A crucial online data arrangement between Europe and the US was invalidated on Thursday, as a top EU court decision over Facebook threw trans-Atlantic big tech into legal limbo.
The decision stemmed from a legal complaint by Austrian activist Max Schrems, who in 2015 scuppered a previous EU-US deal on which tech giants depended to do business.
"It seems we scored a 100 percent win," Schrems said on Twitter.
"For our privacy, the US will have to engage in serious surveillance reform to get back to a 'privileged' status for US companies," he said.
The setback comes a day after another European court invalidated a landmark tax bill from the EU against Apple, raising questions over the bloc's long-running leadership on regulating big tech.
While disappointed, the US and the EU said they would work closely to find a solution and give companies the legal certainty they need.
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Schrems' legal assault began after revelations by Edward Snowden of mass digital spying by US agencies, which the EU court at the time said were incompatible with European norms on privacy.
The previous decision struck down a deal called "Safe Harbour" that allowed for data transfers between Europe and US servers, throwing transatlantic business into chaos.
EU and US officials swiftly drew up its replacement, "Privacy Shield", which is currently used by thousands of US companies, but has now been invalidated as well.
The judges at the European Court of Justice, the EU's top court, said that provisions of the pact "do not grant Europeans actionable rights before the courts against the US authorities".
The court said, however, that another arrangement known as standard contractual clauses, could stand, giving companies an alternative framework.
The case decided on Thursday originally focused on these complex clauses, an EU invention by which companies outside Europe commit to meeting EU laws on data and privacy.
The court said these were backed up by GDPR, the EU's strict rules on data privacy that can result in massive fines to companies.
These clauses are however far more legally cumbersome for companies than a bilateral deal such as "Privacy Shield" that the EU has agreed with only 11 countries, including Japan.
During the hearings, judges turned their focus to "Privacy Shield" and a legal advisor to the court warned that it was illegal and not compliant with GDPR.
Schrems' latest case began in Ireland, the hub for Facebook's activities in the European Union.
The Irish Data Protection Commission referred the complaint to Ireland's top court, which turned it over to the judges in Luxembourg.
Facebook said it welcomed the decision on the clauses and was taking a closer look at the ban on "Privacy Shield".
"We look forward to regulatory guidance in this regard," said Eva Nagle, the company's Associate General Counsel.
A top Brussels official told AFP that the EU and US would work "very closely" on next steps, though he did not say whether this would mean a third attempt towards a full fledged pact.
"Our ambition is to respond together and figure out ways we can adapt to the decision," the EU's Justice Commissioner Didier Reynders said.
US Commerce Secretary Wilbur Ross said that while Washington was "deeply disappointed", the US and Europe would try to "limit the negative consequences".
CCIA, the lobby for US big tech, criticised the decision for sowing legal uncertainty.
"We trust that EU and US decision-makers will swiftly develop a sustainable solution, in line with EU law, to ensure the continuation of data flows which underpins the transatlantic economy," CCIA added.
Lawyers and companies said that immediate effects on online business would be limited, given that the contractual clauses had survived the ruling.
"We want to be clear: if you are a commercial customer, you can continue to use Microsoft services in compliance with European law," said Julie Brill, a vice president at the US software giant.
She said Microsoft servers held "overlapping protections" using both the clauses and Privacy Shield.
- By Alex Pigman