Cloud computing has become popular among businesses that see information technology as outside their core competencies, demand a highly flexible computing environment, and seek to achieve more predictable costs. In some ways, cloud computing resembles IT outsourcing arrangements used in the financial services industry for many years; therefore lessons from financial services IT outsourcing agreements may prove helpful to parties interested in adopting cloud computing. This article considers the use of “data hostage” clauses in combination with arbitration or litigation clauses by service providers and the problems these clauses can cause outsourcing businesses. These two clauses together can insulate service providers from liability for material breaches and be used to coerce non-breaching customers into paying hefty termination fees. Although careful analysis shows that data hostage clauses may not always be enforceable, few customers are likely to litigate these cases. This Article considers regulatory and contract drafting strategies for reducing the risks to outsourcing businesses arising from the use of such clauses.
Robert H. Carpenter Jr.,
Walking from Cloud to Cloud: The Portability Issue in Cloud Computing,
6 Wash. J. L. Tech. & Arts
Available at: https://digitalcommons.law.uw.edu/wjlta/vol6/iss1/2