I've been talking quite a bit about whether or not (not) users of cloud services can prove compliance with security, privacy and e-discovery laws. (Blog piece here. Alert issue here.)

Now a story at The Register has me thinking about yet another issue--the inescapable question of financial stability.From the story:

Finally there is the question of the financial stability of the service provider. And more importantly what happens if they go out of business suddenly or simply choose not to carry on providing the Cloud / SaaS service? Essentially this comes down to questions of how can any data and other valuable information be retrieved at a forced end of service or when the customer simply decides to terminate the arrangement? Can data be retrieved simply and easily? How will the service provider ensure that it removes such data, and any backup / replica copies from systems and ensures that these are either destroyed or placed securely in storage where they cannot be accessed?

Although the security industry is overperforming, as compared to the rest of the IT market, the flagging global economy has spurred several high-profile mergers of security companies, and resulted in the abandonment of some security products/services. (There will be a session about the costs/benefits of vendor consolidation at CSI SX.) The big cloud providers, like Amazon and IBM, are probably safe, but cloud computing is still a new technology and the possibility of a budding cloud provider going under before it blooms is quite real.

So what happens to their servers if they go out of business? E-discovery and data retention laws may require that data be retained for up to three years--and we're not just talking about data protected by privacy law, we're talking about logs and metadata. No cloud providers that I'm aware of share logs and metadata with their customers in the first place--will a defunct cloud provider turn that over to their customers?

Existing law doesn't fully address these new e-discovery questions, but there is, however, the case of Flagg vs. ?? set legal precedent that a party's obligation to produce electronically stored information cannot be avoided simply by storing it with a third party. It's possible that cloud users could find themselves legally obligated to present data that they can't provide.

Nolan Goldberg, associate at Proskauer Rose LLP, will be discussing e-discovery and cloud computing at CSI SX, where he will be joined by Tanya Forsheit, partner at Proskauer Rose, who will discuss the international implications of never knowing where on earth one's data is stored at any given moment. Call me a dweeb, but I'm excruciatingly excited to see that one.