Cloud computing legal dos and don'ts


Date: 2 August 2011

Justice in the clouds? (Image: Ariaski on Flickr.)

When businesses use cloud computing, it often means they don't need to buy or install software, or run their own servers. The benefits can be compelling, but cloud computing also presents some interesting legal issues.

Contracts, data protection and copyright

Because cloud computing services involve storing data outside your business, usually on servers operated by another company, there are some contractual, data protection and copyright issues to be aware of:

  • The risk of concluding contracts inadvertently. For example, if one of your employees signs up to a cloud-computing service using a computer at work for a purpose related to their employment, then your company could be bound by the terms of that cloud computing service - even if the employee acted without consulting anyone.
  • The risk of data protection compliance. If your employees input personal data held by your business into the cloud, your company must comply with its data protection obligations - including those relating to the transfer of data.
  • The risk of intellectual property infringement. Your business could be liable if staff post defamatory or copyright-infringing content into the public areas of cloud-computing services. Appropriate policies, procedures and training must be given to employees.

Licensing and software use

A software licence is the set of terms and conditions you agree to before you start using a piece of software or a cloud computing service. Software licensing can be confusing at the best of times, and there are some specific things to remember when you're choosing and using cloud computing services:

  • You must have appropriate licences. Some cloud computing services are only licensed to be used at certain computers. So if any of your staff use them at computers without a licence, they commit copyright infringement.

    Also, licence terms can be narrow and may limit you to using the service only for your company's own purposes - so check your sub-contractors and business partners can use it too, if they need to.
  • Using open source software. Many cloud computing services are built on open source software. However, some open source software requires software based upon it to be distributed under the same terms - i.e. made freely available. This could have consequences for your business, if you want to retain the software just for your use.
  • Intellectual property indemnity. A cloud computing operator may not always own the intellectual property rights in the software used by their service. If that's the case, that operator has to sub-licence the software to its customers, or arrange a direct licence between its customers and the relevant software company. Check this has been taken care of, or your business could be liable for using unlicensed software.

International implications

It can be hard to tell where cloud computing services actually operate from. Even those that price their services in pounds may be based outside the UK. And if you are dealing with a UK company, they may still store your data on servers in other countries.

In most cases this isn't a problem, but it's wise to aware of the issues that can arise:

  • Unexpected obligations. You need to make sure that foreign law does not result in unexpected and binding non-contractual obligations for your business. For example, in some countries you may have duties of good faith in negotiations which do not exist under English law.
  • What happens if things go wrong? A cloud computing provider based in the EU can be sued in all the jurisdictions in which it provides services to its customers.

    But when a cloud computing provider is based outside the EU, it can be harder to enforce court orders against the company. It's usually best if the governing law of the contract is the local law of the cloud computing provider.

This article is for general purposes and guidance only and does not constitute legal or professional advice.

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