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Intro: Hello, and welcome to Tech Law Talks, a podcast brought to you by Reed Smith's Emerging Technologies Group. In each episode of this podcast, we will discuss cutting-edge issues on technology, data, and the law. We will provide practical observations on a wide variety of technology and data topics to give you quick and actionable tips to address the issues you are dealing with every day. 

Andy: Hello, everyone, and welcome to today's episode of our Reed Smith Tech Law Talks podcast. In today's episode, we'll discuss the recent decision of the German Federal Court of Justice, the FCJ, of November 18, 2024, on compensation payments following a data breach or data scraping. My name is Andy Splittgerber. I'm partner at Reed Smith's Munich office in the Emerging Technologies Department. And I'm here today with Hannah von Wickede from our Frankfurt office. Hannah is also a specialist in data protection and data litigation. And Johannes Berchtold, also from Reed Smith in the Munich office, also from the emerging technologies team and tech litigator. Thanks for taking the time and diving a bit into this breathtaking case law. Just to catch everyone up and bring everyone on the same speed, it was a case decided by the German highest civil court, in an action brought by a user of a social platform who wanted damages after his personal data was scraped by a hacker from that social media network. And that was done through using the telephone number or trying out any kind of numbers through a technical fault probably, and this find a friend function. And through this way, the hackers could download a couple of million data sets from users of that platform, which then could be found in the dark web. And the user then started an action before the civil court claiming for damages. And this case was then referred to the highest court in Germany because of the legal difficulties. Hannah, do you want to briefly summarize the main legal findings and outcomes of this decision? 

Hannah: Yes, Andy. So, the FCJ made three important statements, basically. First of all, the FCJ provided its own definition of what a non-material damage under Article 82 GDPR is. They are saying that mere loss of control can constitute a non-material damage under Article 82 GDPR. And if such a loss of the plaintiffs is not verifiable, that also justified fear of personal data being misused can constitute a non-material damage under GDPR. So both is pretty much in line with what the ECJ already has said about non-material damages in the past. And besides that, the FCJ makes also a statement regarding the amount of compensation for non-material damages following from scraping incident. And this is quite interesting because according to the FCJ, the amount of the claim for damages in such cases is around 100 euros. That is not much money. However, FCJ also says both loss of control and reasonable apprehension, also including the negative consequences, must first be proven by the plaintiff. 

Andy: So we have an immaterial damage that's important for everyone to know. And the legal basis for the damage claim is Article 82 of the General Data Protection Regulation. So it's not German law, it's European law. And as you'd mentioned, Hannah, there was some ECJ case law in the past on similar cases. Johannes, can you give us a brief summary on what these rulings were about? And on your view, does the FCJ bring new aspects to these cases? Or is it very much in line with the European Court of Justice that already? 

Johannes: Yes, the FCJ has quoted ECJ quite broadly here. So there was a little clarification in this regard. So far, it's been unclear whether the loss of control itself constitutes the damage or whether the loss of control is a mere negative consequence that may constitute non-material damage. So now the Federal Court of Justice ruled that the mere loss of control constitutes the direct damage. So there's no need for any particular fear or anxiety to be present for a claim to exist. 

Andy: Okay, so it's not. So we read a bit in the press after the decision. Yes, it's very new and interesting judgment, but it's not revolutionary. It stays very close to what the European Court of Justice said already. The loss of control, I still struggle with. I mean, even if it's an immaterial damage, it's a bit difficult to grasp. And I would have hoped FCJ provides some more clarity or guidance on what they mean, because this is the central aspect, the loss of control. Johannes, you have some more details? What does the court say or how can we interpret that? 

Johannes: Yeah, Andy, I totally agree. So in the future, discussion will most likely tend to focus on what actually constitutes a loss of control. So the FCJ does not provide any guidance here. However, it can already be said the plaintiff must have had the control over his data to actually lose it. So whether this is the case is particularly questionable if the actual scrape data was public, like in a lot of cases where we have in Germany right here, and or if the data was already included in other leaks, or the plaintiff published the data on another platform, maybe on his website or another social network where the data was freely accessible. So in the end, it will probably depend on the individual case if there was actually a loss of control or not. And we'll just have to wait on more judgments in Germany or in Europe to define loss of control in more detail. 

