The European Union Article 29 Working Party (Article 29) issued an opinion on the proposed EU-U.S. Privacy Shield framework agreement (Privacy Shield) earlier this month, stating that although the Privacy Shield was a “great step forward,” the Article 29 group identified several areas in which it found the Privacy Shield to be unacceptable, including that it permits the U.S. to carry out “massive and indiscriminate” bulk surveillance of European Union citizens. On the other hand, just a day later on April 14, 2016, European Parliament provided final approval for the new EU General Data Protection Regulation (GDPR), after four years of work between the member states.

While many automakers will be disappointed to learn of the Article 29 group’s rejection of the Privacy Shield, as it does not provide “adequate protection” to EU residents (and European automakers), it should not come as a surprise. The Article 29 group continued to raise concerns over the possibility of “massive and indiscriminate” bulk collection by U.S. authorities of EU personal data. However, the Article 29 group raised other concerns as well, tipping their hat to the concern that, unless these issues are addressed, a similar challenge could be brought against the Privacy Shield as was brought against Safe Harbor in the European Court of Justice, thus invalidating the Privacy Shield.

Impact to the Automotive Industry

The rejection by the Article 29 group puts the U.S. Department of Commerce and the EU Commission, who jointly proposed the Privacy Shield after almost two years of negotiations, in a difficult situation. The decision leaves automotive manufactures who store information in the United States with significant uncertainty on how to continue to provide services to EU residents and puts these organizations at risk to further enforcement actions by European Data Protection Authorities. However, the Privacy Shield was not necessarily an easy solution for many manufacturers, including those thinking of registering for the Privacy Shield, if and when it is adopted. In addition, Privacy Shield may be invalidated by the European Court of Justice for similar reasons that Safe Harbor was invalidated. While the Privacy Shield, if and when adopted, would be one of the permissible methods to transfer personal data between the U.S. and the EU, the decision to join is one that every U.S. organization should not take lightly, as it is just one of several mechanisms to provide for trans-Atlantic data transfers, such as the EU Standard Contractual Clauses (SCCs) and Binding Corporate Rules (BCRs). Although both are more complex as compared to the Privacy Shield, their relative certainty may be the best option for trans-Atlantic data flow at this time. However, the adequacy of each of these methods is also expected to be reviewed by the Article 29 group following the approval of the Privacy Shield by the European Commission. Furthermore, companies will almost certainly need to repeat some efforts to put these methods in place to comply with the upcoming GDPR.

Although GDPR is intended to harmonize data protection in all 28 member states of the EU, there are certain provisions of the new regulation left to local laws (for example, in the area of processing health information and the age of consent), which will lead to continued complexity for compliance by all automotive manufacturers. Although it will not be required to be fully compliant with GDPR for two years, these organizations need to become familiar with the provisions of GDPR and begin planning for implementation now, because once GDPR is enforced, violations for non-compliance with could result in penalties up to four percent of the organizations worldwide revenue or 20 million Euros, whichever is greater.

What You Should Start Doing Today to Prepare for GDPR and Privacy Shield

Today’s automobiles include a number of technologies that are designed to enhance the driving experience and enhance safety, reduce the environmental impacts of vehicles, diagnosis of vehicle malfunctions, call emergency assistance, detect and prevent vehicle theft, reduce traffic congestion, improve vehicle efficiency and performance, deliver navigation services, and provide valuable information services. This information collected may include not only personal information (such as information that is linked or reasonably linkable to the particular vehicle, the owner of the vehicle, or another registered user of the vehicle), but also personal subscription information, including credit card and address information, diagnostics and geolocation information, and even biometric information. This information is not only shared with the manufacturer, but may also be shared with other consumers, subscription service providers, and other third party service providers.

