Tech sector fears fallout from Microsoft data privacy case

Some in the tech sector look at Microsoft as a savior these days, fending off possible government intrusion on privacy.

A lawyer representing Microsoft went before the Supreme Court Tuesday and helped justices decipher the mysteries of the internet and how data is retrieved around the world in a case involving Microsoft and a data center it owns in Europe. At stake in the case is whether the government can compel Microsoft to turn over the email of a suspected drug trafficker. The email is stored in Ireland.

More broadly, though, the case could affect a broad swath of the U.S. tech sector, from small app producers up to tech giants that fear they could lose global business if privacy rights are eroded.

“An adverse ruling against Microsoft would be an adverse ruling against the entire cloud ecosystem, and every app on your smartphone, every transaction you have with your bank, your healthcare provider,” said Morgan Reed, president of ACT, The App Association, a group that represents 5,000 small and medium-sized app and tech companies.

Microsoft President Brad Smith said foreign consumers are sensitive to whether their data is safe in the hands of U.S. companies and whether those companies will respect privacy laws in foreign jurisdictions or bend to U.S. government demands.

The reality is that people will not use technology they do not trust.

Brad Smith, president of Microsoft

“The reality is that people will not use technology they do not trust. We need to sustain their trust, and part of sustaining their trust is giving people confidence that their legal rights under their legal systems will in fact be respected, including by the United States,” Smith said after oral arguments in the case.

Foreign companies are poised to supplant U.S. companies if they are viewed as unreliable guardians of data, said Smith, who also is chief legal officer at Microsoft, the Redmond, Washington, giant that develops and sells computer software and services, such as cloud computing.

In major markets like Germany, Smith said, Microsoft and other U.S. companies saw “a loss of market share” after the 2013 disclosures by Edward Snowden, a former National Security Agency contractor who divulged a widespread practice of U.S. government electronic snooping.

Smith said foreign companies could take U.S. business again.

Every country has businesses that are in the cloud computing business.

Brad Smith, Microsoft president

“There is no shortage of companies in other countries, like Germany itself. There are companies like Deutsche Telekom. Every country has businesses that are in the cloud computing business,” he said.

The world’s three biggest cloud computing firms are all U.S companies, according to Gartner, a technology research firm. They are Amazon Web Services (a division of Amazon), Microsoft and Google.

Reed, of the App Association, said U.S. app producers rely on data storage centers around the world and extensive cloud computing, and will certainly face questions from clients.

“The first question they are going to ask is, ‘Where do you store our data?’” Reed said. “For small and innovative start-ups, the answer is, we store it where we can do the best work.”

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Foreign competitors may be looking to springboard off any adverse Supreme Court ruling on the Microsoft case, Reed said.

“You’ve seen it in Australia. You’ve heard it from Germany. You’ve seen it in India, Brazil, Russia, around the world. They are all looking at this and saying, ‘If we can’t protect the data of our citizens, how do we use that from a trade perspective to benefit our internal businesses?’” Reed said.

On Tuesday, justices probed attorney E. Joshua Rosenkranz, an attorney for the Orrick law firm who represented Microsoft, about aspects of the 1986 law that governs electronic communications. At times, the chamber became a classroom on how data whizzes around the world.

“You push the button in Washington?” Justice Anthony M. Kennedy asked Rosenkranz about the human intervention needed to retrieve email stored abroad.

“A human being doesn’t have to do it. It is a robot,” Rosenkranz responded. “And if you sent a robot into a foreign land to seize evidence, it would certainly implicate foreign interests.”

I guess my imagination is running wild.

Supreme Court Justice Sonia Sotomayor

Justice Sonia Sotomayor interjected: “I guess my imagination is running wild,” she said to laughter in the chamber.

Back in 1986, when the Stored Communications Act was enacted, “no one had ever heard of clouds,” said Justice Ruth Bader Ginsburg, referring to the concept of storing and accessing data and programs over the internet, or to “the cloud,” not on one’s own computer.

Deputy Solicitor General Michael R. Dreeben, arguing for the Justice Department, was asked repeatedly why the Supreme Court should take any action given that a proposal has been introduced in Congress that would clarify the conditions under which U.S. law enforcement could legally access data stored overseas.

Dreeben cited the “uncertain legislative process,” noting that the proposal “has not been marked up by any committee. It has not been voted on by any committee. And it certainly has not yet been enacted into law.”

The proposal, known as the Clarifying Lawful Overseas Use of Data (CLOUD) Act, sets a mechanism for government-to-government cooperation on data requests but gives data storage companies a path to object in a U.S. court. Some experts believe the proposal would bring statutes up to modern times while balancing both privacy and law enforcement interests, although it does not have universal support.

The Supreme Court is expected to issue a ruling in the spring.

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