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Nearly every website, app or online service posts a set of Terms of Use outlining company policies for users (sometimes called Terms of Service) (“Terms”), but many companies do not know if their Terms are enforceable in court. Do you? Online platform use has increased quickly, and companies have tried a variety of methods to present these Terms to users. Not every method works—some companies have been dragged into unfavorable litigation when courts hold their Terms unenforceable, a situation which can result in a tremendous drain on time and resources. Today, appropriate website design and Terms content are crucial for addressing the enforceability of your company’s policies, reducing uncertainty, and minimizing future costs.

I. Importance of Terms of Service

Clearly communicating Terms of Use to users is critical to reducing liability and demonstrating transparency to customers. Terms of Use outline a company’s expectations and the types of penalties that can be imposed for violations. If a third party brings a claim against your company based on their or another’s use of your service, Terms can serve to protect your interests and reduce litigation costs by designating on the front end which state’s laws will apply or possibly requiring arbitration. When properly coordinated with a Privacy Policy, your company can also minimize liability involving use by children, copyright or intellectual property infringement, and the performance or security of your service.

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Last year we wrote about the EU’s adoption of an individual’s “right to be forgotten”, which gives Europeans the right to require search engines to remove information about them from search results for their own names, if the information is inaccurate, inadequate, irrelevant or excessive. We also wrote that neither Congress nor the U.S. courts have shown much of an appetite for adopting a stance similar to the EU, so there was little chance that the right to be forgotten would be established in the United States. This is still the case, but there appears to be some (albeit small) momentum building among consumer groups and companies to take steps toward the EU approach.

On July 7th, a consumer advocacy group, Consumer Watchdog, filed a formal complaint with the Federal Trade Commission, arguing that Internet users in the United States should also have a similar right as EU citizens have available to them. Consumer Watchdog argues that Google’s current practices are both “unfair and deceptive, violating Section 5 of the Federal Trade Commission Act.” The letter urges the FTC to “investigate and act” on Google’s practices.

Separately, Google already has taken steps in the U.S. to remove certain types of information at the request of users. However, the types of information are fairly limited and in most cases it is very clear when the information should be removed in compliance with Google’s policies. For example, social security numbers can be removed. Google also has a policy that permits the removal of offensive images, which is more subjective but it is set at such a base level of “offensive” that it still offers a fairly bright line test (e.g., child sexual abuse imagery and, more recently, “revenge porn”). At the time of our post last year, Google had received 91,000 requests to remove links in the EU. Since then Google has evaluated over 1,000,000 URLs, which does not include the number of requests from individuals that require more information in order for Google to even perform the evaluation. The volume of links that Google is evaluating is not slowing down, and it would no doubt spike tremendously if the “right to be forgotten” was implemented in the United States.

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On 24 June, the UK’s National Outsourcing Association hosted its annual symposium in London.  This is one of the best attended and most prestigious sourcing industry events in the UK, and is well attended by suppliers, customers and advisors.

Pillsbury sponsored this year’s event, and hosted a breakout session on transition and change in outsourcing, chaired by Aaron Oser, and Tim Wright.  Guest speaker was Andrew Cubitt, Senior Commercial Lead at Transport for London.  The session focused on how customers’ and suppliers’ priorities during a transition programme can often conflict in respect of the key matters of scope, pricing and performance, and the challenges that arise from such conflict.  Working in break-outs with the attendees, the Pillsbury team identified several key recurring themes such as relationship breakdowns exacerbated by poor governance and challenges in balancing incentivisation with punishment.

More information about the event, including the slides prepared by the Pillsbury team for the transition session and the materials prepared by the other symposium speakers on topics such as robotics and digitalisation, can be found via this link: http://www.noa.co.uk/event/noa-symposium-2015/.

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There is no doubt cloud computing has delivered multiple benefits to the IT organization. However, without proper management and controls, these benefits could become a non-trivial expense to the organization. In a Wall Street Journal article earlier this year The Hidden Waste and Expense of Cloud Computing, Clint Boulton outlines the pitfalls of buying too much and not tightly controlling what is bought. ISG just released a Cloud Comparison Index which is described in Stanton Jones’ blog posting and makes many of the same points.

