Microsoft victory in overseas email seizure case is upheld

(Adds Microsoft comment, details on appeals court)

By Jonathan Stempel

NEW YORK, Jan 24 (Reuters) - An equally divided federal appeals court refused to reconsider its landmark decision forbidding the U.S. government from forcing Microsoft Corp and other companies to turn over customer emails stored on servers outside the United States.

Tuesday's 4-4 vote by the 2nd U.S. Circuit Court of Appeals in Manhattan let stand a July 14 decision that was seen as a victory for privacy advocates, and for technology companies offering cloud computing and other services worldwide.

But the dissenting judges said that decision by a three-judge panel could hamstring law enforcement, and called on the U.S. Supreme Court or Congress to reverse it.

"The panel majority's decision does not serve any serious, legitimate, or substantial privacy interest," Circuit Judge Jose Cabranes wrote in dissent.

Peter Carr, a U.S. Department of Justice spokesman, said: "We are reviewing the decision and its multiple dissenting opinions and considering our options."

The case attracted significant attention from technology and media companies concerned that a ruling for the government could jeopardize the privacy of customers, and make them less likely to use cloud services if they thought data could be seized.

In the July decision, Circuit Judge Susan Carney said Microsoft (Euronext: MSF.NX - news) could not be forced to turn over emails sought for a narcotics case, but stored on a server in Dublin, Ireland (Other OTC: IRLD - news) .

Though Microsoft is based Washington state, Carney said the emails were beyond the reach of domestic search warrants under the Stored Communications Act, a 1986 federal law viewed by many technology companies and privacy rights supporters as outdated.

Microsoft was thought to be the first U.S. company to challenge a domestic search warrant seeking data held outside the country.

Its position was supported by dozens of technology and media companies including Amazon.com (NasdaqGS: AMZN - news) , Apple (NasdaqGS: AAPL - news) , CNN, Fox News Network, National Public Radio and Verizon Communications (LSE: 0Q1S.L - news) , as well as the American Civil Liberties Union and U.S. Chamber of Commerce.

But Tuesday's dissenters said it should not matter where the emails were stored because Microsoft was a U.S. company.

They also said the panel decision did not properly address the challenges that electronic data storage poses for law enforcement.

"It has substantially burdened the government's legitimate law enforcement efforts; created a roadmap for the facilitation of criminal activity; and impeded programs to protect the national security of the United States and its allies," Cabranes wrote.

He expressed hope that the panel's view of the 1986 law "can be rectified as soon as possible by a higher judicial authority or by the Congress."

Brad Smith, Microsoft's chief legal officer, welcomed Tuesday's vote. In a statement, he also urged Congress to modernize the law "to keep people safe and ensure that governments everywhere respect each other's borders."

The 2nd Circuit almost never rehears cases "en banc," where all active judges participate. Three of its 11 active judges recused themselves on Tuesday.

The case is Microsoft v U.S., 2nd U.S. Circuit Court of Appeals, No. 14-2985. (Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Tom Brown)