U.S. and European Union negotiators reached an agreement on Tuesday to preserve European users' privacy when data is transferred to servers in the United States, and maintains the ability of U.S. tech companies to legally store European data on their U.S. servers.

The new rule is set to replace a 2000 "safe harbor" agreement between the U.S. and E.U. that set minimum standards for data privacy and allowed thousands of companies a streamlined way to certify they were in compliance with those standards. That agreement was invalidated last year by the European Court of Justice, after a complaint by Austrian privacy activist Max Schrems, who argued that Facebook's compliance with the safe harbor rules wasn't enough to protect European users' data from U.S. mass surveillance programs.

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Businesses are reeling this week from the news that the European courts have ruled that data transfers to the US via the 'Safe Harbor' agreement are no longer valid.

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