Supplier standard terms

Cloud operators generally offer their services on standard terms. These terms tend to strongly favour the supplier, offering only limited warranties while excluding any liability for data loss, corruption or service failure. In particular, several organisations reserve the right to delete customer data for breach of contract, such as non-payment. 

Although standard terms (and any exclusions or limits of liability) are subject to the UCTA and therefore must be reasonable, it is advisable to negotiate key provisions in advance rather than trying to argue (and to prove) that a clause or provision is unreasonable and unenforceable. The contract should also include applicable service levels and service credits. For outsourcing arrangements utilising cloud services, agreements will still tend to be heavily negotiated and deal in detail with risk and the allocation of responsibilities of both parties. It would not be in either party's interests to govern these sorts of complex long-term relationships on standard terms. Other legal issues include data protection, intellectual property and law applicability.

In this article, we will consider the intellectual property issues.

Intellectual property issues:

Licensing: Although cloud-computing contracts relate to the provision of services rather than to the supply of software to customers, appropriate software licences still need to be granted to the customer to enable them to legally and correctly use the necessary software without the risk of committing copyright infringement.

Content: The customer will be required to grant to the service provider a licence to their content allowing the service providers to use any content stored on its servers. These licences are often expressed as being perpetual and irrevocable.

Intellectual property indemnities: The inclusion of intellectual property rights indemnities in cloud-computing contracts remains important because customers have to rely on the service provider to ensure that software licensing issues have been resolved so as to entitle the customer to use the software as part of the service.

Intellectual property protection: Aiming at protecting suppliers' intellectual property rights in their own software and the extent to which customers may take advantage of know-how gained in a short-term contractual relationship, which may be terminated on short notice by a customer.

More in particular:

Licensing

Cloud computing licences are usually very narrowly defined and limited to use of the online application for their own business purposes. Customers have no rights to make copies of or modifications or enhancements to the software, and they cannot sub-license to third parties. 

The service provider will not always own the intellectual property rights in the software that is the subject of the cloud-computing service. Where this is the case, the service provider will need to arrange for the right to sub-license the software to its customers, or for a direct licence to be entered into between the customers and the relevant third-party licensor with service provider just managing the third party licences. However, all other issues relating to the provision of the software, such as delivery, installation and configuration requirements, should be dealt with in separate agreements between the customer and the service provider. 

Open Source software presents an interesting question in the light of cloud computing. With many service providers building their services using open source given its low cost, do they risk having to divulge the source code for their solution to their users? Open source licences vary considerably and is suggested that the applicable terms are read and understood before use of open source is made.  It is thought, however, that pure cloud services are not considered to involve a conveyance according to the General Public Licence Version 3, and therefore open source code disclosure requirements would not be triggered. Again it is preferable to read the full licence terms before using open source.

Content licensing

Content licence to the service provider may be required. This may not be appropriate for much of the information customers would be looking to store (such as personal data, third-party intellectual property rights or confidential information contained in or attached to e-mails). Any such licences must terminate on termination of the service.

The service provider will look to exclude all liability for content stored or posted on its services and will normally include a right in its standard terms to remove any data from its servers. This is because ISPs can be liable for failing to take down offensive, defamatory or intellectual property rights infringing content, and cloud-computing applications often blur the line between public and private networks. In these circumstances, corporate customers should seek an indemnity for any loss suffered as a result of material being unnecessarily deleted or moved and should look to impose a requirement to be notified in advance if any content is to be removed.

Intellectual property rights indemnities

Cloud-computing users need to be aware of the possibility of patent infringement through the use of cloud-computing arrangements. Patent protection is increasingly available for computer software in the US and, to a lesser extent, in the EU. Where cloud-computing arrangements are established on an international basis, the intellectual property rights indemnity needs to be sufficiently broad to protect the cloud services' customers in all jurisdictions in which the software will be used. 

Protecting intellectual property

Computer programs and the preparatory design material behind them are subject to copyright protection as literary works under the Copyright, Designs and Patent Act 1998. However, it is important to draw the distinction between the idea for a computer program and the expression of that idea for the purposes of determining whether copyright exists.

Copyright protects the expression of an idea, but not the idea itself. This is reflected in EU law, which confirms that "ideas and principles which underlie any element of a computer program, including those which underlie its interfaces, are not protected by copyright" (Council Directive 91/250/EEC on the legal protection of computer programs).

This means that there is a risk that users of cloud services could produce simulations of the functionality in a cloud offering in order to build a competing cloud service (although the terms and conditions might seek a contractual undertaking to only access the solution for the purposes of using the service).

The courts recently considered this principle in a software provision rather than a cloud context. The court held that there had been no infringement, expanding on the principle that copyright could not subsist in mere ideas, stating that the programming language, interface and functionality of a computer program also fell outside the scope of protection.