Tim Cowen Sidley Austin LLP. Legal issues, technology risks, and cloud computing.

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1 Tim Cowen Sidley Austin LLP. Legal issues, technology risks, and cloud computing.

2 Outline Current legal issues relating to Cloud Computing. Context: the increasingly global technology stack. Emerging risks in the technology stack. Cloud Computing dynamics may embed risk. Next steps.

3 Current legal issues EU Cloud Partners: government aggregation of demand for Cloud Computing. Definition and specification? IT bought in bundles, By departmental need, Meeting local or national departmental requirements/business process requirements, Coordination and value for money and SME access issues arise. Public procurement: laws designed to secure the single market and a cross border level playing field for all suppliers. Member States aggregating limited lists of standards/suppliers incompatible with underlying single market objectives? 3 Top customer concerns (IDC/Gartner): data protection, data security and customer dependency. Addressed how? Risk in layered ecosystems : limitation of liability by contract and the dead hand of regulation may embed risk within the layered technology stack.

4 Context: technology ecosystems Worldwide Neural Net? Competitive ecosystems? Spaghetti? Giant Circuit Board? Interdependent layered systems? Lasagne?

7 Risks in the Technology Stack Competitive markets allocate risk and profit and drive efficiency. Typical commodity economic model. IP protocol is best efforts ; telecoms protocols not much better. Technology standards not risk allocation. Technology Players use interdependence, economic complimentarities, externalities and exploit behavioural irrationalities. i.e. switching costs, status quo bias, risk and loss aversion, etc... to avoid risk and commoditisation. Technology stacks imperfectly allocate risk. Technology offerings build layers, overlay risk, and create dependency not interoperability at different points in the levels. Cloud Computing Dynamics may embed risks, or risk limitations, in contracts affecting many players in many supply chains globally. e.g. dropbox/amazon. Limitation of liability by contract, historic market structures, and the dead hand of regulation within the technology stack may well create emerging risks to the system and add inefficiency and overcapacity. Insurance may be part of the solution but regulatory reform is needed.

10 Next steps? Data protection and data security: creating coherence through the Regulation of Data Protection? Creating a new trade barrier outside the EU? EU Cloud Partners: common government needs/define common requirements. OJ and procurement process may help here...but more to do on requirements definition. Commission Guidance on specifications under public procurement law? Customer dependency and interoperability. Switching costs are partially addressed through open standards. Data portability? Technological fixes such as emulation require regulatory oversight of IPR enforcement....however, there is a need to understand and address the emerging interdependence risk... Insurance may be part of the solution.

12 World Offices BEIJING GENEVA NEW YORK SYDNEY Suite 608, Tower C2 Oriental Plaza No. 1 East Chang An Avenue Dong Cheng District Beijing China T: F: BRUSSELS NEO Building Rue Montoyer 51 Montoyerstraat B-1000 Brussels Belgium T: F: CHICAGO One South Dearborn Chicago, Illinois T: F: DALLAS 717 North Harwood Suite 3400 Dallas, Texas T: F: FRANKFURT Taunusanlage Frankfurt am Main Germany T: F: Rue de Lausanne 139 Sixth Floor 1202 Geneva Switzerland T: F: HONG KONG Level 39 Two Int l Finance Centre 8 Finance Street Central, Hong Kong T: F: HOUSTON JPMorgan Chase Tower 600 Travis Street Suite 3100 Houston, Texas T: F: LONDON Woolgate Exchange 25 Basinghall Street London, EC2V 5HA United Kingdom T: F: LOS ANGELES 555 West Fifth Street Los Angeles, California T: F: Seventh Avenue New York, New York T: F: PALO ALTO 1001 Page Mill Road Building 1 Palo Alto, California T: F: SAN FRANCISCO 555 California Street San Francisco, California T: F: SHANGHAI Suite 1901 Shui On Plaza 333 Middle Huai Hai Road Shanghai China T: F: SINGAPORE 6 Battery Road Suite Singapore T: F: Level 10, 7 Macquarie Place Sydney NSW 2000 Australia T: F: TOKYO Sidley Austin Nishikawa Foreign Law Joint Enterprise Marunouchi Building 23F 4-1, Marunouchi 2-chome Chiyoda-Ku, Tokyo Japan T: F: WASHINGTON, D.C K Street N.W. Washington, D.C T: F: Sidley Austin LLP, a Delaware limited liability partnership which operates at the firm s offices other than Chicago, New York, Los Angeles, San Francisco, Palo Alto, Dallas, London, Hong Kong, Houston, Singapore and Sydney, is affiliated with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership (Chicago); Sidley Austin (NY) LLP, a Delaware limited liability partnership (New York); Sidley Austin (CA) LLP, a Delaware limited liability partnership (Los Angeles, San Francisco, Palo Alto); Sidley Austin (TX) LLP, a Delaware limited liability partnership (Dallas, Houston); Sidley Austin LLP, a separate Delaware limited liability partnership (London); Sidley Austin LLP, a separate Delaware limited liability partnership (Singapore); Sidley Austin, a New York general partnership (Hong Kong); Sidley Austin, a Delaware general partnership of registered foreign lawyers restricted to practicing foreign law (Sydney); and Sidley Austin Nishikawa Foreign Law Joint Enterprise (Tokyo). The affiliated partnerships are referred to herein collectively as Sidley Austin, Sidley, or the firm.

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