Andy: Yeah, I think that's also a very important aspect of this case that was decided here, that the major cornerstones of the claim were established, they were proven. So it was undisputed that the claimant was a user of the network. It was undisputed that the scraping took place. It was undisputed that the user's data was affected part of the scraping. And then also the user's data was found in the dark web. So we have, in this case, when I say undistributed, it means that the parties did not dispute about it and the court could base their legal reasoning on these facts. In a lot of cases that we see in practice, these cornerstones are not established. They're very often disputed. Often you perhaps you don't even know that the claimant is user of that network. There's always dispute or often dispute around whether or not a scraping or a data breach took place or not. It's also not always the case that data is found in the dark web. I think this, even if the finding in the dark web, for example, is not like a written criteria of the loss of control. I think it definitely is an aspect for the courts to say, yes, there was loss of control because we see that the data was uncontrolled in the dark web. So, and that's a point, I don't know if any of you have views on this, also from the technical side. I mean, how easy and how often do we see that, you know, there is like a tag that it says, okay, the data in the dark web is from this social platform? Often, users are affected by multiple data breaches or scrapings, and then it's not possible to make this causal link between one specific scraping or data breach and then data being found somewhere in the web. Do you think, Hannah or Johannes, that this could be an important aspect in the future when courts determine the loss of control, that they also look into, you know, was there actually, you know, a loss of control? 

Hannah: I would say yes, because it was already mentioned that the plaintiffs must first prove that there is a causal damage. And a lot of the plaintiffs are using various databases that list such alleged breaches, data breaches, and the plaintiffs always claim that this would indicate such a causal link. And of course, this is now a decisive point the courts have to handle, as it is a requirement. Before you get to the damage and before you can decide if there was a damage, if there was a loss of control, you have to prove if the plaintiff even was affected. And yeah, that's a challenge and not easy in practice because there's also a lot of case law already about these databases or on those databases that there might not be sufficient proof for the plaintiffs being affected by alleged data breaches or leaks. 

Andy: All right. So let's see what's happening also in other countries. I mean, the Article 82, as I said in the beginning, is a European piece of law. So other countries in Europe will have to deal with the same topics. We cannot come up with our German requirements or interpretation of immaterial damages that are rather narrow, I would say. So Hannah, any other indications you see from the European angle that we need to have in mind? 

Hannah: Yes, you're right. And yet first it is important that this concept of immaterial damage is EU law, is in accordance with EU law, as this is GDPR. And as Johannes said, the ECJ has always interpreted this damage very broadly. And does also not consider a threshold to be necessary. And I agree with you that it is difficult to set such low requirements for the concept of damage and at the same time not demand materiality or a threshold. And in my opinion, the Federal Court of Justice should perhaps have made a submission here to the ECJ after all because it is not clear what loss of control is. And then without a material threshold, this contributes a lot to legal insecurity for a lot of companies. 

Andy: Yeah. Thank you very much, Hannah. So yes, the first takeaway for us definitely is loss of control. That's a major aspect of the decision. Other aspects, other interesting sentences or thoughts we see in the FCJ decision. And one aspect I see or I saw is right at the beginning where the FCJ merges together two events. The scraping and then a noncompliance with data access requests. And that was based in that case on contract, but similar on Article 15, GDPR. So those three events are kind of like merged together as one event, which in my view doesn't make so much sense because they're separated from the event, from the dates, from the actions or non-actions, and also then from the damages from a non-compliance with an Article 15. I think it's much more difficult to argue with a damage loss of control than with a scraping or a data breach. That that's not a major aspect of the decision but I think it was an interesting finding. Any other aspects, Hannah or Johannes, that you saw in the decision worth mentioning here for our audience? 

