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Cross-Border Cut

Microsoft v. United States Addresses the Presumption Against Extraterritoriality in the Digital Context

Daniel M. Sullivan, Jayme Jonat, and Kevin D. Benish


            It has become a commonplace that we live in a “global society,” in which business arrangements and personal interactions increasingly cross borders.  In law, however, a world of transnational relationships is not necessarily one without national borders.  On the contrary, in a string of recent cases, the Supreme Court of the United States has emphasized that U.S. legislation presumptively applies only within U.S. territory.  Starting with the 2010 decision in Morrison v. National Australia Bank, Ltd., 561 U.S. 247 (2010), and continuing with Kiobel v. Royal Dutch Petroleum Co., 569 U.S. __, 133 S. Ct. 1659 (2013) and last term’s RJR Nabisco, Inc. v. European Community, __ U.S. __, 136 S. Ct. 2090 (2016), the Court has reaffirmed the traditional presumption against extraterritoriality in statutory interpretation.  This canon of construction is a presumption about what a statute means, and its effect is that a statute does not apply abroad unless it clearly provides for such application.  The Court has thus effectively put the onus on Congress; in order to expand the reach of American law beyond the bounds of American territory, Congress must pass laws that clearly say so.

These recent decisions have led to significant case law in the lower courts, as they strive (and sometimes struggle) to implement the presumption against extraterritoriality.  One such case is the Second Circuit’s recent decision in Microsoft Corp. v. United States, 829 F.3d 197, 2016 WL 3770056 (2016).  Microsoft raised the question whether the Stored Communications Act—which requires the government to get a warrant for certain electronic data—permits courts to issue warrants for electronic data stored in servers located abroad.  Applying the presumption against extraterritoriality, the Second Circuit held that the answer is “no.”  The Second Circuit’s reasoning, and the reasoning of Judge Gerard Lynch’s concurrence, reflect both the broad reach of the contemporary presumption against extraterritorial application, as well as the extent to which the logic of the presumption is not fully understood.

Morrison and the Presumption Against Extraterritoriality

            The presumption against extraterritorial application is not new.  See, e.g., E.E.O.C. v. Arabian Am. Oil Co. (“Aramco”), 499 U.S. 244, 248 (1991); Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949) (citing Blackmer v. United States, 284 U.S. 421, 437 (1932)).  The presumption is one of statutory meaning, resting on “the assumption that Congress is primarily concerned with domestic conditions.”  Foley Bros., 336 U.S. at 285.  Thus, although the presumption serves to avoid conflict between an American statute and foreign law, and is thought thereby to promote international comity (e.g., Aramco, 499 U.S. at 248), the presumption applies regardless of whether extraterritorial application in the case at issue actually conflicts with foreign regulation.  See Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 173–74 (1993) (citing Smith v. United States, 507 U.S. 197, 204 n.5 (1993)).  Furthermore, even when a statute provides for extraterritorial application, the presumption “remains instructive in determining the extent of” such application.  Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 455–56 (2007). 

            In Morrison, the Supreme Court applied the presumption to Section 10(b) of the Securities Exchange Act of 1934, articulating a two-step inquiry.  A court must (1) determine the geographic scope of the relevant statute—i.e., whether or not the statute applies extraterritorially—and then (2) determine whether cases before it involve a putative extraterritorial application, such that the application should be rejected.  At step 1, Morrison reached the straightforward conclusion that Section 10(b) lacks any “clear indication” of extraterritorial application.  561 U.S. at 265.  At step 2, the Court looked to the “focus” of the Exchange Act, and concluded that “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”  After all, the Court reasoned, “Section 10(b) does not punish deceptive conduct, but only deceptive conduct ‘in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.’”  Id. at 266 (quoting 15 U.S.C. §78j(b)).  Therefore, the Court held, Section 10(b) only applies to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.”  Id. at 267. 

            The Supreme Court expanded on Morrison three years later in Kiobel, holding that the Alien Tort Statute does not apply extraterritorially.  133 S. Ct. at 1669.[1]  Kiobel extended Morrison in an important way.  Typically, the presumption against extraterritoriality operates in terms of conduct.  Where the presumption is not rebutted, that usually means the statute does not apply if the conduct regulated by the statute occurred abroad.  See, e.g., Aramco, 499 U.S. at 259 (holding that Title VII did not apply extraterritorially to regulate an American company’s employment practices conducted in Saudi Arabia); Morrison, 561 U.S. at 266–67 (holding that Section 10(b) does not apply to frauds in connection with extraterritorial transactions).  Yet, despite the fact that the Alien Tort Statute “does not directly regulate conduct or afford relief,” Kiobel, 133 S. Ct. at 1664, the Court held that it was similarly constrained by the presumption. 

