere use of a service will not amount to consent. According to the proposal it should also be as easy to withdraw consent as to give it with consent being invalid where given for unspecified data processing. Processing data on children under 13 also requires the consent of the parent or legal guardian. The LIBE Committee also clarified that companies cannot make the execution of a contract or a provision of a service conditional upon the receipt of consent from users to process their data.
Standardized Information Policies
The proposed Regulation requires that certain standardized information should be provided to individuals in the form of symbols or icons similar to those used in the food industry. Individuals should also be informed about how their personal data will be processed and their rights of access to data, rectification and erasure of data and of the right to object to profiling as well as to lodge a complaint with a Data Protection Authority (“DPA”) and to bring legal proceedings.
Right of Erasure
In the latest amendments the “Right to be Forgotten” has been replaced by a “Right of Erasure” giving individuals a right to have their personal data erased where the data is no longer necessary or where they withdraw consent although certain exemptions also apply, such as where data is required for scientific research or for compliance with a legal obligation of EU law.
Controllers will be required to adopt all reasonable steps to implement compliance procedures and policies that respect the choices of individuals which should be reviewed every 2 years. Importantly, controllers will need to implement privacy by design throughout the lifecycle of processing from collection of the data to its deletion. In addition, businesses will need to keep detailed documentation of the data being processed and carry out a privacy impact assessment where the processing presents specific risks such as use of health data or where the data involves more than 5,000 individuals with the assessment being reviewed every two years.
Data Protection Officers
Businesses with data on more than 5,000 people in any 12 month period or that process sensitive data, such as health data, will also need to appoint a data protection officer who should have extensive knowledge of data protection and who does not necessarily need to be an employee.
Security and Security Breaches
The controller and the processor will need to implement appropriate technical and organizational security measures. The proposal also requires that security policies contain a number of elements including, for example, a process for regularly testing, assessing and evaluating the effectiveness of security policies, procedures and plans put in place to ensure ongoing effectiveness. In addition, security breaches will need to be notified to DPAs without undue delay.
In addition to Binding Corporate Rules and other data transfer solutions a new method allowing for international data transfers of personal data from the EU includes use of a “European Data Protection Seal” awarded by European DPAs for businesses and recipients that are audited for compliance with the Regulation. The latest amendments also re-introduce an important provision requiring that any requests for access to personal data by foreign authorities or courts outside the EU must be authorized by a DPA.
The Regulation also has important provisions relating to use of health data including that processing of personal data for scientific research is only permitted with consent subject to exceptions by Member States where the scientific research serves a high public interest with the data either anonymized or pseudonymized under the highest technical standards with measures to prevent re-identification of individuals.
The proposed Regulation reflects the growing concern that governments, regulators and society has to data protection and privacy issues and should continue to be closely monitored as it moves closer to adoption which could take place over the next few months.
1 See our previous update: http://www.sidley.com/Business-Concern-over-Amendments-to-Proposed-EU-Data-Protection-Regulation-01-15-2013.
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The European Parliament’s Civil Liberties Committee has published its draft report on the proposed EU Data Protection Regulation that is causing concern for many corporations. http://www.europarl.europa.eu/meetdocs/2009_2014/documents/libe/pr/922/922387/922387en.pdf.
The report sets out amendments to the draft EU data protection regulation published by the European Commission last January (the “Regulation”)
Despite being one of the most lobbied pieces of European legislation, many will be disappointed that as amended the draft Regulation still imposes very significant burdens on businesses that are in the EU, or which are outside the EU but offer goods or services to EU customers, with fines of up to 2% of annual worldwide turnover.
Although there has been considerable debate on the proposed Regulation, there is still time for those concerned to make their views known to the European legislature. A summary of the main elements of the proposed regulation as amended by the Committee are set out below.
Scope of Regulation and Enforcement
- The Regulation will apply expansively to all global businesses, including any Internet company with more than 500 European customers. To be specific, it would apply to “data controllers” established in the EU or operating from outside the EU where the processing activities are aimed at the offering of goods or services to individuals in the EU irrespective of whether payment is required. A data controller outside the EU will need to appoint a representative in the EU if it processes personal data of 500 or more individuals a year, irrespective of whether payment is required for the goods or services.
- For the first time, the regime will directly affect software and hardware development. So called “producers” (i.e. hardware and software developers) that produce systems to process personal data must take measures to ensure data protection compliance when designing systems.
- Provisions for fines of up to 2% of annual worldwide turnover for violations of the Regulation remain, although additional criteria are proposed that would be taken into account by Data Protection Authorities (DPA) when determining the administrative sanction.
- There are a number of amendments to strengthen the position on collective redress: Bodies or associations acting in the public interest would be able to go to court on behalf of data subjects to seek damages and damages will now also be permitted for non-pecuniary loss such as distress.
International Data Transfers
- Transfers of personal data from the EU to countries that are not deemed to provide an adequate level of protection (such as the United States) should be on the basis of binding legal instruments (such as Binding Corporate Rules and the EU’s standard contractual clauses). The ability of the European Commission to decide that a particular industry sector provides an adequate level of protection (such as the U.S. healthcare industry) has also been rejected.
- The U.S.-EU Safe Harbor and other previous adequacy decisions as well as decisions relating to standard contractual clauses will remain in force for only two years after the Regulation takes effect. This may lead to companies needing to assess whether their prior compliance efforts remain valid.