To address consumers’ privacy concerns regarding the collection and use of personal data collected by these technologies, automobile industry groups have thus far only adopted optional “Consumer Privacy Protection Principals” to offer protection for U.S. consumers. While these are helpful to address the concerns of U.S. citizens and have some overlap with Privacy Shield and GDPR, the Privacy Shield and GDPR will provide many new mandatory requirements for the collection, use, and sharing of all EU citizens. In particular, Privacy Shield may apply to information about EU citizens collected by vehicles and shared with U.S.-based data processors and cloud providers, while GDPR will have an even more significant impact, regulating not only the sharing of such information, but also its collection and use, without regard to the physical location of the processor or controller. Although the penalties for non-compliance with GDPR will not be enforced until mid-2018, automobile manufacturers that include technologies that may collect or process the personal data of EU citizens may have a lot of work to do to be ready. Likewise, although the Privacy Shield has encountered some roadblocks to its adoption, it seems likely that it will be adopted in some form and companies considering the Privacy Shield have some preparation to do before they can adopt it. We recommend that companies consider the following to prepare for GDPR and Privacy Shield:

• Review what information may be collected (both automatically and with driver or passenger interaction) by technologies included in the automobile, how it is processed, where it is stored, how it is protected, and who may have access to it. Consider if any of the information collected may require you to conduct a Privacy Impact Assessment and put processes in place to conduct these.

• Begin drafting or revising your written information security policies to ensure the appropriate technical, administrative, and physical measures to protect personal data and employ proper training for all your employees. Ensure that procedures are in place to continually monitor compliance with these policies prior to, during, and after processing of personal data. Begin performing a gap assessment and consider participation in certification programs.

• Maintain detailed records of the processing performed on personal data.

• Review your product development process to ensure that privacy risks are considered early in the process and that your products and services only collect and maintain the minimum amount of personal data necessary for the proper performance of the products and services. With the long development cycles common in the automotive industry, this cannot begin soon enough to be ready to comply when GDPR enforcement begins. Automobile manufacturers will likely need to comply with GDPR for their 2018 model year vehicles, which may begin hitting the market as early as late 2017.

• Review and update privacy policies to ensure they are easily accessible, written in clear and plain language, and include full disclosure of your data collection and processing. Consider how these are presented to not only the owners of your vehicle, but also any passengers. Privacy Shield also requires that you implement, and your privacy policy describes, methods for individuals to have their complaints addressed.

• Review and revise your methods of obtaining consent from vehicle owners and passengers to ensure that specific, informed, unambiguous opt-in consent is provided before processing data.

• Review your ability to comply with the data subject’s right to be forgotten and new data portability rights. You must be able to erase personal data and transfer the data to another provider when technically feasible.

• Review your cyber-incident response plans and update if necessary to be able to implement notification to Supervisory Authorities within 72 hours of a breach.

• If you are using BCRs or SCCs for trans-Atlantic data flows, you should review them for compliance with the new requirements of GDPR. Draft addendums to SCCs and other contracts as necessary to address the onward transfer restrictions of the Privacy Shield. This includes ensuring that downstream entities comply with limitations on purpose and meet all of the Privacy Shield requirements, including remediating any unauthorized processing by the downstream entity.

• Begin to search for qualified Data Protection Officers (DPO). Under GDPR, automobile manufacturers that regularly or systematically gather personal data as part of its core activities, or that process large amounts of sensitive personal data, will need to appoint a DPO who has the authority and independence to inform the organization of their obligations under GDPR, monitor compliance, train the organization’s internal staff, and conduct internal audits. The DPO will also act as the organization’s point of contact for data subjects’ inquiries, withdrawals of consent, right to be forgotten requests, and other related rights.

• Review insurance policies for scope and limits of coverage. Consider if your policy includes global or enterprise coverage, what types of data issues are covered, and the potential for increased costs and liabilities under GPDR and the Privacy Shield.

• Consider where you put your data center for information that transmitted out of the vehicle. Privacy Shield will only apply when personal data is transferred back to the United States. If your data center for vehicles operating in the EU remains in an EU-member country, you may not have to worry about Privacy Shield, but you will still have to make all the necessary adjustments for GDPR.

Manufacturers should be aware that GDPR shifts the issue of privacy and personal data protection even further from an information technology issue to a Board of Directors and C-suite issue. GDPR will have a tremendous impact on the day-to-day operations, costs, and potential liabilities of the company that demands board level attention. Furthermore, under Sarbanes-Oxley in the United States, automobile companies that trade on U.S. stock exchanges may need to disclose GDPR’s increased operational costs and potential for high liabilities to their investors.