Johannes: Yeah so I think discussion in Germany was really broadly so i think just just maybe two points have been neglected in the discussion so far. First, towards the ending of the reasoning, the court stated that data controllers are not obliged to provide information about unknown recipients. For example, like in scraping cases, controllers often do not know who the scrapers are. So there's no obligation for them to provide any names of scrapers they don't know. That clarification is really helpful in possible litigation. And on the other hand, it's somewhat lost in the discussion that the damages of the 100 euros only come into consideration if the phone number, the user ID, the first name, the last name, the gender, and the workplace are actually affected. So accordingly, if less data, maybe just an email address or a name, or less sensitive data was scraped, the claim for damages can or must even be significantly lower. 

Andy: All right. Thanks, Johannes. That's very interesting. So, not only the law of control aspect, but also other aspects in this decision that's worth mentioning and reading if you have the time. Now looking a bit into the future, what's happening next, Johannes? What are your thoughts? I mean, you're involved in some similar litigation as well, as so is Hannah, what do you expect, What's happening to those litigation cases in the future? Any changes? Will we still have law firms suing after social platforms or suing for consumers after social platforms? Or do we expect any changes in that? 

Johannes: Yeah, Andy, it's really interesting. In this mass GDPR litigation, you always have to consider the business side, not always just the legal side. So I think the ruling will likely put an end to the mass GDPR litigation as we know it in the past. Because so far, the plaintiffs have mostly appeared just with a legal expenses insurer. So the damages were up to like 5,000 euros and other claims have been asserted. So the value in dispute could be pushed to the edge. So it was like maybe around 20,000 euros in the end. But now it's clear that the potential damages in such scraping structures are more likely to be in the double-digit numbers, like, for example, 100 euros or even less. So as a result, the legal expenses insurers will no longer fund their claims for 5,000 euros. But at the same time, the vast majority of legal expenses insurers have agreed to a deductible of more than 100 euros. So the potential outcome and the risk of litigation are therefore disproportionate. And as a result, the plaintiffs will probably refrain from filing such lawsuits in the future. 

Andy: All right. So good news for all insurers in the audience or better watch out for requests for coverage of litigation and see if not the values in this cube are much too high. So we will probably see less of insurance coverage cases, but still, definitely, we expect the same amount or perhaps even more litigation because the number as such, even if it's only 100 euros, seems certainly attractive for users as a so-called low-hanging fruit. And Hannah, before we close our podcast today, again, looking into the future, what is your recommendation or your takeaways to platforms, internet sites, basically everyone, any organization handling data can be affected by data scraping or a data breach. So what is your recommendation or first thoughts? How can those organizations get ready or ideally even avoid such litigation? 

Hannah: So at first, Andy, it is very important to clarify that the FCJ judgment is ruled on a specific case in which non-public data was made available to the public as a result of a proven breach of data protection. And that is not the case in general. So you should avoid simply apply this decision to every other case like a template because if other requirements following from the GDPR are missing, the claims will still be unsuccessful. And second, of course, platforms companies have to consider what they publish about their security vulnerabilities and take the best possible precautions to ensure that data is not published on the dark web. And if necessary, companies can transfer the risk of publication to the user simply by adjusting their general terms and conditions. 

Andy: Thanks, Hannah. These are interesting aspects and I see a little bit of conflict between the breach notification obligations under Article 33, 34, and then the direction this caseload goes. That will also be very interesting to see. Thank you very much, Hannah and Johannes, for your contribution. That was a really interesting, great discussion. And thank you very much to our audience for listening in. This was today's episode of our EU Reed Smith Tech Law Talks podcast. We thank you very much for listening. Please leave feedback and comments in the comments fields or send us an email. We hope to welcome you soon to our next episode. Have a nice day. Thank you very much. Bye bye. 

Outro: Tech Law Talks is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's emerging technologies practice, please email techlawtalks@reedsmith.com. You can find our podcast on Spotify, Apple Podcasts, Google Podcasts, reedsmith.com, and our social media accounts. 

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