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US magistrate makes Schengen internet more likely

Posted by on April 29, 2014.

Microsoft could either see the Schengen Cloud coming or was privy to politicians’ thoughts. In January this year it announced that it would allow European customers to keep their data on servers within Europe. This followed a blog by legal counsel Brad Smith in December 2013 that voiced concern over US surveillance:

And we’ll assert available jurisdictional objections to legal demands when governments seek this type of customer content that is stored in another country.
Protecting customer data from government snooping

So when news broke in February that Germany’s Merkel and France’s Hollande were keen on developing a European cloud to protect the privacy of European citizens, Microsoft was in a strong position to say, hey, we’re already with you: European data will remain within Europe; Microsoft can be part of the European cloud. (That proposed cloud is now known as the Schengen Cloud. Since the UK has never joined the Schengen group it is a way of excluding the UK — and specifically GCHQ — from Europe’s cloud.)

Alexander Hanff, Think Privacy Inc

Alexander Hanff, Think Privacy Inc

But the reality is different. Privacy expert Alexander Hanff, CEO of Think Privacy Inc, said at the time: “Microsoft knows full well that it makes no difference whether the data is hosted in the US or not. They are a US corporation and therefore any data they hold is vulnerable to the US surveillance machine no matter where it is. It is clear from the announcement that Microsoft (as well as the rest of the cloud industry) is really concerned about losing revenues for cloud services and they know there is a strong movement within Europe (not least by the European Commission) to create infrastructure independent of the US and US tech giants.”

He called it right. Brad Smith had been true to his word and had challenged a US law enforcement demand for customer details held in Ireland. The unnamed LEA had demanded everything on the customer, including the content of emails, user’s contact lists, IP addresses and even bank details. Microsoft went to court. It argued that warrants could not be served overseas, and that the warrant should be negated.

On Friday, a US magistrate delivered his decision. He said that while the LEA demand was couched as a warrant, because it involved telecommunications it was to be enacted as a subpoena — and subpoenas can be enforced on overseas locations. Thus, as Hanff had predicted, it matters not where a US company stores its data, the PATRIOT Act can demand and enforce access to it.

In fairness, Microsoft seems to have expected this. It will appeal. Microsoft’s deputy general counsel David Howard blogged on Friday,

When we filed this challenge we knew the path would need to start with a magistrate judge, and that we’d eventually have the opportunity to bring the issue to a U.S. district court judge and probably to a federal court of appeals. Today the Magistrate Judge, who originally issued the warrant in question, disagreed with our view and rejected our challenge. This is the first step toward getting this issue in front of courts that have the authority to correct the government’s longstanding views on the application of search warrants to content stored digitally outside the United States.
One step on the path to challenging search warrant jurisdiction

The stakes are high. If the US courts ultimately uphold law enforcement’s right to demand the data of European citizens held on European premises for all US companies, and if Europe proceeds with the Schengen Cloud, then Microsoft, Google, Facebook, Twitter and other US tech giants will simply be excluded from Europe. This will hurt the US economy. Firstly these companies will be excluded from one of the world’s most important markets, and secondly it will be a huge boost to the indigenous European tech industry — which will hurt the US economy even more.

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