International Commercial Law Blog

Cloud computing and International Law related issues

Cloud computing relates to IT services and resources – including infrastructure, platforms and software – which can be provided to customers via the internet, rather than by on-site installations of IT hardware and software (for a technical definition of cloud computing  see National Institute of Standards and Technology).

Cloud computing allow companies to benefit of financial savings, share of costs with the other customers on the same cloud, and efficiency while their IT infrastructure is constantly upgraded and updated by the cloud computing provider.

Notwithstanding such benefits, cloud computing shall be duly considered in light of the risks involved in it such as – among others – security, performance, service availability, contractual remedies and supplier stability.

From an International Law perspective the key difference between traditional IT outsourcing and cloud computing is “where” the data resides or is processed as data may be dispersed across and stored in multiple data centers all over the world. Moreover, the use of a cloud platform can result in multiple copies of such data being stored in different locations. This is true even for a “private cloud” that is run by a single customer.

In fact, corporate customers shall consider that cloud computing is vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks, or other attempts to harm the relevant systems. Data centers may be located in areas with a high risk of major earthquakes or may be subject to break-ins, sabotage, and intentional acts of vandalism, and to potential disruptions if the operators of these facilities have financial difficulties.

Above all, systems are not fully redundant, and disaster recovery planning cannot account for all eventualities.

In addition, cloud computing products and services are highly technical and complex and may contain errors or vulnerabilities. Any errors or vulnerabilities in such products or services, or damage to or failure of such systems, could result in interruptions in the services, which could reduce revenues and profits, or damage the corporate brand. Finally, internet, technology, and media companies own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights related to the cloud.

In light of the above, as corporate customer explore cloud computing as IT outsourcing strategy, there are several legal issues that shall be carefully considered. Implications of outsourced data handling, contract terms and conditions, intellectual property rights and proper insurance coverage are among others the key elements to be addressed from an International Law perspective. Therefore, the carry out of a due diligence of the proposed cloud vendor is a crucial risk mitigation step.

Among others, the following key issues shall be addressed:

  • Location: where the data are located at a given time and which law governs the contract and settlement of potential disputes; the customer may or may not be able to control this issue by contract as the applicable law in some jurisdictions can prevent the application of the relevant contractual provisions;
  • Security and Performance: backup, data restoration, disaster recovery, security and service levels applicable; what to do if the data center crashes as a result of an event of “force majeure” or if the Internet crashes or the cloud is hacked? How these risks can be allocated by contract?
  • Legislation and Regulatory (including Privacy): each jurisdiction provide for stringent rules on defence, health, and financial services related information, which directly impact on cloud computing. Stringent regulatory provisions and restrictions concerning the transfer of certain types of data across borders and export or trade restrictions may impact on where data in the cloud can be stored and who can store it or on the transfer itself of the data and applications to and from the cloud;
  • Intellectual Property: IP rights granted to the customer and IP claims against vendor shall be properly assessed and trade secret and attorney-client privileged information protection shall be mitigated by appropriate non-disclosure provisions;
  • Data Retention: there are several legal and tax reasons in each jurisdiction which require corporate customers to retain data longer than cloud vendor may be prepared to do;
  • Insurance related issues.
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