Gunster Shareholder Bob White Writes Commentary for Daily Business Review on Cloud Computing

Preparation, analysis can safeguard businesses when cloud computing

October 11, 2011

Commentary by Bob White for the Daily Business Review

Cloud-computing services are fast becoming the de facto information technology path for many companies since they provide network access to a shared pool of resources using the Internet. These services offer substantial cost savings to businesses and allow companies to quickly implement updated system resources without large capital investments. Even small companies can take advantage of these cost savings and can easily migrate to a cloud model.

While cloud computing has been a huge boon to many businesses, its use raises a number of potential risks and problems. Many of these arise from the storage of a user’s data and information in the cloud.

In a cloud-computing arrangement, substantial amounts of a company’s data and information are normally stored with the cloud services provider. This can include highly sensitive information about employees, customers and others, including items like trade secrets and financial and health care information.

One significant problem is the location of the user’s information. The physical location of the cloud provider’s servers on which the user’s information is stored can cause significant risks. If the user’s information is stored on a server in another state or country, the information may be deemed to also be located in that state or country.

This may make this information subject to the laws and legal processes of that state or country, which may be disadvantageous to the user. Unfortunately, the user may be unaware of these location issues until a problem surfaces. Resolving these issues may be difficult, time-consuming and expensive, and the ultimate outcome may not be favorable.

The user’s liability in a data breach situation also can be a serious problem. The user often will have significant liabilities and obligations even if the data breach is not due to their actions. The bankruptcy of a cloud provider also can raise questions regarding the ownership and status of the user’s information, and users could be prevented from using or accessing their information. It can also be difficult and expensive for a user to address these issues with a bankruptcy trustee. Even if the user ultimately prevails, there could be a substantial interruption in access to data while these issues are being resolved.

How can cloud computing users protect themselves from these substantial risks? First, a user should conduct a detailed due diligence review on all potential cloud service providers, including a review of the provider’s business record and reputation, its financial condition and its service record.

It is often helpful to obtain references from other customers. Users should confirm that the provider has all applicable certifications and credentials. The second protective item is to have a solid contract in place with the cloud services provider. This can greatly facilitate resolution of any potential problems.

The contract should confirm such things as the ownership of the user’s information, any special rights the provider has relating to the user’s information (such as the right to use such information to determine marketing trends), the venue in which any legal actions will be brought and the specific law that will control any disputes.

Finally, cloud users should evaluate “cyber insurance,” which may help mitigate some of the risks associated with a cloud computing model. These things will not solve all problems, but they may provide substantial protection and benefits to the user of cloud services.

One common problem, however, is a company may not be able to afford the cost or be able to dedicate the resources and time needed to do adequate due diligence or to pursue the legal remedies that are available. Although costly, users should evaluate the use of backup or alternative systems as another possible protection strategy. Cloud computing provides substantial benefits for companies of all sizes. There are risks associated with its use, but these risks usually can be managed with sufficient advance preparation and analysis.

Bob White is a Gunster shareholder and a business and technology attorney in Fort Lauderdale. He practices in the areas of business, technology and corporate finance law.

Click here to read the Daily Business Review article.

Tags: Robert C. White, Jr.