Cloud Services Contracts: The Devil Is in the Details

by Carol Ko, 02 July 2012

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topics:
Risk Management Technology

tags:
cloud computing law and compliance service level agreements

In a new CFO Innovation Insight Survey on cloud computing, 44% of finance chiefs and other senior executives in Hong Kong said their company is already running an application on a cloud environment. Another 27% said they are planning to do so (click here to download this research).

The question is whether CFOs, CIOs and others in the company know enough about the legal ramifications of this new service to adequately protect the interest of their organisation. While the technology has been around for a while, the commercialization of the cloud is a relatively recent phenomenon.

How may cloud contract provisions entrap your organization? What are some of the vaguely-defined terms to watch out for?

Do cloud service providers (CSPs) owe a duty of data protection to their customers? Is the cloud service contract clear about who owns the data and intellectual property rights to custom-built applications?

In an interview with CFO Innovation's Carol Ko, Norton Rose Partner Gigi Cheah and Associate Jeremy Tan, both from the international law firm’s Asia IP & Technology Group, examine the issues and dangers to avoid in cloud service contracts.

Fairly or unfairly, cloud service contracts, especially those covering public cloud services, are sometimes seen as one-sided in favour of the vendor.

Most cloud service providers contract on standard terms, which are supplier-centric and usually contain very limited warranties and disclaim liabilities for data loss or data corruption. For example, the standard terms made available by cloud service providers on their website often do not contain provisions guaranteeing any particular level of service or providing any credits should such levels not be met.

Although most jurisdictions have statutory provisions that restrict unduly onerous or "unfair" contract terms, it is advisable to negotiate key provisions in advance, rather than rely on statutory provisions. This is especially the case as most statutory provisions that restrict unduly onerous or "unfair" contract terms may only apply to customers who sign up for consumer cloud contracts, such as [Apple’s] iCloud.

Can you give some examples of ambiguously worded terms commonly used in cloud service contracts?

In addition to “downtime” and “up-time,” “availability,” “resolution time” and “response time” are examples of often ambiguously worded terms that are used in cloud service contracts. The danger of not defining terms clearly is the same with any other contractual term, namely that it leads to uncertainty and may allow the cloud service provider to avoid liability should a contingency event occur. From a customer’s point of view, it creates a high level uncertainty as to exactly what the customer is paying for.

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