            RJR Nabisco, in which the Court addressed the extraterritorial application of the Racketeer-Influenced and Corrupt Organizations Act (“RICO”), completed the extension of the presumption that Kiobel began.  Although the Court held that the substantive prohibitions of RICO apply abroad to a limited extent, it separately applied the presumption against extraterritoriality to the provision of RICO that establishes a private right of action.  A private RICO action requires that the plaintiff have been “injured in his business or property” by a RICO violation.  RJR Nabisco, 136 S. Ct. at 2106 (quoting 18 U.S.C. §1964(c)).  Because the statutory provision setting forth this additional requirement for private actions does not contain any indication of extraterritorial application, the Court held that “[a] private RICO plaintiff therefore must allege and prove a domestic injury to its business or property.”  Id. 

            In reaching this conclusion, RJR Nabisco expressly rejected the reasoning of the Second Circuit, which had held that the presumption “‘is primarily concerned with the question of what conduct falls within a statute’s purview.’”  Id. (quoting 764 F.3d 149, 151 (2014)).  The Supreme Court did not, however, say that the presumption applies to all statutory provisions.  Instead, the Court pointed out that “providing a private civil remedy for foreign conduct creates a potential for international friction beyond that presented by merely applying U.S. substantive law to that foreign conduct.”  Id. at 2106.  Although the risk of such friction “is not a prerequisite for applying the presumption against extraterritoriality,” the Court reasoned, “where such a risk is evident, the need to enforce the presumption is at its apex.”  Id. at 2107.  Thus, the Court made clear that the presumption applies beyond conduct-regulating statutes, and that it applies at least to those statutes whose extraterritorial application would present a risk of international friction.  Whether there are some types of statutes to which the presumption might not apply, the Court left to another day.

            Morrison, Kiobel, and RJR Nabisco establish that the presumption against extraterritoriality constitutes a vigorous and mandatory interpretive assumption, one which can only be displaced by a clear indication of extraterritorial application.  Application of the presumption requires the two-step inquiry outlined above.  Moreover, the presumption against extraterritoriality applies to conduct-regulating provisions (as in Morrison) and at least to other provisions that threaten international comity.  These principles, and the trio of Supreme Court decisions that set them forth, set the stage for the Second Circuit’s recent decision in Microsoft.

The Second Circuit’s Decision in Microsoft

            Factual Background

In Microsoft, the U.S. government asserted that probable cause existed to believe a Microsoft customer’s email account was being used in furtherance of criminal narcotics trafficking.  It sought and obtained a warrant from the Southern District of New York pursuant to the Stored Communications Act (“SCA”), 18 U.S.C. §§ 2701 et seq.  Although the Government served the warrant on Microsoft in the United States, the content of the email account was stored in a datacenter located in Dublin, Ireland.  (The record was silent regarding whether the customer content originated in the United States, Ireland, or somewhere else.)  For this reason, Microsoft moved to quash the warrant.  A magistrate judge denied the motion, and the District Court adopted that ruling.  See In re Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corporation, 1:13-mj-02814 (S.D.N.Y. filed Dec. 4, 2013), ECF No. 80; In re Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corporation, 15 F. Supp. 3d 466, 477 (S.D.N.Y. 2014).  Microsoft appealed.

The Second Circuit’s Opinion

The SCA prohibits service providers from disclosing stored electronic communications to third parties, excluding, among others, law enforcement.  18 U.S.C. §§ 2701, 2702.  Section 2703, in turn, “sets up a pyramidal structure governing conditions under which service providers must disclose stored communications to the government.”  Microsoft, at *7.  The first category of information consists of basic subscriber and transactional information, which can be obtained with an administrative subpoena.  18 U.S.C. §2703(c)(2).  The next category is non-content records, which can only be obtained by a court order based upon a statement of “specific and articulable facts showing . . .  reasonable grounds to believe that the contents or records . . . are relevant and material to an ongoing criminal investigation.”  §2703(c)(2), (d).  Finally, there is some content (what the Court termed “priority stored communications”) that can be obtained only through an administrative or court order accompanied by a warrant obtained under the Federal Rules of Criminal Procedure or State warrant procedures.  The issue before the Second Circuit was whether Section 2703 permitted issuance of a warrant for content stored on servers located abroad.

The Second Circuit properly began its analysis with the modern cases on the presumption against extraterritoriality, including Morrison and RJR Nabisco.  The Court addressed step 1 of the analysis—whether Section 2703’s provision for the issuance of warrants for electronic data applies abroad—“with relative ease.”  Id. at *9.  In fact, “[t]he government conceded at oral argument that the warrant provisions of the SCA do not contemplate or permit extraterritorial application.”  Id. 

The Court might have left step 1 of its analysis there.  Instead, the Court added that, by using the term “warrant,” the SCA incorporated the historical understanding of warrants, which the Court believed are “traditionally moored to privacy concepts applied within the territory of the United States.”  Id. at *11.  This aspect of the opinion is rather opaque, but the idea appears to be that, because warrants must describe the place to be searched and the things to be seized (cf. U.S. Const. Am. IV), and the Fourth Amendment’s warrant requirement does not apply abroad, therefore there is something inherently territorial about warrants.  The Court contrasted this territorial character of warrants with subpoenas, which typically require the recipient to produce documents in his possession, custody, or control, regardless of where they are located.  Id. at *12–*13.