As Boulton rightly points out, after the cloud purchase is made, another big cost management opportunity remains: managing demand and shutting down compute resources when they’re not being used. Paying for unused resources can turn a good financial decision into a bad one.

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On June 3, 2015 the State Department’s Directorate of Defense Trade Controls (DDTC) and the Commerce Department’s Bureau of Industry and Security (BIS) published proposed regulations which would change the definition of the term “export” in each agency’s regulations to allow cloud storage of information in servers located in foreign countries if the information is appropriately encrypted. These changes, if ultimately adopted, would substantially alleviate concerns that companies seeking to take advantage of the efficiencies of cloud computing could run afoul of export controls. However, it would still be important for cloud users and cloud storage providers to ensure that appropriate encryption is being used.

For more information, please see our Client Alert, Proposed Change to Export Controls Would Allow Use of the Cloud for Encrypted Data.

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This is the second of two postings that discuss SaaS pricing. In the earlier posting, we discussed the underlying economics of SaaS solutions and their implications for how SaaS services are priced. This posting identifies some key considerations in negotiating pricing for SaaS services that can help lower total subscription costs.

Committed Growth vs. Incremental Purchases

As a general matter, the higher the volume you commit upfront to a SaaS provider over the contract term, the higher the discount you can negotiate. However, this carries a risk that your projected growth may not materialize and you’ll wind up paying for a higher volume of service than you need. As a result, it is important to use the negotiation process to assess the level of upfront commitment to future growth that achieves the optimal balance between high discount levels and the risk of paying for more than you need.

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Software as a Service (SaaS) is growing rapidly as an alternative to licensing on-premises software for corporate customers. As reported by Forbes earlier this year, analysts are forecasting that global SaaS revenues will reach $10.6B in 2016, representing a 21% increase over projected 2015 spending levels. By 2018, 27.8% of the worldwide enterprise applications market is projected to be SaaS based.

SaaS solutions are attractive to customers because they substantially reduce the upfront investment and risk associated with licensing and implementing on-premises software and avoid the ongoing costs of maintaining the infrastructure and implementing upgrades for the licensed software. In a SaaS solution, those costs and risks are transferred to the supplier.

SaaS combines elements of software licensing, outsourcing and hosting into an integrated solution. The pricing models for SaaS solutions have certain distinct characteristics that are driven by the economics of those solutions and differentiate SaaS pricing from pricing models for software licensing, outsourcing and hosting services.

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As more and more companies of all sizes ranging across a wide spectrum of industries have been exposed to network and data security breaches in recent years, the market for insurance products dedicated to cover cyber risks has grown just as fast. With policies sold under names like “cyberinsurance,” “privacy breach insurance,” “media liability insurance” and “network security insurance,” the market for this coverage often seems chaotic, with premiums and terms varying dramatically from one insurer to the next.

For more information, please read our Client Alert.

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By Richard E. Nielsen


On May 15, 2015, the New York Department of Taxation and Finance determined in Advisory Opinion TSB-A-15(2)S that the sale of certain cloud computing services were not subject to New York State sales and use tax.  The Advisory Opinion is noteworthy because of the Department’s position on the taxability of licensing prewritten software. 

  1. The Opinion was based on the unique facts of the taxpayer. The taxpayer (“Supplier”) offered Software as a Service (“SaaS”).  No specific servers of the Supplier were dedicated to any particular customer, the customers had no physical access to the servers, and the Supplier decided which of its servers would be used for each customer.  Customers were not charged by the Supplier for operating system software, and all charges were based on hourly rates and the amount of computing power consumed.  Customers were not charged any fixed fees for the service.
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You’ve managed to agree the deal; all that’s left is to sign the documents.  That’s the easy bit, correct?  So you might think, but it is important to be careful not to slip up at this final stage, particularly when contracting with foreign entities and considering using electronic signatures.

Which law applies when contracting with overseas entities?

In the recent case of Integral Petroleum SA v Scu-Finanz AG [2015] EWCA Civ 144 the English Court of Appeal considered whether a supply contract governed by English law and entered into by two Swiss oil companies was binding.  The defendant successfully argued that the contract was not binding as it had been signed only by one representative of the Swiss company, rather than two representatives, as required by Swiss law.

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