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Understanding and Mitigating the Legal Risks of Cloud Computing

BY Bennett B. Borden
July 28, 2011

It is no secret that an increasing number of enterprises are investing in cloud computing. Whether they are replacing on-premise applications or traditional outsourcing models, rising costs and technical complexity have led organizations to look to third-party providers for some or all of their information technology needs. There can be significant economic efficiencies realized by moving to the cloud. But, just as important are potential benefits associated with data privacy and security, compliance, business intelligence and overall information governance improvements. Entities often struggle with establishing comprehensive information governance programs that capitalize on the value of their information assets while avoiding the risks of ungoverned information. Cloud providers are increasingly aware of these challenges and are shaping cloud solutions to overcome them. That said, there are also potential risks involved if an entity does not adequately consider the information governance implications, especially those involving electronic discovery, when moving to the cloud.

Cloud computing leverages economies of scale to reduce inefficiency and improve performance of IT operations. Essentially, there are three categories of cloud service models ' Infrastructure, Platform, and Software-as-a-Service, commonly referred to as IaaS, PaaS, and SaaS, respectively. Infrastructure-as-a-Service involves outsourcing of equipment or hardware to support IT operations. IaaS providers include Amazon Web Services, Rackspace, and Nirvanix, among others. PaaS also includes outsourcing of hardware and includes providers like Microsoft Azure and Google Apps. The difference between infrastructure- and platform-as-a-service is typically around control. With IaaS, a client is usually responsible for the configuration and maintenance of operating systems, whereas with PaaS, the service provider manages those responsibilities. Lastly, there is Software-as-a-Service, which is a software distribution model where applications or programs are hosted by a third-party provider and are made available over a network, usually the Internet. SaaS providers include SalesForce.com and CaseCentral, among others.

Most enterprises are finding that moving to the cloud may improve overall IT cost-effectiveness, but the shift raises a number of issues on the legal side of the house that often go unrecognized or unaddressed. Although much of the early discussion around cloud computing focused on availability and security, the conversation has now shifted to topics like custody and control, authenticity and legal preservation. The existence of vast amounts of electronically stored information (“ESI”) housed off-site, the potential lack of control of these data, and the challenges of preserving and processing data in connection with a lawsuit or regulatory investigation are enough to cause concern amongst even the most technically inclined corporate legal teams. However, when carefully considered, information governance policies and procedures can be developed to reduce the risks and realize the benefits of cloud computing.

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