Cloud Computing and Virtual Data Concerns for Employers

Cloud Computing and Virtual Data Concerns for Employers

By: Jonathan Krol

Businesses across all sectors use technology to maximize efficiency and reduce overhead. One increasingly popular cost-savings strategy for data storage is “cloud computing”—the use of a virtual data platform that permits users to access information stored not in a file cabinet or on a server, but instead through the internet. This approach allows for authorized users to access information remotely and without the need for mainframe hardware. Like most new technologies, the benefits do not come without concerns; in this case, inherent risks include unauthorized usage and breaches in security. In addition, the prevalence of cloud computing will certainly give rise to unique legal issues pertaining to privacy, access, and ownership of information.

In a case that appears to be one of the first of its kind, a Southern District of New York judge found that an accounting firm could be liable for conversion for denying a former employee access to the ex-employee’s client files that were stored on a “cloud” database platform. In Schatzki v. Weiser Capital Management, LLC, No. 10 Civ. 4685, 2013 WL 6189465 (S.D.N.Y. Nov. 26, 2013), a financial planner named Debra Schatzki sued her former employer for taking her electronic client files. Schatzki stored client files electronically through a client management program licensed to her. When she joined Weiser Capital Management as an employee, she brought the software license and client files along with her. She was terminated a few years later, and the Weiser accounting firm copied Schatzki’s client list and changed the passwords on the software account, effectively locking Schatzki out of the database.

In denying Weiser’s motion for summary judgment, the court found that Schatzki could maintain a claim for conversion for acts that blocked her from accessing her electronic data. Shatzki alleges that Weiser then contacted her clients using information stored in the electronic database in order to take business from her. Presumably, Schatzki’s damages will be based on these allegations.

With the recent popularity of cloud computing and virtual data storage, we are sure to see an increase in the number and scope of litigation over information stored on the cloud. Courts have already encountered trade secret/misappropriation claims in this context. See, e.g., Epicor Software Corp. v. Alternative Technology Solutions, Inc., No. SACV 13–00448, 2013 WL 3930545 (C.D. Cal. June 21, 2013) (finding that plaintiff failed to establish a trade secret claim under state law because plaintiff did not allege facts sufficient to find the IP address and port number of its cloud server were a trade secret, or that sensitive information on the cloud server was misappropriated). Similar cases will test the applicability of longstanding legal doctrines to novel issues raised by virtual information storage.

This cutting-edge area of the law is fast expanding. Virtual data privacy guidelines have yet to be well-established but will likely take form in 2014 and beyond. Employers would be wise to have written protocol with respect to virtual cloud ownership and access rights for both current and former employees to decrease an employer’s exposure to litigation.

If you have any questions regarding Cloud computing or wish to have a copy of the opinion or otherwise have a question regarding issues of employment practices liability or intellectual property, internet & technology liability, please feel free to call any of our Practice Group Leaders.

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