The Cloud: What goes up must come down

by Field Law
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A recent Gmail outage reminds us that the cloud is not always up. What goes up must come down. Servers crash. Companies go bankrupt. When a cloud service provider fails or the technology falters, what happens to the servers that house the data? Think of where your cloud-based data is hosted… and then try to imagine what it would take to get that data back. In these cases, questions of jurisdiction and bankruptcy law quickly come to the fore.

In the ongoing case involving Megaupload, a court battle is being fought over the servers: who will take conduct of them and what’s to be done with the data on those servers?

The Canadian case of Stanford International Bank Ltd. (Syndic de), 2009 QCCS 4106 (CanLII), also involved a dispute over servers of a bankrupt company. In the Stanford International case, the bankrupt company was offshore. A liquidator acting for receivers based in Antigua sought an order from a Canadian court to confirm the winding-up order. However, the court objected when it discovered that the servers, located in Canada, had been erased by the Antiguan receivers, the data had been copied, and the copies were stored in Antigua. Essentially, the Antiguan receivers removed all the electronic data from the Canadian servers to Antigua, thus removing the data from the jurisdiction of Canadian courts and regulatory authorities.

The number of servers in that case was small enough to permit copying; compare that to the Megaupload case which involves some 1100 servers. No-one wants to incur the cost to house and maintain such a large number of servers, so they are in legal limbo until the court makes a ruling.  

In some cases, the data sits on identifiable servers - you could in theory (if you know where the server farm is located) point to a box and say, that’s where my data is stored. In other cases, such as Amazon’s “Elastic Compute Cloud” Service, high levels of redundancy mean the same data may appear in multiple instances across multiple servers, located in multiple geographical areas. It would be impossible even in theory to determine where the data is physically located. When negotiating mission-critical cloud-computing agreements, take time to consider the issues of what happens when the cloud comes down, and get proper advice for a soft landing.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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