Take a moment from your day and pull out the last three or four cloud services agreements your company has entered into. Now, highlight the provisions in those agreements that specifically define how the vendor may use your data. You may be very surprised at the results. Some of the agreements may not even include language clearly defining what the vendor can and, more importantly, cannot do with your data. Likely, however, what you will see is language that grants the vendor broad rights to use your data for purposes other than simply performing the services for your company’s benefit.
Lack of specificity regarding the vendor’s rights to use customer data presents a significant risk in the majority of cloud services agreements. The following discusses two of the most critical issues presented by this risk and potential solutions:
Lack of definition regarding data usage rights
Many cloud agreements are silent as to limits on the vendor’s use of customer data. Some may say the vendor will use the data to provide the services. All too frequently, however, the agreements grant the vendor vague rights to use customer data for purposes other than providing the services (e.g., to improve the services, to enhance functionality, or, cryptically, to create new products and services).
We recommend always wording data usage in terms of an express license along the following lines:
There are several advantages to approaching data use with a license of this kind. First, it makes clear the license is non-transferable (i.e., it cannot be assigned to a third party without the customer’s consent). Second, it is “terminable at-will.” This means the customer can revoke the license at any time. For example, if the data contains highly confidential information (e.g., consumer information or trade secrets), the customer may want to the right to revoke the license if the vendor suffers an attack on its security that could place data at risk. All too often, cloud agreements are written such that the customer cannot readily terminate or suspend access to their data. The inclusion of this right is important for protection. Finally, the license makes clear the vendor has one, and only one, right to use the data: solely for purposes of performing the services for the customer’s benefit. Any other use would constitute a breach of contract.
Extremely broad and undefined “aggregated data” rights
Most cloud agreements include the right for the vendor to use aggregated data. While this may be entirely acceptable to many customers, the problem is that the term “aggregated” is seldom defined or, at best, it includes a vague reference to not identifying the customer. If aggregated data rights are to be granted, the contract should make clear the aggregated data will not be identifiable to or capable of re-identification to any entity or individual. If the customer’s data contains regulated information of individuals (e.g., healthcare data or financial data), then there are specific legal standards for de-identification and aggregation the vendor must follow. If applicable, the contract should specifically require the vendor to de-identify and aggregate the data in compliance with those laws.
In addition to making clear what aggregated data is, we also recommend customers disclaim all liability for that data. That is, the contract should state that the customer is making no warranties with regard to use of its data in connection with data aggregation and that all such use is entirely as-is, without warranties of any kind.
Finally, consider including language that places all liability and risk of using aggregated data, including failure to properly de-identify the data, on the vendor.
In negotiating future cloud agreements, customers should bear these issues in mind and, where relevant, insist on revisions to provide greater specificity and protection. In a perfect world, cloud providers should have these issues addressed in their form agreements. Unfortunately, the world of cloud computing is not perfect.