5 Key Considerations When Litigating Cloud Computing Disputes

Given the ever-increasing reliance on cloud computing, it is inevitable that disputes and litigation will increase between corporations and cloud service providers. The most obvious point of contention will occur if data in the cloud is lost, damaged, stolen or is if not rendered inaccessible for a period of time. In such circumstances, the corporation may be facing enormous liability and will seek to hold the cloud provider responsible, during the cloud provider will truly look to the parties' agreement and the underlying circumstances for defenses. This article discusses five key considerations for litigators representing corporations and/or cloud providers to focus upon in litigating cloud computing disputes.

The process

Cloud computing is the process by which a corporation uses remote computing providers connected via the internet, to put it more exactly than internal servers and network drives, to store and access the corporation's electronically stored information. Cloud computing in essence consists of large blocks of server space that are owned and managed by cloud providers, which corporations in substance "rent" on an as-needed basis.

Renting cloud space has become increasingly popular in recent years because it saves corporations the cost of building and maintaining their own data centers, and allows them to ramp up or down the amount of server space on an as-needed basis. For instance, cloud computing allows retail companies to have access to more server space while the holiday season without paying for that space as it goes unused while the slower summer season. Cloud providers as well provide software maintenance and updates, which allows corporations to reduce expenditures on software and information research staff.

Corporation internally houses its own data

When a corporation internally houses its own data and software, problems, clearly, may arise. Data may be stolen, lost, damaged, or rendered inaccessible, potentially causing the corporation to shut down all or parts of its business for a period of time, resulting in lost profits, lost clients, and costs of remediation. But, since the corporation is in charge of its own data, it may have only itself to blame. However, when the corporation enlists a cloud provider and problems occur, the corporation has a clear target -- the so-called "expert" or cloud provider. In doing so, as more and more corporations rely on the cloud, litigation in this area is expected to increase.

In the event of a cloud disaster, the first place litigation counsel should turn, whether representing the corporation or cloud provider, is the limitation of liability clause as a rule found in the cloud services agreement. Corporations should check to see if they have a contractual means for recovering for losses from business interruption, including lost revenue, lost profits, and lost goodwill. In the same manner, cloud providers should consult the clause to determine the overall universe of potential liability, particularly whether the contract on purpose disclaims any recovery for consequential damages, which would include damages involving third parties,. Another key is whether, just in case to a disclaimer of consequential damages, there is a cap on total damages. In cloud provider contracts, damages are often limited to fees paid pursuant to this agreement the contract. The scope of the limitation of liability clause will be a major factor in determining which side has leverage in any dispute.

While clauses limiting liability to direct damages, disclaiming consequential damages, and/or capping liability at fees paid are as a rule enforceable, many states' laws provide that such clauses are not enforceable when all is said and done of gross negligence or recklessness. During gross negligence is often difficult to prove, courts have been more amenable to a finding of gross negligence in instances of data loss, given the severe harm suffered as a result. For instance, one court recently sustained a claim of gross negligence and/or recklessness in a cloud computing/loss of data case because it was alleged that the provider failed to take adequate steps to protect the data. Clark Street Wine and Spirits v. Emporos Systems Corporation, 754 F. Supp. 2d 474, 481-82.