Recent reports that Yahoo secretly scanned all of its users' email accounts at the request of U.S. intelligence officials not only ramps up the already simmering tensions between federal investigators and domestic service providers, but also spells trouble for the already fragile trans-Atlantic Privacy Shield data transfer agreement.

Less than two weeks after Yahoo Inc. grabbed headlines by disclosing that a 2014 hack had compromised user data linked to at least 500 million accounts, the company took another hit when Reuters, citing anonymous sources, reported on Tuesday that Yahoo had secretly built a custom software program last year to search all of its customers' incoming emails for specific information provided by U.S. intelligence officials after receiving a classified request from the National Security Agency or the FBI.

"The report shows us once again that this is a very difficult road to hoe in responding to court orders while trying to meet user expectations about privacy," Ballard Spahr LLP partner and former federal prosecutor Edward McAndrew said. "Requests from the government are getting more creative and perhaps more invasive, and this is just the latest iteration over the battle of how far third parties have to go in assisting law enforcement."