India: Cloud Services: Recent Developments And Anticipated Laws

With the rapid proliferation of high-speed internet and smart devices globally in the past few years, including in India, the internet space has seen an advent of thousands of internet-based 'cloud' services that are being used by individuals, corporations and even Government departments.

The Department of Telecom (DoT) envisaged this growth in the National Telecom Policy 2012 and had expressed the need for new policy initiatives and a framework tailored for propelling the Indian cloud services sector in line with international best practices. In this regard, upon receiving a reference from DoT, the Telecom Regulatory Authority of India (TRAI) issued a consultation paper on "Cloud Computing" dated 10 June 2016 (Consultation Paper), inviting public comments on its various proposals and queries. This Article navigates around various issues pertaining to the basic framework of the proposed legislation on Cloud Computing in India.

What is cloud computing?

Among the several definitions of cloud computing proposed globally, TRAI in its Consultation Paper has referred to the definition adopted by the U.S. Department of Commerce, according to which cloud computing is a model enabling ubiquitous network access to a shared pool of configurable computing resources. Therefore, cloud services are essentially internet-based services which the customer may use on connected devices, unlike in the traditional model, where for example a software could be used only from the device it was physically installed.

Some examples of cloud services used by individuals are online data storage services like Google Drive, social media services like Facebook, web-based emails like Gmail, online shopping portals like Amazon and mobile wallets like PayTM. Importantly, corporations use cloud-based infrastructure, platform and software services such as Office 365, VMware, Amazon Web Services and data centers.

In the cloud service environment, there are three main stakeholders: the cloud service provider (CSP), which could be an individual or a corporation, the customer (either individual or corporation) and the telecom service provider (TSP) / internet service provider (ISP).

However, presently there is no exclusive law in India on cloud computing governing these stakeholders, though some relevant legal aspects are covered under certain existing laws.

Existing legal framework and amendments proposed by TRAI

The key existing regulations, which TRAI now seeks to amend are discussed below. 

Privacy and data security

Since cloud services are internet based, customers are required to provide various types of data for authentication and use. The CSPs can also collect data during the customers' use of the services. Privacy of such customer data has been a key concern among customers, governments and even CSPs.

In India, overarching principles on right to privacy are contained under Article 21 of the Constitution of India. Concurrently, more specific obligations on privacy of customer information and security of customer data are provided under the Information Technology Act, 2000 (Act), read with the Information Technology (Reasonable Security Practices & Procedures and Sensitive Personal Data or Information) Rules, 2011 (DP Rules).

The IT Act and DP Rules obligate individuals and body corporates to maintain privacy of 'personal information' (PI) and 'sensitive personal information or data' (SPDI), and to implement reasonable security practices for security of data as per the specified technical standards. PI includes information such as name, gender and location, which either directly or in combination may identify a person. SPDI includes sensitive data such as financial records, medical history, passwords and PINs. For violations by individuals or body corporates, civil and criminal remedies are also stipulated under the IT Act.

Amendments proposed by TRAI:

Considering the wide-ranging categories of data that customers provide to and store on cloud services, TRAI has recognized that the scope of privacy must extend beyond PI and SPDI. Further, in order to make Indian CSPs attractive to foreign customers, TRAI has proposed that the current privacy and data protection standards for PI and SPDI must be at par with international standards. As additional deterrents, the meagre fines under the IT Act and DP Rules are also proposed to be increased, along with imprisonment in case of grave breach of privacy or data security involving highly sensitive data.

Cross-border jurisdiction

Extra-territorial applicability of Indian law against violations of data security, privacy and intellectual property rights has been a cloudy area owing to the cross-border nature of internet and cloud services.

Currently, the Civil Procedure Code 1908, applies the principles of 'place where cause of action arose' and 'residence of the defendant' to determine jurisdiction. However, in the cyber space, sometimes the location of the server (on which customer PI or SPDI resides, or through which infringing material is passed) is itself indeterminate and may be changed by the CSP at any time.

Further, even though the IT Act may apply to offences committed by an Indian outside India or by any person outside India using a computer resource located in India, the TRAI has deemed this to be incomprehensive. As an example, it is unclear whether and how the IT Act may apply in case a foreign CSP, with servers outside India but providing services to customers in India, breaches the privacy and security of data of Indian customers.

