Canada: Peering Through The Cloud - Cloud Computing: Many Benefits But There Are Some Legal Issues To Consider

While outsourcing the processing or hosting of information is not a new idea, as many companies are familiar with application service providers ("ASPs") and software-as-a-service ("SaaS"), "cloud computing" has become a catch-all phrase that represents the plethora of hosting and processing services available and delivered over the Internet.1 The growing popularity with consumers of online services as well as the entrance of some brand-name vendors with corporate offerings (such as Amazon's Elastic Compute Cloud ("EC2"), Google Apps and Microsoft's recent announcement that Office 2010 will be offered as a free online service), has brought increased awareness to this combination of grid and utility computing services.2 One study found that 69 per cent of Americans who use the Internet use some form of cloud computing, such as Hotmail and Gmail or online personal photo storage services.3

Cloud computing can be used by corporate clients to outsource, for example, data processing (such as massive database management or data mining), help desk management, CRM, word processing requirements and even all or a substantial portion of a company's IT infrastructure. Many of the above, when implemented in-house, require expensive infrastructure that are often not used at maximum efficiency. One flavour of cloud computing that may be particularly attractive to businesses engaged in sensitive industries or handling sensitive information is the "Private Cloud", whereby a business or other organization creates its own Internet-based data centre that is not generally available to the public.

With vastly improved features, usability and awareness, corporations and individuals are finding the siren call of cloud computing particularly compelling. While the benefits are many, the potential legal pitfalls that come with cloud computing must be considered.

First, some of the advantages that cloud computing offers:

  • Pricing: Some cloud providers' pricing models contemplate a monthly subscription fee while other vendors provide the services on a pay-as-you-go, utility-based model. For example, users pay for the volume of data stored or number of servers required.
  • Scalability: Cloud vendors often allocate resources to a user as needed (or requested), which has obvious benefits for both the cloud vendor and user: cloud vendors benefit greatly from economies of scale and the efficient use of their resources, while users benefit from the resulting flow-through cost savings as well as the availability, often on-demand in real-time, of vast and flexible resources that can suit their needs without having to worry about whether too much or too little was spent on in-house IT deployments.
  • Transparency: Users can typically see exactly how much they pay for their usage of specific services, whereas non-cloud vendors are often unwilling or unable to disclose how much a user is paying for each server used or gigabyte transferred.
  • Simple Purchasing: Though also a potential pitfall, many cloud computing services can be purchased over the Internet with a credit card and the services become available instantly. There is no need to issue a complicated request for proposal, but no opportunity to negotiate the terms of service.
  • Sensitive Data: For businesses whose employees travel frequently and use portable laptops, the risk of loss, theft or confiscation of sensitive information stored locally on these devices can be mitigated, to some extent, by using cloud applications and storing data in the cloud.

However, all that glitters may not be gold. Companies must tread carefully when considering cloud computing as there are a variety of potential legal issues that need to be considered before engaging a cloud computing vendor:

  • Privacy: Certain jurisdictions require personal information to remain within that jurisdiction's borders unless the receiving jurisdiction has comparable legal safeguards. For example, the EU Data Protection Directive only permits the transfer of personal data to non-EU nations that ensure an "adequate level of protection".4 Cloud computing architecture, by its nature, provides that vendors may process resources in or through a number of jurisdictions at any given time. While in certain circumstances the cloud vendor can offer to limit where a specific user's data is held, it may not be possible or practical. Users also need to consider the risk that their data may be disclosed to the government of the jurisdiction in which their data is held by the vendor, possibly without their knowledge or consent. For example, the USA PATRIOT Act permits the U.S. federal government to seek a court order for disclosure of electronic records, often without permitting notice to the user.5 From a Canadian perspective, a company thinking about outsourcing the processing or storage of personal information to a cloud vendor needs to consider applicable legislation (such as the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 ("PIPEDA")), which may require:
    1. notice to the data subjects their information might be stored outside of Canada and their information may be accessed by governmental authorities according to the laws of that jurisdiction;6 and
    2. contractual obligations for the cloud vendor to safeguard personal information to the same extent as the company using the cloud services.7

Special considerations will apply if the prospective outsourcer is a federally regulated entity and therefore would have to comply with OSFI guidelines. The OSFI guidelines specify, among other things, that an outsourcing agreement is expected to point to a physical location where the outsourced activities are to take place; this requirement could make (non-private) cloud computing impractical.8 Additionally, the federal Bank Act, requires that certain records be stored in Canada.9

  • Foreign Governments: The autonomy of private or state-sponsored enterprises varies between jurisdictions. It is important for the user to conduct due diligence and, if doubts persist about the potential for governments to monitor or access the user's systems or information flow, be sure to insist on appropriate confidentiality, security and indemnification protections or consider seeking an alternate cloud vendor.
  • Export Controls: Given the multitude of locations from which cloud services may be provided by any one vendor, ensuring compliance with federal export controls may be difficult (where, for example, a company has sourced a software development platform in the cloud and the software to be developed contains encryption technologies subject to export controls).
  • Ownership: Care has to be taken to ensure cloud vendor and user rights in their respective intellectual property are clearly delineated. For example, many cloud services involve the provision of proprietary development tools by the vendor, which allows the user to create its own databases, software or other applications. In order to ensure that the user comes away with a product that can be utilized by or licensed to other parties, it is essential to determine to what extent vendor or other third-party components are incorporated. Similarly, where mission critical or enterprise business processes are involved, it is critical to make certain that appropriate business continuity plans and possibly source code escrow agreements are in place to anticipate a potential bankruptcy of the vendor or some other cessation of the vendor's services.

