Data Centers and Ai Cloud Infrastructure: How to Manage Legal Risks

A data center development project requires compliance with local zoning and land use laws, environmental permits, and construction regulations, and cloud infrastructure operators must assess the data protection laws of every jurisdiction in which their infrastructure is located, because the physical location of a server determines which data residency and localization requirements apply.

AI and related fields and compliance audit counsel can advise on the specific infrastructure development and regulatory requirements and develop the infrastructure regulatory compliance strategy.

Operational compliance for data storage and processing requires the implementation of technical and organizational measures satisfying the security requirements of applicable data protection laws, including the GDPR's requirement for appropriate technical and organizational measures and the CCPA's requirement for reasonable security procedures. A cloud operator storing or processing personal data on behalf of customers must enter into a data processing agreement that defines the permitted processing activities.

Artificial intelligence and cybersecurity governance counsel can advise on the specific data center and cloud infrastructure legal framework and develop the regulatory compliance and governance strategy.

Data security and cybersecurity legal consulting counsel can advise on the specific operational compliance obligations for data storage and processing and develop the data security and operational compliance strategy.

Cross-border data transfers from the European Economic Area to countries without an adequacy decision require the implementation of an approved transfer mechanism such as Standard Contractual Clauses, and a cloud operator routing EEA personal data through servers in non-adequate countries must ensure that these transfer mechanisms are in place before any data is transferred. Data localization laws in jurisdictions including China, Russia, and India require that certain categories of personal data be stored on servers physically located within the territory.

Cross-border data protection and global data compliance counsel can advise on the specific cross-border data transfer and localization requirements and develop the data transfer and localization compliance strategy.

The GDPR requires that organizations processing personal data at scale appoint a data protection officer and conduct data protection impact assessments before implementing high-risk processing activities, including the use of AI systems making automated decisions. The CCPA and CPRA require businesses to provide privacy notices disclosing the categories of personal information collected, the purposes for which it is used, and the categories of third parties with whom it is shared.

Consumer data protection and data privacy counsel can advise on the specific privacy and security obligations for data handling and develop the privacy compliance strategy.

Notification laws in all fifty US states, and sector-specific laws such as HIPAA for health data and GLBA for financial data, and the cloud operator and the customers whose data was compromised may each have independent notification obligations. The legal analysis requires an assessment of whether the breach resulted from a failure to implement the security measures required by applicable law.

Data breach and cybersecurity counsel can advise on the specific data breach and cybersecurity incident obligations and develop the data breach response and incident management strategy.

A service level agreement defines the uptime, performance, and support commitments that the cloud provider makes to its customers, and a failure to meet these commitments triggers the remedies defined in the SLA, which typically include service credits but not unlimited liability for consequential damages. Cloud service agreements almost universally include liability caps, and an enterprise customer that has not negotiated higher caps or carve-outs for data breaches may find that its contractual remedies are insufficient to cover actual losses.

Data breach litigation and privacy and cyber security crimes counsel can advise on the specific service disruption and contractual liability issues and develop the SLA enforcement and contractual liability strategy.

A well-drafted cloud service agreement addresses the scope of the services, the SLA commitments and remedies for breach, the data processing obligations and allocation of responsibility for compliance with data protection laws, the security standards the provider must maintain, the liability caps and carve-outs for data breaches, and the termination and data return provisions. Enterprise customers should ensure that their cloud agreements include a data processing agreement satisfying the requirements of applicable data protection laws.

Contract drafting and review and outsourcing contracts counsel can advise on the specific cloud agreement and risk allocation issues and develop the cloud service agreement and risk allocation strategy.

A data governance framework defines how data is classified, who has access to it, what security controls apply to each category, how long data is retained, and how data is disposed of when retention periods expire. AI-specific governance requirements include documentation of the data used to train AI models, bias audits, and accountability mechanisms, and these requirements are increasingly reflected in sector-specific regulations and the EU AI Act.

Data governance accountability and cybersecurity class action counsel can advise on the specific governance system implementation requirements and develop the data governance and ongoing compliance program strategy.