The first couple times that WhatsApp was blocked in Brazil, the reason was that they denied access to certain logs.
This time, they explicitly mention they want encryption to be turned off and demand WhatsApp to reply to Brazilian requests in Brazilian terms. The problem is that WhatsApp, as stated before, do not operate in Brazil as has exactly zero obligation to answer Brazilians court orders.
Now it's time for the country to discuss, as are many other places in the world, where does the right to investigate crimes by prying into someone or some groups communications begins and where does the right to privacy of the population ends.
The Supreme Court judge who suspended the block argued that it violated basic rights of the people, which is good, but already there is talk of a political project to establish what those in power all over the world want: access to communications and access to the ability to punish those who don't obey, the later in the form of an obligation for the companies involved to have an arm in Brazil.
That's not true. If the user receiving the message is not online how is the message supposed to be delivered? Obviously the server holds it until the user comes online. So yes, there is data.
The only data that needs to be stored by WhatsApp is `Sent` and not the message itself, which can be stored locally by the Messenger.
[Messenger] <--> [Sent Succesfully?] <--> Recipient
When the Recipient receives a message - they alert WhatsApp that the message has been received which can then alert the Messenger that the message has been sent. If it comes back with a failure, the Messenger will attempt to send the message again in `${Time}` until it sends. The message itself never has to hit WhatsApp's servers.
US government sues uses SCA to request data held overseas by an American company. Court rules that US government under SCA has no jurisdiction to request data held overseas, even if by an American company.
In this case, WhatsApp does not operate in Brazil. They do not have a legal entity in Brazil. A Brazilian judge has exactly zero jurisdiction over WhatsApp.
You imply that Brazilian authority extends overseas, over the entire Internet.
Sure, it is in the judge's power to blackmail the company by ordering other companies to block it. But the judge still has zero authority over WhatsApp.
Edit:
The correct way for the judge to proceed would be to use the Mutual Legal Assistance treaty between the US and Brazil to request the data through the US Government and judicial system: http://www.state.gov/documents/organization/106962.pdf
From Art. I, assistance shall include:
(f) executing requests for searches and seizures;
Which would be subject to US laws, therefore, probably wouldn't happen.