YOU CAN RUN BUT YOU CAN’T HIDE… MORE ON PRIVACY REGULATION, GDPR AND CALIFORNIA. WHO’S NEXT?
On May 25, 2018, the European General Data Protection Regulation (“GDPR”) went into effect. US-based companies that had offices in the European Union or European Economic Area (collectively, “EU”) or those companies whose target market consisted of persons living in the EU were forced to take both IT and legal measures to ensure compliance, or face heavy fines or potential court damages. However, many US-based companies simply decided that they would disable their e-commerce websites to the EU, and discontinue selling products to the EU, as a means of avoiding compliance with the GDPR.
While this strategy of avoidance may be successful for certain companies to avoid taking compliance measures required by GDPR, it will not be successful as a long term strategy as more States (and potentially the federal government) adopt privacy laws similar to the California Consumer Privacy Act of 2018 (“CCPA”).
Passed in June, 2018, the CCPA will become effective January 1, 2020. Once effective, US companies will have additional regulations with which to comply regarding the processing of personal information (“PI”) of California residents. PI is defined broadly to include “any information that …relates to … a particular consumer or household”. The law was designed to provide California consumers with a means of controlling their personal information, putting them in a better position to protect their privacy and autonomy.
Specifically, the CCPA:
Gives California consumers the right to know what PI a business has collected about them or their children;
Gives California consumers the right to know if such PI has been sold or disclosed for a business purpose, and if so, to whom;
Gives California consumers a right to have their PI deleted;
Requires businesses to disclose to California consumers if it sells any of the consumer’s PI has been sold, and if so, allows California consumers to request that the business cease any sales of the consumer’s PI;
Prevents a business from denying, changing, or charging more for a service if a California consumer requests information about the sale of the consumer’s PI, or refuses to allow the business to sell the consumer’s PI; and
Requires businesses to safeguard California consumers’ PI and hold them accountable if such PI is compromised as a result of a security breach arising from the business’s failure to take reasonable steps to protect the security of consumers’ sensitive information.
Who Must Comply?
Companies must comply if, in the course of their business, they receive PI from any California residents and if they or their parent or subsidiary either: (1) generate annual gross revenues in excess of $25 million, (2) collect PI of 50,000 or more California residents, households or devices annually, or (3) generate 50% or more of its annual revenue from selling California residents’ PI. Interestingly, parent companies and subsidiaries using the same branding are covered by the definition of “business” even if they themselves do not meet or exceed these parameters. Thus, essentially, most all US companies whose websites collect PI (even though obtaining IP addresses) are subject to the CCPA, unless they can ensure that less than 50,000 California residents or less than 50,000 of their devices visit the company’s site annually.
What about Companies Who Do Not Do Business in California?
Many US companies may have difficulty showing that they do not do business in California. According to the California Civil Code, only companies whose “commercial conduct takes place wholly outside of California” would be able to avoid the CCPA. Further, a company outside California is deemed to be “doing business” in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California”. Those companies outside California but that are qualified to do business in California may be subject to the CCPA if they enter into “repeated and successive transactions” in California, including online transactions. However, while this is only limited to California, it is very probably that other states will adopt similar legislation.