A Break in the Clouds – What’s Trending in Cloud Computing?

I recently attended the UK Society for Computers and Law’s Annual Conference where Cloud Computing was one of the ‘IT Law Hot Topics’ under discussion. The others, in case you are interested, were Big Data, Apps and Mobile Payments. The event was sold out which goes to show how ‘hot’ these topics really are!

One of the speakers was Christopher Millard, Professor of Privacy and Information Law at Queen Mary, University of London where he leads the Cloud Legal Project – a three-year Microsoft funded academic project undertaken by the Queen Mary Centre for Commercial Law Studies. Started in October 2009, its mission is to reduce uncertainty regarding legal and regulatory status of essential aspects of cloud computing by “the production and dissemination of a series of scholarly yet practical research papers to address various legal and regulatory issues that will be fundamental to the successful development of cloud computing… [which will] demonstrate thought leadership in several complex and difficult areas of law and regulation that are of vital importance to governments and businesses globally.”

The Cloud Legal Project website contains a rich source of content and is recommended reading for IT law practitioners whether in house or in private practice. Topics covered include an analysis of Cloud service provider’s standard legal terms; data protection issues in cloud computing; law enforcement access in a cloud environment; and the role of competition law in the cloud; as well as a report on some of the differing legal issues in cloud computing as compared with conventional outsourcing or hosting contracts.

Professor Millard thought that cloud computing was often perceived as being high risk and potentially unreliable, comparing it with the growth of the electricity industry at the end of the nineteenth century. Initially, Professor Millard said, companies had been wary of buying electricity from outside preferring to generate their own electricity instead, but in just a few years everyone was buying from the grid, and that the world of cloud computing is developing in a similar way. Sticking with the ‘utility’ theme, the Cloud Legal Project website describes cloud computing like this:

“Cloud Computing is a way of delivering computing power to you, wherever and whenever you need it, as a utility like water or electricity. Like such a utility, it allows you to use as much or as little as you need (be it processing power or data storage), when you need it and, thanks to the internet, where you need it. Like a utility, the provider shares a large resource among a pool of customers, allowing economy of scale and efficient sharing of demand. And like a utility, if you pay for Cloud computing services you often do so in proportion to your use, rather than a flat fee.”

Rogue Buying
Further, given the ease with which cloud resources can be allocated and reallocated, he commented that, contrary to complex outsourcing and other technology transactions, this makes it more likely that it will be done without an appropriate review of the relevant legal issues. An interesting example of this bypassing of procurement / legal review, was given by another of the speakers who told the story of an unnamed investment bank where the traders each bought cloud services on their company credit cards and, in doing so, circumvented the procurement department as each individual purchase was under the company’s approval threshold; together the purchases made the company the biggest customer of the cloud provider – something which an embarrassed CIO only found out about by chance at an industry conference! That CIO was then left with the headache of trying to figure out, should he decide that his company should exit these “unapproved” cloud arrangements, how the company would get its data back, in what format it should be returned (and at what cost) and how will it be cleaned from cloud provider’s infrastructure, since none of this was covered in the cloud provider’s standard online terms and conditions.

Who’s the Provider?
A related and important point made by Professor Millard is that when lawyers do get to advise, they really do need to understand the structure of the particular cloud deal and from where services are being provided – often the customer may not have any direct relationship with or even awareness of the organisations that ultimately store or process its data because the cloud provider that the customer deals with may itself use one or more other storage or processing providers. This can give rise to questions relating to ownership of data and liability for its loss or misuse; further, it is not uncommon for cloud providers at this integration layer to over-promise, that is to say, to make promises in their contractual agreements which they are not entitled to make per the underlying cloud provider agreement.

Negotiation
Another interesting topic was whether cloud service providers will negotiate their contracts on a bespoke basis; the perception being that they will not. The key here is leverage; much as the big utilities routinely negotiate the terms of their electricity supply agreements with their largest electricity customers (whereas individual consumers do not), the largest cloud providers will negotiate if a deal merits doing so in terms of value or strategic importance. The Cloud Legal Project team analysed a number of such deals (gleaning data through a combination of off-the-record interviews with cloud providers and integrators, freedom of information requests and review of public sector contracts where details have been published, such as CSC / Google / City of Los Angeles). Six issues emerged as subject to the heaviest negotiation or as deal breakers. Unsurprisingly, these are:

– Limits and exclusions of Liability – Service levels, including availability – Security and Privacy, especially EU data protection compliance – Lock-in and exit, including term & termination, and return of data – Provider instigated changes to service features – Intellectual Property Rights, especially ownership of developed apps, bug fixes and enhancements

As a final point, it is interesting to note that while cloud contracts continue to evolve at a rapid pace in response to factors such as competitive positioning, customer and regulatory demands, and judicial intervention, the European Commission, in its September 2012 communication paper ‘Unleashing the Potential of Cloud Computing in Europe’ has called for model SLAs for “professional cloud users” and model contracts for consumers of cloud computing service’s by the end of 2013.