15 January 2017

Proposed EU ePrivacy Regulation: major changes ahead for conducting business online

On 10 January 2017 the European Commission published a proposal for a new EU ePrivacy Regulation. The current ePrivacy Directive regulates technologies that enable online advertising and contains specific privacy and security regulations for telecommunications companies. In the proposed Regulation, the EC aligns its provisions with the strict data privacy and security requirements of the EU General Data Protection Regulation (GDPR) and introduces equally high fines in cases of non-compliance. The proposals also introduce new rules on online targeting of consumers, for example on consent requirements and ‘do not track’ browser settings. Moreover, the EC intends to broaden the scope of the ePrivacy regime to include all businesses that interact with consumers online. Given the potential impact far beyond the telecommunications sector, all companies with an online presence – in particular those that interact with consumers online – should closely monitor the development of the proposed ePrivacy Regulation.

The review of the ePrivacy Directive is part of the broader EU Digital Single Market Strategy (DSMS). This strategy aims to harmonise the European market for digital products and services, and increase the trust in and the security of digital services. The GDPR and the European Electronic Communications Code (EECC), which will replace several existing telecommunications directives, also fall within the DSMS and will complement the the ePrivacy Regulation.

From Directive to Regulation: direct effect of strict regime and sanctions
Rather than amending the current ePrivacy Directive, the EC explicitly opted for a new Regulation that will have direct effect in each EU member state upon adoption. The EC also seeks to ensure consistency with the strict GDPR. Consequently, fines of up to EUR 20 million or 4 percent of the annual global turnover can be imposed when organisations violate the provisions of the ePrivacy Regulation. The EC cites legal certainty and lower compliance costs for multinationals, since member states cannot have divergent interpretations of the new text, as justification for the proposals, which will have major impact on online business conduct.

“Over the top” services: all online business conduct within scope?
Another important change is that the new rules will not only apply to telecom providers, but to all companies providing ‘functionally equivalent’ services, known as ‘over-the-top’ service providers (OTT). This expansion of scope intends to close the gap between traditional telecommunications operators (for example, SMS, fixed-line telephony) and internet communications (for example, messaging via social media, web-based email). Most of these new internet-based technologies are not regulated under the current Directive. Moreover, the Regulation would also apply to:

  • the transmission of machine-to-machine communications (if this contains personal data), which is fundamental to the development of Internet of Things;
  • the metadata of communications, such as the source, location, date, time and duration of the communication;
  • public communication networks (provided to an undefined group of consumers), such as Wi-Fi-hotspots.

By expanding the scope, the EC aims to ensure equal consumer protection, regardless of the specific technology used. According to various organisations, such as the Article 29 Working Party in a recent opinion, the inclusion of ‘functionally equivalent’ products and services provides for technology-neutral rulemaking and is needed to make the Regulation future-proof.

Cookies and consent: Goodbye “cookie banners”, Hello “do not track”?
The EC also intends to change the rules on tracking technologies and default browser settings. ‘Privacy intrusive’ techniques require explicit consent; examples include cookies, device fingerprinting, the collection of data from devices using the Internet of Things for marketing purposes and other third party tracking practices.

Additionally, the EC aims to simplify the consent request. Currently, end-user consent must be acquired before placing tracking technologies. This has resulted in the well-known “cookie banners” currently found across the World Wide Web; banners that users don’t usually read and are considered burdensome by both end-users and businesses. Under the new Regulation, users will be able to indicate through default settings if they wish to allow tracking technologies on their devices. This automatic option to refuse the placement of tracking technologies is widely known as ‘Do Not Track’. Additionally, the default setting in browsers would prohibit third-party tracking, unless users specifically agree to be targeted by third parties. If the current proposals are adopted, cookie banners could become a thing of the past, but analysing customers across the web would become much more difficult.

Broader trend: consumer protection on the rise
Similar to the GDPR, the EC seeks to empower consumers in a number of additional ways in the ePrivacy Regulation. First, the consent requirements are linked to the strict definitions under the GDPR: unambiguous, freely given, only after receiving specific information. Further, the text of the proposal emphasises the importance of transparent and user-friendly communication to consumers. Consumer protection is also safeguarded by protecting users against spam – or ‘unsolicited and non-consensual electronic communication’. Consumers have the right to object to marketing calls and direct marketing emails.

The EC also introduces mandatory notification of detected security risks to consumers and liability for damages arising from those incidents. However, the current proposal does not explicitly contain an obligation for telecom or OTT service providers to secure their networks and services. It seems that the EECC and GDPR will complement the Regulation with regard to security obligations. The EC claims to have chosen this type of framework to avoid administrative burdens and to provide clarity. Given the European Parliament’s previous intervention on cyber security issues, for instance, calls for end-to-end encryption across the internet, it would be unsurprising if stricter cyber security obligations were introduced following upcoming legislative debates on the Regulation.

What’s next?
The European Parliament and the Council will now debate this ePrivacy Regulation proposal. The EC wants the Regulation to enter into force on 25 May 2018, the same date as the GDPR. The proposal would be in effect six months later.

Given the criticism received from both industry and consumer rights groups on, amongst other items, the stronger regulation of third party advertisers and the lack of explicit cyber security requirements, the timeframe seems ambitious.

Nonetheless, the ePrivacy Regulation is set to have a major impact on all companies that interact online with customers. Companies should review their online operations and monitor further developments closely.