As you might have predicted, some officials aren't happy. The dissenting judges in the appeals court argued that this could hamper national security, and that there wasn't any "substantial privacy interest" in protecting offshore data. They argue that it could even assist criminals -- just store your communications in another country and you're safe, right? To them, it's a domestic search so long as it's a US company with access to the servers. Staff at the Department of Justice are "considering [their] options" as they hope to challenge the decision.
They may face a stiff fight if they do, though. Microsoft insisted that the power to demand overseas data could threaten the privacy of customers. If you live outside the US, you generally assume that your data is covered under your home country's laws -- allowing foreign searches would have undermined that sovereignty, Microsoft says. It added that people would be less likely to trust cloud services if they knew American authorities could ask for that cloud data wherever the customer lives. And we'd add that Microsoft wasn't alone in its objection, with support from the likes of Amazon, Apple, CNN, our parent company Verizon and even the Chamber of Commerce. A sustained fight could get ugly very quickly, and pit the government against the tech industry it's trying to support.