- International investigations will become significantly more complicated. An important new provision will require that a controller’s representative must notify the DPA and obtain an authorization for transfer pursuant to the requests or orders of a court, tribunal or authority of any country outside the EU.
Consent, Legitimate Interest and Data Protection Notices
- Compliance will also become more complex given that consent may not be available in the employment context. Although the report emphasizes the importance of consent, it adds the condition that consent should not be valid if there is a significant imbalance between the position of the data controller and the data subject (i.e. the individual) remaining in the Regulation. However, incentives are also included for data controllers to use pseudonymous data (e.g. key coded) for which lighter consent obligations will apply.
- More detail is also provided on when it is possible for a data controller to rely on the legitimate interest ground to process personal data with the controller required to publish why it believes its interests override those of the data subject. The legitimate interests of the data controller include enforcement of legal claims.
- Data protection policies are to be communicated using multi-layered formats and icons with full information available on request. Data subjects also have a right to be informed about the disclosure of their personal data to a public authority.
Right to be Forgotten, Data Portability and Profiling
- The Right to be Forgotten (i.e. to have personal data erased) remains in the Regulation but has been amended so data controllers would no longer have to take reasonable steps to contact third parties to request them to erase copies of the data if the personal data has been transferred or made public based on legal grounds (such as legitimate interest).
- The Right to Data Portability (i.e. to obtain a copy of the data being processed and to move the data to another platform) has been merged with the Right of Subject Access (i.e. the right for confirmation whether personal data is being processed). The Right of Subject Access has also been amended so data subjects now have a right to be informed if their personal data has been disclosed to public authorities.
- Targeted Internet advertising could also face significant impacts. Profiling will only be permitted with the data subject’s consent or based on an express statutory provision.
Documentation, Impact Assessments, Security and DPOs
- The requirement in the proposed Regulation for data controllers and processors to retain detailed documentation on the processing has been merged with the requirement to provide information to individuals about how their personal data are processed. The exemption on small businesses employing less than 250 persons from having to retain such documentation has been removed.
- In the case of a security breach the period to notify the DPA is extended from 24 to 72 hours while the obligation to notify data subjects has also been extended to require that information be included regarding the rights of the data subject including redress.
- The obligation to appoint a Data Protection Officer (DPO) has been amended so a DPO is required where a legal entity processes personal data on more than 500 persons. The DPO must be a direct report to the head of management, such as the CEO, and the minimum appointment of the DPO is also extended from 2 years to 4 years. The DPO will also have an obligation to report suspected breaches to the DPA.
- The requirement to carry out data protection impact assessments where data involves specific risks (such as health data and data on children) remains as does the obligation to seek the views of data subjects. However, instead of having to consult with a DPA it is now proposed that a data controller can consult with their DPO.
Life Sciences and Scientific Research
- Importantly the report provides a comment that processing of sensitive data (e.g. health data) for the purposes of historical, statistical and scientific research are “not considered as urgent or compelling as public health or social protection.” This is of particular concern for the life sciences industry and other industries carrying out research including academic research.
- The provisions in the Regulation on processing of sensitive data (including health data) for the purposes of historical, statistical and scientific research are also amended to provide that such processing shall only be permitted with the consent of the data subject, but Member States may legislate for exceptions to the requirement of consent for research that serves an exceptionally high public interest, if that research cannot possibly be carried out otherwise. The amendments go on to provide that “The data in question shall be anonymized, or if that is not possible for the research purposes, pseudonymized under the highest technical standards, and all necessary measures shall be taken to prevent re-identification of the data subjects.” The possibility of EU Member States determining when scientific research is permitted, where consent has not been obtained, will also be of concern to the life sciences industry.
New One Stop Shop, Codes of Conduct and Certification Schemes
- A modified ‘one stop shop’ approach to regulation is proposed under which a DPA is competent to supervise processing operations within its territory or affecting data subjects resident in its territory. Where the processing activities of a controller or processor are established in more than one EU Member State or affecting data subjects in several Member States, the authority of the Member State of the main establishment of the data controller will be the lead authority acting as a single contact point for the controller or processor.
- Some of the powers of the European Commission to adopt delegated acts (i.e. to provide more detailed requirements) for certain provisions have been removed.
- Industry Codes of Conduct and data protection certification schemes are encouraged with a formal procedure required to be set down for the issue and withdrawal of a data protection seal or mark and to ensure the independence of the issuing organization.
The next steps in the EU legislative timetable include: (i) February 27, 2013: deadline for tabling amendments by MEPs on the Civil Liberties Committee; (ii) end of April 2013: vote by the Civil Liberties Committee; and (iii) from May 2013 on: (depending on progress in the EU’s Council of Ministers) negotiations between European Parliament, the Council and the Commission (the so called “Trilogue”).
For further details on the proposed EU Data Protection Regulation, please contact William Long (email@example.com) or John Casanova (firstname.lastname@example.org). Edward McNicholas (email@example.com) in Washington, D.C. is also available to assist U.S. companies in addressing the potential conflicts between U.S. and EU requirements.
This Sidley update has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers.
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Prior results do not guarantee a similar outcome.
Scrip Regulatory Affairs
The EU Data Protection Regulation proposed by the European Commission in January will – if adopted in its current form – require pharmaceutical and medical device companies to adopt a new approach to data processing and data protection.
This article was published in the March 2012 issue of Scrip Regulatory Affairs.