Cloud computing promises incredible benefits for companies looking for inexpensive and scalable computing solutions without the need to do it all themselves (or the costs or personnel). However, as foreshadowed in the InfoLawGroup’s “Legal Implications of Cloud Computing” series (see Part One, Part Two and Part Three) data security, privacy and legal compliance issues are beginning to cause great concern. Stories like this highlight these concerns. High profile information security snafus (fairly or unfairly) have also stoked the fire: Rackspace power outage, Amazon denial of service attack, and the Sidekick Data Loss. Data leakage is maybe problematic as well based on Cloud architecture.  In fact, the InfoLawGroup has encountered some companies that are taking a pass on cloud computing (“v. 1.0”) because of regulatory, privacy and security concerns.  Do these compliance concerns threaten the Cloud computing model or potentially reduce the cost benefits it promises?

The answer to this question is not clear at this early stage. However, what is becoming clearer is that attorneys, privacy experts and security professionals will increasingly (hopefully) become part of the solution. On one hand, this group of professionals act as organizational gatekeepers when it comes to implementing new IT arrangements such as Cloud. To the dismay of IT managers and business interests, they may have to say “no” to certain Cloud transactions. On the other hand this group will increasingly act as enablers to Cloud vendors by helping them understand their clients’ legal, security and privacy concerns, and providing them with the ability to design their Cloud and services in a manner that addresses those concerns. This activity will take place well before the transaction phase, and its purpose is to create a Cloud that moves the gatekeepers away from “no.” This post explores the enabling role that these professionals will likely play in the coming months and years.

Understanding the End Client/Users Applicable Compliance Issues

The adoption of Cloud computing faces significant potential push-back from legal, privacy and data security stakeholders within an organization. For Cloud to be accepted by certain organizations and industry segments the Cloud solution must address legal, data security and privacy concerns. In essence, by baking compliance into the Cloud, service providers are providing “compliance as a service” (CaaS).

It is important for Cloud service providers to be proactive in this regard. Cloud providers that take the time to understand their clients’ needs ahead of time (as well as the needs of their clients’ clients or users) may gain a competitive advantage against “generic clouds.” If these Cloud providers can implement an architecture that addresses specific client needs and/or provides clients with tools or mechanisms to address these needs, they should rise to the top. Of course, price will also remain a major (the major) factor in a purchase decision. The challenge will be balance: “customizing” Clouds or building in additional features costs money, if these costs materially overwhelm the promised cost savings or functionality of the Cloud then it will not be a viable business opportunity. However, if providers don’t adequately address compliance issues, Cloud services may not be implemented in the first instance. Cloud providers must thread this needle.

A key activity for Cloud providers will be understanding the regulatory, privacy and compliance environments of their clients and end users, and providing Clouds with the infrastructure and tools to meet those needs. Lawyers, security pros and privacy vendors can help Cloud providers (and will be necessary to) achieve this. The legal, privacy and security concerns may vary depending on the industry, the specific activities of the organization, the data being processed and the regulatory environments that impact the company. While there may be commonalities and overlap between different types of organizations, the Cloud services will still have to address the differences that may exist. Ultimately, this may lead to “vertical clouds”: Cloud providers specializing in certain industry verticals that may have different needs or concerns (e.g. banking, healthcare, retail, etc). In fact, this is already beginning to happen (see. e.g. Legal Cloud, FedCloud, athenahealth, bankserv and Rackspace PCI Compliant Cloud).

Creating Transparency

Once the specific legal, security and privacy concerns of clients are understood, Cloud providers will have to go one step further and build transparency into their process to enable potential clients to efficiently perform their due diligence so they can enter into, draft and negotiate Cloud agreements. Again, this is where legal can serve in an enabling role. By understanding the end-client’s compliance issues, cloud providers can make it easier and more transparent for clients to get the information they need to have confidence that their concerns have been addressed by the Cloud provider. Vendor lawyers helping with the design of the Cloud will have to anticipate where transparency is needed, how to most efficiently achieve that transparency, and what information to disclose to clients to smooth through the due diligence and contract negotiation process. Examples of areas where more transparency will likely be needed include: 

• Relationships in the Cloud (Who is processing, transmitting and storing  the Cloud purchaser’s information?)

• Security policies, procedures and controls (What controls are in place in the Cloud? What security standards [e.g. ISO 27001] have Cloud providers met? Do the controls meet the standard of reasonable security for the purchaser of Cloud services? Are the Cloud provider’s controls consistent with and compatible with the Cloud client's internal security framework? )

• Information handling practices and privacy (What can the Cloud provider do with personal information? What does it plan to do with personal information? Are the Cloud provider’s practices consistent with applicable privacy laws and the Cloud purchaser’s own privacy policy?)

• Geography (Where is the data being stored and processed? What jurisdiction’s laws may be triggered based on the location and cross-border transfer of personal information?  Will export restrictions be violated?  Will governmental bodies be able to obtain information that flows through their country?)

• Incident response, data preservation and electronic discovery (What procedures are in place to respond to an incident suffered by the Cloud provider? What obligations does the Cloud provider have when it suffers an incident? What information will the Cloud provider provide to the purchaser concerning a security incident? How will a Cloud provider coordinate with a Cloud purchaser in the event of an incident? How will a litigation hold be initiated with respect to data stored or processed by a Cloud provider? How can data be preserved when on the Cloud provider’s systems? What measures are in place to establish the integrity and authenticity of a “document” stored in the Cloud?)

• Service level agreements (Can the Cloud vendor meet SLAs that are appropriate to its clients’ needs? Is the Cloud provider using third party Cloud provider to provide services, and has the former secured contractual rights consistent with the applicable SLA?)

Standards in the Cloud

Going forward, especially where multiple tiers of Cloud providers are involved and/or data is being transferred between multiple Clouds, “universal” standards may develop that could create more transparency. Rather than an ad hoc approach requiring potential Cloud clients to individually investigate compliance aspects of each Cloud provider, it is possible that generally accepted privacy and security standards may develop. Similar to the PCI approach, Cloud providers would certify their compliance with such standards and provide Cloud clients with proof of certification. This could provide more transparency and make the due diligence process more efficient. Moreover, it provides a benefit to Cloud providers: they can certify to the standards once and simply provide proof rather than having each of their clients perform a separate due diligence procedure or assessment for every transaction.

Conclusion

The opportunity for lawyers, security professionals and privacy experts to play a positive role in enabling Cloud offerings is very exciting. Rather than playing their traditional spoiler roles, assuming Cloud providers think proactively, these professions can actually help the Cloud model mature. Moreover, in some cases,  early adopters creating customized Clouds that provide “CaaS” may actually achieve a competitive advantage. The end result of CaaS, if done properly, are cost-effective Cloud services that provide all the benefits that have been touted, while reducing legal, privacy and security risk to an acceptable level.