Microsoft has lost the first round of a court battle with US authorities demanding the right to access the company's servers anywhere in the world.
It follows a two-hour hearing in the US District Court for the Southern District of New York today, which concluded with District Judge Loretta Preska ruling that Microsoft must comply with a warrant to hand over customer data, even though that data physically resides on servers in Dublin, Ireland.
The court battle represents the escalation of a long-running dispute between Microsoft and US authorities. Microsoft is contesting the warrant in a bid to develop case law that will protect its burgeoning cloud computing business. If it loses, it risks losing customers overseas - particularly lucrative government contracts.
Previously, Microsoft had argued in a statement that "a US prosecutor cannot obtain a US warrant to search someone's home located in another country, just as another country's prosecutor cannot obtain a court order in her home country to conduct a search in the United States".
The software giant has also opposed the "gagging orders" that typically accompany such search warrants.
However, the judge argued that "it is a question of control, not a question of the location of that information". Microsoft has said that it will challenge the ruling and the judge has placed a "stay" on her decision, pending an anticipated appeal to the Second US Circuit Court of Appeal.
"The only issue that was certain this morning was that the District Court's decision would not represent the final step in this process. We will appeal promptly and continue to advocate that people's email deserves strong privacy protection in the US and around the world," said Microsoft general counsel Brad Smith in a hastily published statement.
In an open editorial in the Wall Street Journal on Tuesday, Smith argued that the US authorities did not have the legal right to demand access to emails held outside of the US legal jurisdiction.
"Microsoft believes you own emails stored in the cloud, and that they have the same privacy protection as paper letters sent by mail. This means, in our view, that the US government can obtain emails only subject to the full legal protections of the Constitution's Fourth Amendment. It means, in this case, that the US government must have a warrant. But under well-established case law, a search warrant cannot reach beyond US shores," said Smith.
He explained: "The government seeks to sidestep these rules, asserting that emails you store in the cloud cease to belong exclusively to you. In court filings, it argues that your emails become the business records of a cloud provider. Because business records have a lower level of legal protection, the government claims that it can use its broader authority to reach emails stored anywhere in the world."
The court battle highlights the increasingly extra-territorial nature of government demands for information and data held in the cloud by technology and internet companies on behalf of their customers.
It also clashes with equally protective national and regional laws around the world that demand that data be held within geographic boundaries - and not be subject to the same kind of extra-territorial data grabs.