Are Foreign Cloud Providers Exploiting Privacy Concerns?

Tech officials are warning House subcommittee members that foriegn cloud services providers are trying to exploit perceived weaknesses in privacy laws to drive business away from U.S. providers.

By Kenneth Corbin
Thu, July 26, 2012

CIO — A panel of technology officials Wednesday warned members of a House subcommittee about the challenges of overseas expansion confronting the burgeoning cloud computing market, including privacy and security concerns and efforts by foreign governments to protect domestic providers at the expense of U.S. companies.

Those two issues are closely coupled, the witnesses testified, citing a growing body of regulations that foreign governments, particularly in European Union member states, have enacted that restrict access for U.S. firms to their markets. Often, the regulations are proffered in response to highly publicized concerns that the Patriot Act and other laws give U.S. government authorities unfettered access to data stored with U.S. companies.

"There are major barriers to the competitiveness of American cloud companies internationally. Concerns about data privacy limit the willingness of foreign companies to do business with U.S. firms and threaten to exclude American companies from competing abroad," said Justin Freeman, corporate counsel for Rackspace.

[Related: Foreign Cloud Privacy Issues Dismissed by U.S. Officials]

[Related: Google Establishes Partner Program for Cloud Services]

"There's a perception, even if unfounded, that U.S. privacy protections are insufficient to protect the data which is stored either on U.S. soil or with U.S. companies," Freeman added.

Critics of those policies have charged that the alleged privacy and security concerns are presented as scare tactics, a red herring intended as a protectionist measure to stifle potential competitors to domestic companies. David Castro, a senior analyst with the Information Technology and Information Foundation, called those restrictive provisions a form of "cloud mercantilism" that threatens free and fair global trade in the IT sector.

"While fair competition is legitimate, some countries are using unfair policies to intentionally disadvantage foreign competitors and grow their domestic cloud computing industry," Castro said.

The Business Software Alliance (BSA), a leading trade group representing members of the software and hardware sector, recently issued a report, entitled "Lockout," that warned of the various practices that foreign nations have adopted that "discriminate" against IT providers.

Testifying before the House Judiciary Committee's Subcommittee on Intellectual Property, Competition and Internet, BSA President and CEO Robert Holleyman cited a Chinese policy requiring cloud providers wishing to do business in that country to form a joint venture with a domestic firm and agree to certain provisions about sharing source code.

At the other end of the spectrum, he pointed to comments that government officials in Germany have made calling for businesses and consumers to limit their use of cloud services to those stored within the country. Then Deutsche Telekom, with government backing, has been promoting a campaign to gin up privacy and security concerns about dealing with U.S. cloud providers associated with the Patriot Act, Holleyman said.

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