Cloud Computing: Innovation and Corporate Competitiveness

What is Cloud Computing?

At its simplest, cloud computing is a way of delivering computing resources as a utility service via a network, typically the Internet, scalable up and down according to user requirements. Such computing resources may range from raw processing power and storage, such as servers or storage equipment, to full software applications for the development of many different activities.

The spreading of PCs, tablets, smartphones and laptops into the market has been making cloud computing more present in people’ lives every day, even considering that sometimes they do not notice its existence. Do you know that when you use Gmail, Facebook or Instagram, you are navigating on cloud computing? That is because these are tools that allow the storage of a huge amount of information using remote access to photos, videos, and messages stored in the cloud.

In this business scenario, the entrepreneurs have also recognized the cloud computing as an essential tool for raising the competitiveness and the competitive advantages. Reducing costs is one of the biggest of the economists’/entrepreneurs’ objectives. They have started to look into the Information Technology (IT) areas new ways to reach this need, justifying the growing interest and adoption of cloud computing solutions. Market research from 2015 indicates the 72% of organizations have at least one application in the cloud or a portion of their computing infrastructure in the cloud. In addition, 56% of the decision-makers are still investigating where cloud use can be leveraged¹.

Cloud computing has made possible to store the companies’ information such as financial operations, contracts, clients’ data, suppliers’ data, employees’ data, and even highly classified data which could evolve trademarks, patent and trade secrets, into the internet, as digital corporate data. In doing so, the companies’ files that previously were stored on paper, sparsely or on applications installed in local computer networks, can now be accessed at anytime from anywhere around the world in a more organized and efficient way.

Cloud Computing Models

There are three main models of cloud computing. Each model represents a different part of the cloud computing stack.

IaaS – infrastructure as a Service: Infrastructure as a Service, sometimes abbreviated as IaaS, contains the basic building blocks for cloud IT and typically provides access to networking features, computers (virtual or on dedicated hardware), and data storage space. Infrastructure as a Service provides the highest level of flexibility and management control over the IT resources and is most similar to existing IT resources that many IT departments and developers are familiar with today. Currently, Amazon is the largest provider of that cloud model.

PaaS – Platform as a Service: Platform as a service remove the need for organizations to manage the underlying infrastructure (usually hardware and operating systems) and allow them to focus on the deployment and management of your applications. This increases the efficiency of corporate activity as it eliminates the concerns with resource procurement, capacity planning, software maintenance, patching, or any of the other undifferentiated heavy lifting involved in running your application. An example of this type is Microsoft Windows Azure.

SaaS – Software as a Service: So much popular, Software as a Service provides a completed product that is run and managed by the service provider. In most cases, people referring to Software as a Service are referring to end-user applications. With a SaaS, it is not necessary to think about how the service is maintained or how the underlying infrastructure is managed; only need to think about how to use that particular piece software. Dropbox and Gmail are examples of that cloud.

Cloud Computing Legal Issues

The tendency to discuss cloud computing issues has not been spread into the Brazilian legal system yet. Actually, the pilot countries that have most research about the subject are the countries that the information economy has already assumed a relevant role, such as the United States and the United Kingdom. The fact that the industrialized economies need a deep standardization for the use of information is justified by the central position that the information itself has been assuming on the production processes and on the society².

Suppose a company “A” that organizes sports events contracts the access to cloud computing from the company “B”. The company “A” stores one of its most valuable assets in the cloud: its organized and large client’s list. Six months later an employee from B leaves the company taking with him the client’s list owned by A. Soon after, the company “A” notices that it has lost US$ 500,000.00 because the “B” old employee has opened a company similar to A. How to resolve this conflict in the Information Era? The major part of the laws currently into force could be applied to cloud computing. However, there are concepts and proper rules of cloud computing, such as privacy and data protection issues that deserve a specific and deep study concerning the matter that is not fully defined in traditional law.

Then comes the first question: The cloud computing is the object of what kind of contract?

The Law Project n. 5.344/13, which had the objective to regulate the cloud computing matter, was achieved in 2015³. The project was seen as a legal improvement considering the relevance of this kind of contract on the corporate scenario and many questionings that surround the matter. However, a major part of its terms was only replicating the rules for Deposit Contracts established in the 2002 Brazilian Civil Code.

On the other hand, the Brazilian Chamber of Deputies is discussing the Complementary Law Project n. 171/2012, which seeks to include cloud computing on the list of taxed services by the ISS (Services Tax)⁴. The Brazilian Federal Revenue (RFB) has already a position about the matter, expressed on the Divergence Solution n. 6 from June 3^rd, 2014, in the sense that the cloud computing activity has the nature of a provisioning of services and not of renting of movable property, as it has been defended by the taxpayers⁵. These controversies show that the absence of attention to the matter generates many problems not only for the Civil and Company Law, but also to Tax Law.

These questionings become important for the analysis of the obligational relation between the contracting parties and to the main and the instrumental duties that must surround the contract such as the obligation to cryptography the data, to maintain confidentiality and trust. In addition, it is possible to think of ancillary contracts to the cloud computing contract, such as the Service Level Agreements – SLA and even Insurance Contracts concerning data protection.

In this sense, a deep analysis of cloud computing contracts is necessary to assure the rights of users and providers concerning the protection of data, intellectual property, the applicable law and the jurisdiction for conflicts resolution. As the Economic and Competition Law concept, a disruptive innovation is the one that drastically disrupts markets, creating new business models and modifies the way that traditional activities are done⁶. Christopher Millard⁷ says that cloud computing can be considered a disruptive innovation such as the cheap electricity was a century ago at the English Market. It is not possible to deny that cloud computing represents a paradigm change on the providing of traditional computer services, it updates the way that Information Technology is invented, developed and sold.

[1] IDG ENTERPRISE MARKETING. Cloud Computing Survey 2015. 17 de novembro de 2015. Available in <http://www.idgenterprise.com/resource/research/2015-cloud-computing-study>. Accessed on Oct. 8^th, 2016.

[2] DONEDA, D. Princípios de Proteção de Dados Pessoais. In: LUCCA, N; SIMÃO FILHO, A; LIMA, C. (coords). Direito & Internet III – Tomo I: Marco Civil da Internet (Lei n. 12.965/2014). 1. ed. São Paulo: Quartier Latin, 2015. p. 370.

[3] BRASIL. Câmara dos Deputados. Projeto de Lei nº 5.344/2013. Available in <http://www.camara.gov.br/proposicoesWeb/fichadetramitacao?idProposicao=570970>. Accessed on Oct. 8^th, 2016.

[4] BRASIL. Câmara dos Deputados. Projeto de Lei Complementar nº 171/2012. Available in <http://www.camara.gov.br/proposicoesWeb/fichadetramitacao?idProposicao=543746>. Accessed on Oct. 8^th, 2016.

[5] BRASIL. Receita Federal. Solução de Divergência COSIT nº 6 de 03 de junho de 2014. Available in: <http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=54319>. Accessed on Oct. 8^th, 2016.

[6] OECD – Organisation for Economic Co-operation and Development. Directorate for Financial and Enterprise Affairs. Hearing on Disruptive Innovation. Issue Paper by the Secretariat. 16-18. Junho. 2015. Available in: <http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP(2015)3&docLanguage=Em>. Accessed on Oct. 8^th, 2016.

[7] MILLARD, Christopher. Cloud Computing Law. 1. ed. Oxford: Oxford University Press, 2013.