This post was also written by Nick Tyler and Regis Stafford.

The American Bar Association (ABA) this week passed an important resolution urging all courts in the U.S. to:

“consider and respect…the data protection and privacy laws of any…foreign sovereign, and the interests of any person who is subject to, or benefits from such laws, with regard to data that is subject to preservation, disclosure, or sought in discovery in civil litigation.”

The ABA journal describes the long-standing dilemma faced by litigators on both sides of the Atlantic as “Hobson’s Choice”. The ABA Section of the International Law Report to the House of Delegates further explains the choice too often faced by litigants: “violate foreign law and expose themselves to enforcement proceedings that have included criminal prosecution, or choose noncompliance with a U.S. discovery order and risk U.S. sanctions ranging from monetary costs to adverse inference jury instructions to default judgments.”

It is interesting to note the timing of the resolution, coming as it has less than two weeks after publication by the EU Commission of the long-awaited draft EU Data Protection regulation with its proposed new sanctions of up to 2 percent of annual worldwide turnover for serious breaches, which would include an unlawful data transfer to the U.S..

Such sanctions represent a ‘game-changer’ in the current risk profile and choices presented to multi-nationals faced with U.S. discovery requirements demanding the transfer of personal data held by EU affiliates in breach of EU data protection laws.

Current U.S. jurisprudence will now be tested – up until now the U.S. courts have tended to strike the balance in favour of compliance with U.S. rules on the basis that there is no realistic prospect of prosecution in Europe for an enterprise which breaches EU cross-border transfer restrictions. See In Strauss v. Credit Lyonnais S.A., 242 F.R.D. 199 (E.D.N.Y. 2007).

However, as the report to the ABA House of Delegates regarding the resolution explains, there are other good reasons, in addition to the possibility of sanctions, for U.S. courts to respect Europe’s data privacy laws. If U.S. courts continue to favor broad discovery in violation of EU restrictions, U.S. litigants may face, “a similarly hardened view of U.S. laws and regulations to the detriment of U.S. litigants” in courts outside of the U.S.. Moreover, “[p]ermitting broad discovery in disregard or even defiance of foreign protective legislation can ultimately impede global commerce [and] harm the interests of U.S. parties in foreign courts and provoke retaliatory measures.”

The resolution has been diluted from that originally proposed, with the insertion of qualifying words such as “where possible in the context of the proceedings”. Nonetheless, the ABA have sent a clear signal that the time for a re-evaluation of the status quo is needed and U.S. Courts need to recognise the wider implications of cross-border litigation in the context of an increasingly globalised corporate and legal environment.