June 16, 2014

Service Providers And The Law

By Syed Raza

Cloud Service Providers And The Law

Imagine opting out of the continuous struggle to keep software up to date, and essentially getting rid of overburdened corporate IT departments struggling to keep systems functional. This initial flavor of cloud computing given to the public is increasingly holding true to its promise due to numerous benefits such as flexibility, cost reduction, accessibility, and reliability. Undoubtedly, cloud computing presents a potential paradigm shift for all industries and sectors with many benefits such as flexibility, cost reduction, accessibility, and reliability.

While several technical benefits of cloud computing exist, there are few important considerations for users and corporations. One of the most important is the legal repercussions these new technologies may trigger. With the arrival of any new technology, the applicability of existing laws and the possibility of new laws tailored specifically to the new technology remain unclear until precedents are set. The cloud computing phenomena is global in nature challenging the very touchstone of jurisdictional complexities.

Cloud Service Providers And The Law

(Infographic Source: Business Of Law Blog)

These legal qualms pose significant risks to cloud service providers and users alike. Service providers constantly battle to strike a balance between reward of investing in better and new technologies; on the other hand, they expose themselves to greater risk of potential lawsuits as well as uncertain future regulations. For small businesses, this issue may even be greater as they lack resources to effectively negotiate contracts with large cloud service providers. On the other hand, large corporations may be easier to draft and negotiate a ‘strong’ contract with service providers.

Broadly speaking, there are six widely applicable regulations relating to cloud computing in the United States.

1. Stored communications Act (SCA)
2. USA Patriot Act
3. The health Insurance Portability and Accountability Act (HIPAA)
4. US Export Control Regulations
5. Federal Trade Commission Act
6. Communications Privacy Act of 1986 (ECPA).

While laws extensively cover areas related to security and privacy, loopholes are certain when referring matters relating to cloud computing. For instance, in 2011, a class action complaint was lodged against a cloud storage provider in Wong v. Dropbox, Inc., where, it was alleged that the company violated the California Unfair Competition Law and negligently invaded privacy of individuals. The class action complaint against Dropbox arose out of an update that inadvertently allowed anyone to log into any account using any password within a four hour window.

The risks are geared towards confusion as to applicable laws, the changing regulatory climate, and lack of industry standards. Cloud computing does reflect paradigm shift for both users and corporations, as it allows taking advantage of economies of scale as well as specialization to provide a more efficient and economical solution.

As jurisdiction within the cloud is so unclear, the only option would be to come to a mutual agreement or a compromise between cloud provider and user. Therefore, a harmonious and uniform set of laws governing data privacy and security is required which, in turn, would be beneficial in several respects. For instance, service providers would be able to assess their risks more accurately subsequently decreasing the need for them to push their risk onto users through contracts that force the customer to deal with privacy breaches that may be the fault of the service provider.

By Syed Raza

Syed Raza

Syed is the CEO of ClayDesk which is an emerging leader in Business and Legal Process Outsourcing industry. Syed Raza (PhD) has over 25 years experience as an entrepreneur, technologist, and an attorney.
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