Cloud computing has been characterized as a paradigm-shifting phenomenon that will change how we purchase IT resources. Though given different names, cloud computing has been around for some time, and the legal lessons learned from experience with traditional software licensing and outsourcing agreements can and should be applied to cloud agreements, but there are new issues which will need new solutions.

Cloud computing is a loose term that describes a variety of data storage, processing, and application services, normally provided by a third party using equipment not located on the customer’s site. These services include providing raw processing power on demand, special purpose applications on a subscription basis, and remote data storage. An early form of cloud computing was Application Service Provider or ASP services, and another is currently known as software as a service or SaaS. Cloud services are normally provided using internet technology, where the customer uses inexpensive hardware and an internet browser to access the service and/or remotely stored data.

The ease of access and simplicity of using cloud applications are part of its attraction. Unfortunately, the same cannot be said for the legal issues related to cloud computing. While traditional software licensing and IT outsourcing agreements can be used as a model for cloud computing, there are new risks and business practices not addressed in those older agreements that must be considered.

OUTSOURCING AGREEMENTS AS A MODEL FOR CLOUD AGREEMENTS

Cloud computing agreements are basically services agreements, as are outsourcing agreements. Many of the provisions included in outsourcing agreements have direct applicability in cloud service agreements. For example, the basic warranty that services will be performed in a good and workmanlike manner is a good starting point for warranty language.

Normally, outsourcing agreements will explicitly provide that a customer’s data belongs to the customer, and that the vendor will give the customer a copy of its data at anytime. The customer is normally only charged for media and the vendor’s time spent in providing those copies. Cloud agreements should contain similar provisions, but frequently don’t. In fact, some agreements allow the vendor to hold the customer’s data hostage if there is a dispute. Similarly, outsourcing agreements will frequently prohibit the vendor from suspending or terminating services abruptly. That prohibition prevents the vendor from exercising undue leverage in a dispute with the customer. Finally, outsourcing agreements normally require the vendor to provide termination assistance to the customer when the contract ends. This is normally provided at an hourly rate negotiated before services commence. Cloud customers will want to avoid agreements without similar protections, especially if the vendor is holding sensitive data or providing mission-critical services.

Similarly, outsourcing agreements frequently contain caps on fee increases. This prevents fees from rapidly escalating after a customer has made a long-term contractual or technological commitments to a vendor. Customers will want to include similar price protection clauses in their cloud agreements.

Outsourcing agreements also frequently contain a “litigation cooperation” clause which requires the vendor to preserve data and cooperate with discovery requests if the customer is involved in litigation. Those clauses allow the customer to fulfill its obligations in the event a litigation hold is required or it is served with discovery requests. The same issue arises under cloud agreements. If those cooperation clauses cannot be included in a cloud agreement, the customer should implement appropriate data backup plans to allow it to comply with its document preservation obligations in the event of litigation.  Continue Reading at Law.com


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