Cloudy With a Chance of Disaster Sep 07, 2012, 11:12 am By Emily Haleck

Guest post by John Rees, Attorney, Callister Nebeker & McCullough

Apple introduced iCloud to the world of consumer computing. The service promises to provide access to files, such as music and photos, from multiple devices. 

A radio advertisement touts the benefits of an online payroll system that can be accessed from anywhere in the world, and is so easy to use a boy operating a lemonade stands can use it. 

The concept behind iCloud and software that is accessible anywhere is not new, but is part of a rapidly growing technology platform called the cloud or cloud computing. Cloud computing gives both consumers and businesses the ability to use software applications and input and access data on any number of devices anywhere in the world.

Cloud computing is generally the ability to remotely access software and data from off-site servers and other hardware through the Internet. It is divided between public and private clouds. A public cloud services multiple clients and customers, and a private cloud, similar to traditional outsourcing that is controlled by the user, services only one or a limited number of clients and customers. Application software offered in the cloud, or software as a service (SaaS), runs on servers located off-site or in a remote location. The software does not reside on the desktop or local computer or server. Netbook computers are designed to operate SaaS, because they do not need a hard drive, but merely need access to a browser and the Internet to operate the SaaS application.

Many of us are already in the cloud with Google’s Gmail, Yahoo mail, Facebook, Flickr, and Google docs. The number of business applications is rising rapidly. The economic and other benefits cannot be ignored, particularly in stressed economic times. However, there are several potential drawbacks, especially for business applications, that need to be addressed before fully embracing and launching the concept.

Some of the advantages of a public cloud are the sharing of costs, infrastructure and resources, but the advantages of a private cloud are control and security. Because cloud services are operated on servers not owned or operated by the user, there are significant cost savings available. Users do not need to support upfront capital investment to purchase the same level of hardware and software required for internal networks. With access through the Internet, information may be input and accessed from any location in the world where there is Internet access, and because the cloud is not tied to a specific location or device, the information may be accessed by multiple and diverse devices.  Cloud services are scalable, again without significant cost increases.

Unfortunately, there are also several potential landmines that cannot be ignored, and many cloud providers have developed boiler plate terms of service that are non- or minimally negotiable. In many cases, the terms of service may be modified by the service provider simply by providing notice online. As a result, it may not be possible to negotiate several of the critical terms that impact on the use on the cloud.

Some unavoidable concerns are security and privacy, because both are out of the control of the user. The level of care exercised by the cloud service provider may not rise to the same level the user might maintain. These concerns are particularly relevant for financial institutions under GLBA and health care providers and business associates under HIPAA. Backing up data, business continuity, continuous access to data, backwards compatibility and location of servers for purposes of U.S. and international law regarding privacy are a few other examples of issues that need to be addressed.

Cloud computing is on the rise, and provides some incredible benefits, but it is not for everyone. No business should use the cloud without first doing a full assessment of its needs, and assessing the downside of the failure to meet those needs, both legal and business. Any due diligence or assessment should include a careful review of the terms of use. Over time, many of the concerns will likely diminish, but for now, users must walk carefully through the minefield of potential disasters.

John Rees is a business lawyer with the law firm of Callister Nebeker & McCullough who helps clients find solutions to their business legal needs, particularly in a complex legal and business environment. He focuses on corporate and intellectual property issues, particularly relating to licensing and doing business on the internet.

This article should not be considered legal or investment advice. Seek legal and investment advice from your own qualified professional.

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