Catalyzing Compliance to Data Privacy Laws: The only way forward for Start-up’s growth.

By Adarsh Gautam and Adarsh Kumar (Batch of 2024 – School of Legal Studies, CMR University)

[This Blogpost is a 8th Position Entry of the 1st Edition of the National Blog Writing Competition 2023 organized by Centre For Innovation, Incubation & Legal Entrepreneurship (CIILE) in Association with PANDA LAW (TEAM CODE-44)]

In an era where data is the new currency, and property which was considered as the most important thing in past according to Yuval Noah Harari’s book “Home Dues”, in today’s world, data is the most essential thing, and whoever owns “Data” can rule the world. Thus, data privacy and protection have become paramount concerns for businesses of all sizes.

With the growth of new technology and the widespread use of the internet, it has become easier to access anyone’s data and share such data with a third party, which may result in data misuse. Furthermore, numerous cybercrime assaults such as phishing, virus, ransomware, hacking, spamming, and so on may be witnessed in modern culture. To avoid any such misuse, strong Data Protection Laws in place must be complied with.

Start-ups, with their innovative ideas and agility, are particularly susceptible to the regulatory challenges posed by data privacy laws. On one hand, Start-ups must adhere to complex and stringent regulations. On the other, they need to compete with established players and rapidly scale their operations. This dichotomy often leads to the perception that compliance hampers growth. However, rather than viewing compliance as a burden, it should be seen as a catalyst for growth.

Data Protection Laws around the World

The regulatory landscape for data privacy has evolved significantly in recent years. Countries like Brazil, U.S., South Korea and Thailand have adopted similar data privacy law as that of European Union’s GDPR. It is projected that by 2025, an estimated 200 data privacy regulations will be in effect worldwide.[1]

GDPR

Four years ago, the General Data Protection Regulation (GDPR) emerged as a pivotal milestone for anyone handling the personal data of EU citizens. While it successfully provided a unified standard for nearly 500 million individuals, it also presented considerable challenges for startups. The GDPR was a necessary response to the opportunities and complexities brought about by the digital age. It transformed the very concept of privacy, simplifying and harmonizing rules, empowering citizens with enforceable data rights, and fostering a cultural shift that placed personal data care at the core of business practices. This influence even prompted other countries to consider the GDPR as a reference model for their own data protection laws.

However, for startups, it has posed difficulties. The “privacy by design” principle, requiring data protection to be integrated from the start, is complex. Detailed documentation and compliance demands can be costly, forcing small businesses to choose between legal fees or risks. Studies reveal that compliance, particularly for tech startups, has been costly, impacting profits and sales. Startups seeks to find a balance between data protection and innovation, aiming to foster a competitive startup ecosystem that benefits European consumers while respecting privacy.[2]

The Digital Personal Data Protection Act 2023

The introduction of the Digital Personal and Data Privacy Act (DPDP Act) has left the startup ecosystem and its legal advisors grappling with uncertainty. With no clear timeline for implementation, startups are seeking at least a two-year grace period to comply with the new regulations. Smaller businesses and startups face the daunting task of overhauling both their backend and frontend operations to align with the DPDP Act’s requirements. Furthermore, the lack of detailed guidelines and unforeseen approval of the DPDP Act have left the industry in the dark. Startups are now in the process of examining their IT infrastructure, assessing data acquisition methods, and restricting data access by employees to meet the law’s stipulations. This new privacy law’s impact on startups is multifold, including financial constraints, competitive disadvantages for smaller players, and potential disruptions to evolving business models. Despite these challenges, there are support services like Data Tracks that specialize in simplifying regulatory reporting, making compliance less burdensome for startups.”[3]

How Laws will impact Start-ups?

• Financial Constraints: Startups, especially in their initial stages, often grapple with limited financial resources. Adhering to new privacy regulations can strain their budgets, diverting funds from product expansion and development.
• Competitive Inequity: Startups face an inherent disadvantage compared to larger enterprises with greater financial capabilities, as the latter can more easily absorb the expenses associated with compliance.
• Business Model Flexibility: Emerging businesses frequently alter and enhance their operational models. Adapting to evolving privacy regulations can disrupt these models, resulting in costly modifications and delays.
• Customer Expectations & Trust: The increased emphasis on safeguarding personal data has elevated data privacy to a substantial concern for people. Customers anticipate that startups, regardless of their size, will give paramount importance to securing their personally identifiable information (PI). Complying with data privacy regulations enables startups to establish trust, uphold a favourable image, and cultivate more robust customer connections.
• Increased Accountability: All these factors together impose an accountability on Start-ups to identify risks and conduct data protection assessment.[4]

Strategies for ensuring data privacy compliance

Start-ups can employ the following strategies:

• Establish a Data Privacy Policy: Craft policies that outline how your company manages the data it receives, covering aspects like encryption, retention, access, control, breach response, backup, and deletion. Startups have an obligation to implement robust security measures to safeguard personal data from unauthorized access, disclosure, alteration, or destruction.
• Appoint a Data Protection Compliance Officer: Seek legal counsel from experts specializing in data privacy regulations.
• Secure Data Backups: It is imperative to establish secure data backup procedures for effective data privacy governance. This ensures that organizations maintain retrievable copies of lost or compromised data, reducing the impact of data breaches or system failures.
• Implement Data Encryption: Encryption transforms data into an unreadable format, guaranteeing that it can only be accessed and comprehended by authorized individuals or teams.
• Obtain User Consent: Obtaining informed consent from your users before collecting, processing, or sharing any personal data is crucial.
• Employee Training and Awareness: Regular training programs are essential to educate employees about data privacy, the handling of personal data, and the risks associated with non-compliance. Raising awareness about threats such as phishing strengthens the overall data security posture.[5]

CONCLUSION

Data privacy compliance is not an obstacle but an opportunity for startups to thrive in the digital age. Compliance with data privacy laws is not merely a legal requirement; it’s a strategic imperative. By prioritizing compliance, startups can build trust, mitigate risks, access new markets, foster innovation, and utilize data responsibly. While navigating the complex regulatory landscape may be challenging, it is a necessary journey for startups looking to succeed and lead the way in a world where data privacy is paramount.

[1] Ibrahim H. Khatri, How Startups Can Navigate the Data Privacy Maze & Build Trust, InC42, https://inc42.com/resources/how-startups-can-navigate-the-data-privacy-maze-build-trust/ (last accessed 11^th October, 2023, 8:00 PM)

[2] GDPR 4 years later – the impact on startups, ALLIED FOR STARTUPS, https://alliedforstartups.org/2022/04/20/gdpr-4-years-later-the-impact-on-startups/#:~:text=Studies%20have%20shown%20compliance%20with,reduced%20profits%20and%20lower%20sales, (last accessed 13^th October, 2023, 10:00 PM)

[3] Exemptions Denied: The Impact of the New Privacy Law on Startups, DATATRACKS, https://www.datatracks.com/in/blog/the-impact-of-the-new-privacy-law-on-startups/, (last accessed 13^th October, 2023, 11:00 PM)

[4] Solove, D. J., A Taxonomy of Privacy. University of Pennsylvania Law Review, 154(3), 477-560 (2006).

[5] Shreshtha Verma, Here’s How Start-ups can deal with Data Privacy Laws, TICE, https://www.tice.news/know-this/indian-startup-ecosystem-data-privacy-law, (last accessed 14^th October, 2023, 11:00 PM)