As well, cloud vendor standard form contracts are often drafted decidedly in the cloud vendor's favour. Whether cloud computing is sourced for simple data processing or for enterprise resource planning for mission critical business processes, close attention should be paid to the following provisions commonly found in such standard form contracts — particularly if the services are going to be purchased online without any negotiation (also known as "off-the-shelf" services):

  • Uptime: In July 2008, Amazon's S3 experienced an outage lasting more than seven hours that affected all U.S. customers, including the high-profile social networking site Twitter.10 While some cloud vendors will include representations of high-levels of uptime backed by service credits issued in the event of outages (such as Amazon), others provide representations of nearly guaranteed uptime while also disclaiming liability for unanticipated or unscheduled delays or outages. Where the vendor is unwilling to negotiate, users should have their own back-up systems and business continuity plans in place to address possible long-term outages by key vendors, which should contemplate redundant data storage and backup services.
  • Security: In July 2009, a hacker gained access to confidential documents stored on Google Apps by hacking a Twitter employee's official email account — which was hosted by Gmail.11 While it should be noted that access was apparently gained by the hacker as a result of poor password selection and protection by the victim, the incident serves as a reminder that sensitive information in the cloud can be vulnerable. Since vendors may not be forthcoming about their security measures and limitations of liability, in their standard form contracts, are often limited to the amount paid by the user or less, users may be out of luck if they suffer damages as a result of the loss or inadvertent disclosure of personal or sensitive information, or in the event of a security breach of the vendor's systems.
  • Monitoring: Many cloud vendors' standard form contracts include the right to monitor all data which, without the inclusion of appropriate confidentiality and indemnification provisions, should be a source of concern for users who wish to process sensitive business information in the cloud.
  • Varying Terms: Another common inclusion in cloud vendor standard form contracts is the ability of the vendor to modify the terms of the agreement, with such modifications deemed accepted by either continued use any time after the new terms have been posted on the vendor's website or after a certain stated time (e.g. 15 days after posting). An example of this is Apple Inc.'s recent modifications to the Terms of Service for its online service MobileMe. The notice provisions of the Terms of Service provide that notice of a change in the Terms of Service may be e-mailed, sent by regular mail or posted on its website. Apple recently added provisions related to its collection and use of customer information as well as adding a limitation of liability for any permanent cessation of the service.12 If Apple chose to only post these important changes to its website, they would only be noticed if the customer visited the MobileMe website, yet the changes would likely have legal effect.
  • Pay The Bills: The services agreement of one popular cloud vendor provides, in the event a user's account falls into arrears, the vendor has the right to terminate and suspend access to the services. Perhaps most importantly, the vendor has no obligation to retain such user's data, which may be "irretrievably deleted" after 30 days.

From this brief review of just some of the potential privacy issues in cloud computing, it is apparent that companies may encounter turbulence along the way.


The expanding and increasingly competitive marketplace of Internet-based outsourcing services that comprise the "cloud computing" lexicon provides vendors and users with lower overall costs of implementation thanks to economies of scale and greater scalability. However, both parties must be careful to ensure their interests are protected when entering into cloud computing arrangements, particularly those users purchasing off-the-shelf services subject to standard form contracts.

[Editor's note: Given the rapid developments in the field of cloud computing, please note that the article was originally authored in November 2009.]


1. For an overview of various cloud computing terminology and non-legal issues, see The Economist, "Special Report: Let it rise" (October 23, 2008), online:

2. Grid computing is the use of clusters of computers on a large scale to perform tasks that involve significant amounts of data and/or computer resources, while utility computing refers to the packaging of computing resources as a metered service.

3. John B. Horrigan, "Cloud Computing Gains in Currency" Pew Research Center, online:

4. See Council Directive 1995/46/EC at Article 25, online:

5. See Robert Gellman, Privacy in the Clouds: Risks to Privacy and Confidentiality from Cloud Computing (February 23, 2009): World Privacy Forum, online:

6. See Privacy Commissioner of Canada, "Outsourcing of e-mail services to U.S.-based firm raises questions for subscribers" (PIPEDA Case Summary #2008-394), online:

7. See Privacy Commissioner of Canada, "Canadianbased company shares customer personal information with U.S. parent (Case Summary #2006-333)", online:

8. See Office of the Superintendent of Financial Institutions, "Guideline B-10: Outsourcing of Business Activities, Functions and Processes" (March 2009), online: at subpara. 7.2.1(a).

9. See, e.g., Bank Act, S.C. 1991, c. 46 at s. 239, which requires certain records to be kept at the head office of the bank or at such other place in Canada as the directors see fit [emphasis added].

10. CenterNetworks, "Amazon S3 Down" (July 20, 2008), online:

11. Computerworld, "Twitter breach revives security issues with cloud computing" (July 27, 2009), online:

12. TOSBack, "Apple MobileMe Terms of Service" (June 18, 2009), online:

Reproduced with permission of the publisher from Internet and E-Commerce Law in Canada, Vol. 10, No. 9, January 2010.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at

Voted best law firm in Canada two years in a row.
2008 and 2009 International Legal Alliance Summit & Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions