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Sands Anderson PC: A Cloud of Suspicion: Legal Issues Surrounding Cloud Computing

By Donna Ray Berkelhammer

We have seen a rise in the number of start-ups offering cloud-based services and are reviewing an increasing number of SaaS or cloud-based software services contracts for our clients. Cloud computing may be a viable business model for either vendor or business owner, but as with anything, you have to do your homework.

Cloud computing (also Software as a Service or SaaS) is using hardware and software that are not owned by a company, but are hosted by a third party and accessed over a network (usually the Internet). End users typically access software programs over the internet through a browser and their data is stored in a remote location by that third party. Applications can include typical office word processing, customer relationship management software or dispatching and tracking service calls. This model is often much cheaper than investing in servers and software, but it does come with risks.

The contract needs to be very precise regarding ownership, access, privacy and security, governing law, allocation of the risk and what happens if the cloud provider goes out of business.

Terms which need to be thoroughly covered in a cloud service contract include:

  • data and intellectual property ownership;
  • uptime and performance specifications, service availability, maintenance schedules and frequency, problem resolution procedures and response times for problems;
  • geographic limitations;
  • backup procedures, data recovery and disaster recovery;
  • security procedures (including encryption in transit and storage), warranties and notification requirements;
  • privacy procedures and notification requirements, including protection of trade secrets and confidential information;
  • allocation of liability risk;
  • what happens upon termination of the contract and how you transfer your data somewhere else;
  • compliance with US privacy, data security and other laws; and
  • remedies for breach of the contract.

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