Justices to Decide on Forcing Technology Firms to Provide Data Held Abroad

[Leroy N. Soetoro]

https://www.nytimes.com/2017/10/16/business/justices-technology-data.html

WASHINGTON — The Supreme Court on Monday agreed to decide whether federal
prosecutors can force technology companies to turn over data stored
outside the United States.

Disputes between leading technology companies and the Justice Department
have become increasingly common, and the new case will give the Supreme
Court an opportunity to weigh in on the clash between the demands of law
enforcement and the companies’ desire to shield the information they
collect to protect their customers’ privacy.

The case, United States v. Microsoft, No. 17-2, arose from a federal drug
investigation. Prosecutors sought the emails of a suspect that were stored
in a Microsoft data center in Dublin. They said they were entitled to the
emails because Microsoft is based in the United States.

A federal magistrate judge in New York in 2013 granted the government’s
request to issue a warrant for the data under a 1986 federal law, the
Stored Communications Act. Microsoft challenged the warrant in 2014,
arguing that prosecutors could not force it to hand over its customer’s
emails stored abroad.

A three-judge panel of the United States Court of Appeals for the Second
Circuit, in Manhattan, ruled that the warrant in the case could not be
used to obtain evidence beyond the nation’s borders because the 1986 law
did not apply extraterritorially. In a concurring opinion, Judge Gerard E.
Lynch said the question was a close one, and he urged Congress to revise
the 1986 law, which he said was badly outdated.

The government asked the full Second Circuit to rehear the case, but the
court deadlocked by a 4-to-4 vote. In dissent, Judge José A. Cabranes
wrote that the panel’s decision had restricted an investigative tool used
thousands of times a year while failing to “serve any serious, legitimate,
or substantial privacy interest.”

In urging the Supreme Court to hear the case, the Justice Department said
nothing should turn on Microsoft’s business decision to store data abroad
that it “can access domestically with the click of a computer mouse.” The
panel’s ruling, the department’s brief said, “is causing immediate, grave,
and ongoing harm to public safety, national security, and the enforcement
of our laws.”

“Hundreds if not thousands of investigations of crimes — ranging from
terrorism, to child pornography, to fraud — are being or will be hampered
by the government’s inability to obtain electronic evidence,” the brief
said.

In response, Microsoft told the justices that it is up to Congress to
revise the 1986 law and noted that both houses have recently held hearings
to consider overhauls.

A ruling upholding the warrant, the company warned, would embolden foreign
countries to seek the emails of Americans stored in the United States.

Microsoft added that the Justice Department’s position posed a threat to
technology companies by requiring them to choose between complying with a
warrant and disobeying foreign laws.

“These conflicts can place U.S. companies in the untenable position of
being forced to violate foreign privacy laws to comply with U.S.
warrants,” the company’s brief said. “And the growing privacy concerns of
customers around the world mean that granting U.S. law-enforcement
agencies that broad authority would hamstring U.S. companies’ ability to
compete in the multibillion-dollar cloud computing industry.”

The case is part of the broader clash between the technology industry and
the federal government in the digital age. Apple, for instance, battled
the F.B.I. over helping investigators break into a locked iPhone that had
been used by a gunman in a mass shooting.

Looking at an American Express Practice

The Supreme Court also agreed to decide whether American Express can stop
businesses from steering customers toward competing credit cards.

Last year, the Second Circuit ruled that the company had not violated
antitrust laws by insisting in its contracts with merchants that they do
nothing to encourage patrons to use other cards.

Retailers pay so-called swipe fees when customers use credit cards.
American Express charges higher fees than Visa or Mastercard, meaning that
merchants have good reason to prefer those other cards.

In 2010, the Justice Department and 17 states sued several credit card
companies, saying that their steering practices had violated the antitrust
laws. Visa and Mastercard settled, but American Express fought the case.

In 2015, Judge Nicholas G. Garaufis, of the United States District Court
in Brooklyn, ruled that contracts forbidding merchants from steering
customers toward other forms of payment were an unlawful restraint of
trade.

The Second Circuit disagreed, ruling that Judge Garaufis had unduly
focused on merchants’ interests “while discounting the interests of
cardholders.”

“This approach does not advance overall consumer satisfaction,” Judge
Richard C. Wesley wrote for a unanimous three-judge panel. “Though
merchants may desire lower fees, those fees are necessary to maintaining
cardholder satisfaction — and if a particular merchant finds that the cost
of Amex fees outweighs the benefit it gains by accepting Amex cards, then
the merchant can choose to not accept Amex cards.”

Eleven states asked the Supreme Court to hear the case, Ohio v. American
Express, No. 16-1454, saying that the appeals court’s decision was at odds
with established antitrust principles and affected “an astronomical number
of retail transactions in the United States.”

The Justice Department agreed that the Second Circuit had gone astray.

“The court of appeals seriously departed from sound antitrust principles,
and its decision leaves in place restraints that thwart price competition
in an important sector of the economy and inflate the retail prices paid
by all consumers,” the department’s brief said.

The department nonetheless opposed Supreme Court review, saying that the
issues in the case deserved further consideration before the justices
weighed in.

“Consistent with its usual practice of awaiting further percolation in the
lower courts before taking up such novel legal issues,” the brief said,
“the court should deny review here.”

In urging the Supreme Court not to hear the case, American Express said
the appeals court’s ruling was correct and that the states seeking review
had been “passive participants” in the litigation. “Amex knows of no
instance in which the United States as a plaintiff abandoned its
enforcement action and this court nonetheless granted review at the behest
of another party,” the company’s brief said.

--
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