The Second Circuit then proceeded to step 2, assessing whether the enforcement of the warrant would constitute an unlawful extraterritorial application of the statute.  According to the Court, under the Morrison line of cases, one “look[s] to the territorial events or relationships that are the focus of the relevant statutory provision.”  Id. at *14 (quotation marks omitted).  “In identifying the ‘focus’ of the SCA’s warrant provisions,” the Microsoft Court considered “the text and plain meaning of the statute, as well as its framework, procedural aspects, and legislative history.”  Id.[2]  On the basis of that analysis, the Court “conclude[d] that the relevant provisions of the SCA focus on protecting the privacy of the content of a user’s stored electronic communications.”  Id.  This meant, according to the Court, that “the invasion of the customer’s privacy takes place under the SCA where the customer’s protected content is accessed.”  Id. at *17. 

Here, there was no dispute that Microsoft had stored the email content at issue at a datacenter in Ireland.  Under the Court’s theory, the warrant was therefore invalid “insofar as it direct[ed] Microsoft to seize the contents of its customer’s communications stored in Ireland.”  Id. at *19.

Judge Lynch’s Concurrence

Circuit Judge Gerard E. Lynch concurred in the judgment and wrote separately.  While he agreed with the Court that the SCA should not be construed to require Microsoft to turn over data stored on a server in Ireland in light of the presumption against extraterritoriality, Judge Lynch rejected the notion that the case implicated concerns about the government’s threat to individual privacy.  Instead, Judge Lynch explained, the real dispute was about the international reach of American law.  And that question, he continued, is “tricky” because the SCA does not regulate behavior but operates “in [a] more complex fashion[].”  The answer, according to Judge Lynch, is not to determine the “focus” of the statute for purposes of determining whether a particular application was extraterritorial or not––e.g., the physical place to be searched.  Rather, because it was a “very close case to the extent that the presumption against extraterritoriality shapes [the] interpretation of the statute,” he suggested that a more complex balancing exercise was warranted.  In sum, he was “skeptical” that a server’s location in another country would be sufficient to put that server’s data beyond the reach of a “purely ‘domestic’ statute,” and urged Congress to legislate in an effort to strike the ideal balance of conflicting policy goals.     

Implications of Microsoft

            As a practical matter, the most obvious consequence of the Microsoft decision is that it encourages corporations that store electronic content to store it abroad in order to avoid U.S. process.  It also demonstrates that courts will not bend application of the presumption against extraterritoriality for the government’s sake; typical prosecutorial tools such as warrants may now lose their force beyond our shores, at least those issued under the SCA.  Indeed, although the Microsoft majority focused on the supposedly territorial nature of warrants, it left open whether even a subpoena can reach abroad.  See 829 F.3d at 215, 218.  Finally, the decision will likely push prosecutors to find the source of content—does it come from a U.S. citizen?  Was it generated in the U.S.?  In Microsoft, the record was silent on such questions and, although the majority’s reasoning suggests the answers would not have changed the result, the government will surely attempt to distinguish a future case in which the content it seeks was made in America.

            Microsoft is also important as an application of post-Morrison doctrine in this area of the law.  Kiobel and RJR Nabisco confirmed that the presumption against extraterritoriality is not limited to conduct-regulating statutes, and the result in Microsoft shows how far-reaching that proposition is.  After all, in Microsoft, the conduct that the government sought to prosecute apparently occurred in the U.S, and the warrant itself was served here on a U.S. company.

Microsoft also demonstrates that the inquiry about statutory “focus” can lead courts astray.  The majority analyzed whether the SCA applies abroad in light of its supposed “focus” on protecting privacy.  But the SCA both protects electronic content and permits its access by law enforcement pursuant to a proper warrant; it is not clear why privacy is the statute’s focus any more than facilitating appropriate government investigation.  Nor is it clear why, even if the statute’s focus is protecting privacy, that should mean the location of the data is paramount.  Indeed, the majority itself recognized that its understanding of the statute’s focus “might suggest that the customer’s actual location or citizenship would be important to the extraterritoriality analysis.”  Id. at 220. 

None of this is to suggest that the result in Microsoft was incorrect.  But its reasoning invites courts in future cases to consider whether an inquiry into statutory focus—divorced from the event or conduct the statute regulates—is the best way to determine whether a statute is being improperly applied abroad.    

Any views expressed in this article are those of the author(s) alone and do not necessarily reflect the views of Holwell Shuster & Goldberg LLP.

[1] Having held at step 1 that the Alien Tort Statute does not apply extraterritorially, the Court did not need to conduct much analysis at step 2, since “all the relevant conduct took place outside the United States.”  Id.

[2] The Court’s liberal use of legislative history is somewhat surprising, considering that neither Morrison, Kiobel, nor RJR Nabisco referred to it, and the author of Morrison (the late Justice Antonin Scalia) refused to employ legislative history.

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