Reigning in the cloud

Businesses using cloud computing services often struggle with unfair or biased contract terms from huge providers. But will recent and ongoing action by the EU Commission provide a silver lining?

Cloud computing has become big business. Research conducted by Gartner and Merrill Lynch at the end of last year estimated the cloud computing market to be worth between $150 – $160 billion. Amazon Web Services alone apparently earned around £750 million from their web services platform, so it’s no wonder that companies are clamouring to get in on the action. You’d therefore think that numerous providers would translate to increased competition, which should surely be good news for businesses looking to transition into the cloud. Unfortunately, that’s not necessarily the case…

As Carole Hailey, who heads up the IT/Commercial team at Waterfront, pointed out in a blog earlier this year, there are plenty of cloud providers offering “an affordable, stable and scalable infrastructure”, but they come at a different kind of price; no guarantees, limited SLA’s and one sided, non negotiable terms and conditions.

But change may be afoot… In a report released last month, the EU Commission outlined its views on cloud computing in Europe and its future. The paper included opinions on the wider environmental and economic aspects of cloud computing, but also referred to plans to try and address the “complexity and uncertainty of the legal framework” which is resulting in cloud service providers using “complex contracts or service level agreements with extensive disclaimers”.

The Commission acknowledges that the use of such “take it or leave it” standard contracts is “undesirable for the user…imposes the choice of applicable law or inhibit data recovery”, as well as meaning that “even larger companies have little negotiation power and contracts often do not provide for liability for data integrity, confidentiality or service continuity”.   So far so good, but what exactly is the Commission proposing to do about it?

The Commission seems intent on creating a “climate of certainty and trust…so as to stimulate the active adoption of cloud computing in Europe”. The Commission commits, by the end of 2013 to:

• develop model terms for cloud computing service level agreements between cloud providers and professional cloud users, since, during the consultation process, the Commission found that this was one of the most important issues for professional users and that SLA’s “provide the basis of trust users can have in a cloud provider’s ability to deliver the services”;
• propose to consumers/small firms model contract terms and conditions, providing best practice contract terms for cloud services on aspects related to the supply of “digital content”. The Commission noted that consumers are often unaware of their relevant rights and model contracts would look to overcome these problems;
• task an expert group to identify, before the end of 2013, safe and fair contract terms and conditions for consumers and small firms;
• review standard contractual clauses applicable to transfer of personal data to third countries and adapting as needed to cloud services;
• work with the industry to agree a code of conduct for cloud computing providers to support a uniform application of data protection rules.

It certainly seems, particularly regarding the proposals for model contracts, that there is cause for quiet optimism amongst cloud users as the Commission is clearly looking to redress the balance. Only time will tell the extent of that redress. You can read the report in full here.

For more information, contact the Waterfront commercial contracts team on 020 7234 0200 or e-mail at info@waterfront.law