The US Supreme Court has dodged a critical legal question about the reach of America's courts in the internet era, deciding to drop a test case between Microsoft and the Department of Justice.

In a decision [PDF] on Monday, the Justices decided that the case, in which Microsoft refused to hand over to the Feds emails held on its servers in Ireland, was moot because of a new law – the Cloud Act – passed by Congress last month.

That act was slipped into an omnibus bill and obliges companies in the US to provide access to all content, whether held on a server in the US or outside the country if they are hit with a warrant.

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Following the Cloud Act being signed into law, the Department of Justice issued a new warrant to Microsoft and it duly complied, handing over the content that it had been protecting since 2013. As a result, the Supreme Court decided, "no live dispute remains between the parties" and so "this case has become moot."

But the new law notes that a company is obligated to hand over content held on a server in a foreign country so long as doing so wouldn't break that country's laws – which can cover everything from banking to privacy to data protection laws. Which of course immediately opens up the question: what happens when a company refuses to hand over content citing local laws?

The Supreme Court could have tackled that question but consciously decided not to, leaving data's status uncertain in the eyes of the law; a situation made all the more confusing by the fact that federal appeals courts across the US have come to different conclusions about the best way of dealing with the issue.

Split personality

For example, the Fifth Circuit (Louisiana, Mississippi, Texas) has a three-factor test and falls down in favor of "the sovereignty interests of foreign states." But the Second Circuit (Connecticut, New York, Vermont) has a four-factor test that falls down in favor of the organization seeking the information.

Meanwhile the Ninth Circuit – critical because it covers California and so a huge percentage of internet companies – has no less than seven factors in its legal test and focuses on what the information request is for and hopes to achieve.

And that's just on the issue of discovery. There is a whole other legal split between circuit courts on the issue of a company being ordered to effectively break the law, particularly when it comes to banking laws. Different US jurisdictions have for a long time had different rules over what banks can and should be obliged to produce when it comes to accounts overseas.

With the Cloud Act now law and with this test case being deflated, that issue is going to get bigger and uglier, not least because it's about money.

In short it's a mess, and given that the internet is not going away anytime soon, it will inevitably head back to the Supreme Court, but not before lots of contentious legal disputes over access to data on servers held outside the US.

Pressing

"This is an extremely important and pressing issue, but the Supreme Court has left it for another day," noted Geoffrey Sant, a partner at law firm Dorsey and Whitney, in response to the decision.

"It seems certain that the Supreme Court will eventually 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."

Lawyers are also all too well aware of the problem and are using it to their advantage, explains Sant: "This is a huge issue right now in part because there has been an exponential increase in US lawyers demanding documents from overseas that cannot be produced without violating foreign laws."

"It appears that many lawyers use these document requests as a litigation strategy. That is, they demand documents that they know the other side cannot produce (without violating foreign laws), and thereby trap the opponent between the conflicting demands of a US litigation and a foreign nation’s laws."

If anyone is happy though, it's Microsoft. Not only did the company get to stand up to the US government – something it has been making big play about for a number of years now – but it got to walk away from the showdown without any injuries.

The DoJ got their emails; the Supreme Court got to walk away (for now) from a very sticky subject; and Microsoft got a reputation boost, for a while. ®