Supreme Court Disconnects from Microsoft and US Dispute

The US Supreme Court on Tuesday (April 17) vacated the case between the US and Microsoft (NASDAQ:MSFT) as there was no live dispute between the two parties.

The decision by the Supreme Court follows the recently passed Clarifying Overseas Use of Data (CLOUD) Act by the US government, which enables US law enforcement officials at any level, from local police to federal agents, to force tech companies to turn over user data regardless of where the company stores the data.

“A [service provider] shall comply with the obligations of this chapter to preserve, backup, or disclose the contents of a wire or electronic communication and any record or other information pertaining to a customer or subscriber within such provider’s possession, custody, or control, regardless of whether such communication, record, or other information is located within or outside of the United States,” states the CLOUD Act.

Geoffrey Sant, a partner at the international law firm Dorsey & Whitney, said in an email statement that the court avoids ruling on an issue where there is not a “live dispute.”

“The court noted that Congress had since passed a law regulating the specific situation at issue in the Microsoft case (a government warrant in a criminal investigation for electronic documents held abroad), and the two sides had already complied with this new law,” Sant said. “This means that there is no longer any “live dispute” between the two sides.”

The dispute between the two sides started when in 2013, federal agents obtained an 18 USC 2703 warrant requiring Microsoft to disclose all emails and other information associated with an account for a customer believed to be involved in illegal drug trafficking.

Microsoft in its response determined that the account’s email contents were all stored in Microsoft’s Dublin, Ireland datacenter and moved, unsuccessfully, to quash the warrant with respect to that information. The court held Microsoft in civil contempt. The Second Circuit reversed, holding that requiring Microsoft to disclose the electronic communications in question would be an unauthorized extraterritorial application of section 2703.

“The Supreme Court ended up not ruling on the key issue of what to do when US litigations demand the production of documents that cannot be produced without violating foreign laws,” Sant said. “This is an extremely important and pressing issue, but the Supreme Court has left it for another day. There is already a “circuit split” – that is, disagreement between a number of appellate federal courts – on how to handle this important issue.”

Sant said that the Supreme Court will need to return to this issue and decide it once and for all.

“Unfortunately, for now there is still no clear guidance on how courts should handle the growing problem of attorneys demanding documents in litigation that cannot be produced without violating the laws of other nations,” Sant said.

Before the CLOUD Act was in place, the US could access data through Mutual Legal Assistance Treaties through which a user’s data is shared between governments relevant to where the investigation is happening.

Sant said that the issue will need to go back to Supreme Court because there is a circuit split and that the different circuit courts have reached different conclusions about what to do in the case of US litigation demands conflicting with foreign laws.

“The different circuit courts have created conflicting “tests” to determine when and whether to order the production of documents when doing so would violate of foreign laws,” he said. “The Supreme Court urgently needs to address court-ordered law breaking in order to respond to the enormous surge in U.S. trial courts demanding that companies break the law abroad. The circuit split as to how to deal with discovery requests that seek to require companies to break the law and the circuit split as to banks’ obligations to produce documents in violation of foreign financial privacy and bank secrecy laws.”

Following the announcement on Tuesday, shares of Microsoft jumped 0.39 percent at the end of market hours on Wednesday (April 18). The stock traded at $96.44 and was trading at its monthly high. By Thursday, the stock touched a day high of $97.07 before closing the day at $96.11. The stock was down 0.34 percent and had a day low of $95.34.

On TipRanks, the stock has a “strong buy” rating with a target price of $105.61.

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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.