The European Commission has set up an expert group on cloud computing contracts with a remit to assist the Commission in identifying “safe and fair contract terms and conditions for cloud computing services for consumers and small firms”. At the same time, Microsoft is fighting a US court order to provide federal investigators with emails and data stored in Microsoft’s cloud data centre in Dublin. In this article we will analyse ways of rethinking the contracting process for cloud computing in the context of both the findings of the expert group and Microsoft’s claims that the law has failed to keep pace with advances in technology.

Pace of technological change

The law is constantly striving to evolve and keep pace with technological change. Over the course of the 20th century, as the world transitioned from the industrial age into the information age, the law was forced to adapt to address challenges such as the internet, large computer databases of information, e-commerce and digital contracting. Understandably, law is created and defined by judges and governments in a way that reflects the practices of the time. Many of the laws governing information technology and cloud computing today were constructed in the pre-internet area, when centralised and limited processing was the norm. Now, as our lives move increasingly online, the law is sometimes struggling to adjust to the widespread disruption caused by the adoption of cloud computing.

Need for modern flexible laws

Cloud computing, which delivers scalable access to software, platform or infrastructure resources over the internet, is borderless and cross-jurisdictional. A user located in Ireland may contract with a US cloud computing provider and the provider may store the user’s data in data centres across multiple third party countries.

In recent years the law has tested various approaches to tackle these modern arrangements. A key problem is that the contractual legal framework is formal and complex and is usually linked in some manner to the location of the cloud provider or customer or the location of the performance or delivery of the services.

There are reports that cloud providers are seeking ‘refuge’ in Germany to comply with the recent decision in the Schrems case on the validity of using Safe Harbor to export data outside of the EEA. This arguably illustrates the need for European and national lawmakers to adopt laws and model cloud contracts that address some of the challenges modern technology poses, including borderless data hosting, cyber-crime and remote user access to stored information.

Key reform areas in cloud computing contracts

The EU cloud expert group has not yet formulated contractual guidelines or model clauses for cloud computing. However, the expert group has conducted in-depth discussions and explored a range of cloud computing issues that affect the contractual matrix, such as:

  • What pre-contractual information should a cloud provider have to provide to the user and how to define the interplay between this and the existing EU directives on this issue?
  • How should the cloud contract address the availability metrics of the cloud service? For example, should the contract state availability as a minimum downtime rather than a maximum uptime? What are reasonable and acceptable limitations to availability?
  • How and when may a cloud provider make modifications to the cloud contract and should unilateral amendments by the cloud provider that are detrimental to the user ever be permitted?
  • Data portability – should the cloud contractual guidelines include an obligation on the cloud provider to facilitate transferring the user’s data to a new provider at the end of the term?
  • What should the cloud provider’s liability for non-performance be, including remedies and penalties, and should the guidelines include a minimum liability cap?
  • Should unfair contract terms specific to cloud services be explicitly incorporated into all cloud contracts?
  • Should the cloud contract include specific provisions relating to data location and data security? Can such provisions be drafted in a technology neutral manner?
  • When is sub-contracting by the cloud provider permissible and how it should be notified to the customer?
  • Who own digital content and how does the cloud contract provide for this across subject matters including intellectual property rights, data protection and contract law?
  • What should the cloud contract state about the consequences and conditions of termination of the contract including preservation, transfer or erasure of data?

Microsoft’s intercontinental tug-of-war

The well-publicized intercontinental tug-of-war between traditional principles of law and the 21st century practicalities of the internet has been playing out between the US government and technology giant Microsoft in relation to access to Microsoft user data stored in servers in Ireland. In late 2013, Microsoft was ordered by a US federal court to produce this user and content (including private e-mail) data as part of an on-going US Justice Department investigation into narcotics trafficking. The relevant data is stored outside the US in Microsoft data centres located in Ireland, but the steps to retrieve the data could be performed in the US.

Currently, Microsoft is challenging the order on appeal. But the initial ruling handed down by the US court poses significant concerns for US multinational technology companies that have cloud data centers located anywhere in Europe, not just in Ireland. The court’s decision effectively means that, despite any contractual protections in relation to data location and user privacy, US courts may interpret US law as requiring the disclosure of data stored outside US borders, even if it would cause the recipient of the warrant to act inconsistently with the terms of a contract, or the laws of another state, or interfere with the sovereignty of that state.

In the context of the digital economy, the US government’s approach in this case creates significant legal uncertainty for cloud providers and their customers regarding the protection and security of digital data and information, wherever it is hosted.

Change is on the way

The fact that the law may have failed to keep pace with technology is perhaps best illustrated by Microsoft Chief Legal Officer, Brad Smith, who during his recent testimony to a US congressional panel produced IBM’s first laptop, wryly noting that this piece of technology was released in 1986 - the same year the US Electronic Communications Privacy Act was enacted.

As the Microsoft cases illustrates, many legal issues in cloud computing are not sufficiently addressed by existing laws and contractual frameworks. However, as well as the EU cloud expert group, reform of some important cloud computing issues is on the horizon. For example, the EU has already prepared draft guidelines relating to service level agreements (SLAs) for cloud computing contracts and the European Commission’s General Data Protection Regulation is expected to be officially published in the coming months.

Now may therefore be the perfect time for the introduction of some form of model cloud computing contract that adequately addresses the challenges of cloud computing for cloud providers, customers and governments. The benefits are obvious – a harmonised set of contractual provisions would hopefully cut bureaucracy, transaction costs and enable cloud contracts to be delivered more efficiently and securely. But this process can only work if it has buy-in from major cloud providers, customers, regulators and governments. And it appears that, currently, stakeholders are waiting to see if, and when, the European Commission decides on the future steps resulting from the EU cloud expert group’s findings and the outcome of the Microsoft case.