Amendments proposed by TRAI:

To address the foregoing issue, TRAI proposes a unilateral legislation which shall allow Indian laws and jurisdiction to apply outside India in respect of cloud services used by any Indian and over all Indian data on the cloud anywhere. Moreover, certain data such as tax returns of Indians may be required to stay within India. To enable customer awareness, each CSP will be required to disclose where the customer's data will be stored and what laws regarding disclosure to and access by third parties may apply relating to such data.

Interception and monitoring

Messages and information transmitted via internet are in some cases critical to national security. Thus, ISPs / TSPs under their licensing conditions, and 'intermediaries' (like CSPs, ISPS / TSPs) under the IT Act, are required to allow security agencies to monitor, intercept and block messages. The ISP / TSP licensing conditions also specify technical requirements for such facilities.

Amendments proposed by TRAI:

While recognizing monitoring and interception as extremely important for protection of national boundaries, sovereignty and security, TRAI has also deemed the current technical standards as outdated. It has proposed that new technical standards must be formulated for monitoring, interception and blocking facilities to be provided by CSPs. TRAI has also asked whether such facilities should be made available even outside India.

Quality of Services

The TSP / ISP licensing conditions also mandate quality of services (QoS) parameters (as specified by the TRAI) for providing internet services. However, no such QoS parameter is mandated for CSPs. QoS for cloud services are mainly governed by the agreement between the customer and the CSP.

Amendments proposed by TRAI:

According to TRAI, formulating a QoS framework with parameters for minimum uptime / availability, scalability, performance, security, billing and metering accuracy, etc. is a must for ensuring customer satisfaction because of the growing dependency of consumers on an increasing variety of cloud services. TRAI has also sought the industry's opinion on what such parameters should be.

Interoperability

Though most cloud-service platforms are designed in compliance with one or more industry standards, there is no law mandating interoperability among various cloud services.

Amendments proposed by TRAI:

TRAI has stated that all CSP services must be mandatorily interoperable with each other so that customers are able to migrate their entire data seamlessly from one CSP to another. This is seen by TRAI as a means to promote competition and sectoral growth and to prohibit monopolies or vendor lock-ins. TRAI also proposes setting comprehensive interoperability standards for various categories of cloud services.

Licensing

ISPs and TSPs are subject to a licensing regime even though they may be 'intermediaries' under the IT Act and exempt from certain liabilities. However, no licensing framework applies to CSPs.

Amendments proposed by TRAI:

TRAI examined the definition of 'Telegraph' under the Indian Telegraph Act, 18851, which, according to TRAI, suggests that cloud services are akin to operating a 'telegraph'. TRAI thus raised a query whether a new type of license (either under the Indian Telegraph Act, 1885, or a new licensing regime altogether) should be framed for CSPs.

Khaitan comments

The cloud computing sector is already a multi-billion industry globally and is growing exponentially in India. TRAI taking cognizance of the various issues that need to be addressed for the smooth growth of this sector is significant, because the laws and policy framework need to keep up with technological advances in an industry like cloud computing. However, a balance ought to be struck between regulation and industry growth.

Besides, a close collaboration is required with the Ministry of Information Technology and other Government departments to implement any of the proposed changes. For instance, the changes to privacy and data security laws should ideally be addressed and incorporated in the draft Right to Privacy Bill so that a horizontal legislation can be put in place as opposed to amending sectoral laws. CSPs will need to consider the cost of any additional technical requirements for privacy / data security. 

Regarding the proposed data residency restrictions, several stakeholders in their response to the Consultation Paper have stated that such restrictions are contrary to economies of scale and against the spirit of cloud services. Given the resistance, an exception to this restriction may be created on the same lines as in the US-EU Privacy Shield – that is, for recipient jurisdictions offering an adequate level of data protection.

Though a sweeping legislation imposing extra-territorial Indian jurisdiction over any Indian data and over any Indian using cloud services will be a landmark development, but how the Government may practically enforce this right overseas is ambiguous. Similarly, cross-border requirements of interception and monitoring should ideally be governed by the Mutual Legal Assistance Treaties, wherever applicable. Interestingly, certain Indian CSPs have strongly advocated that all CSPs providing services within India should set up servers within India, thus negating the issue of extra-territorial jurisdiction and cross-border monitoring and interception. If implemented, it may to some extent derail competing CSPs outside India who do not wish to set up server in India.

Mandatory QoS parameters and interoperability requirements have also been seen by the industry as overreaching. Many stakeholders have suggested that QoS (for both paid and unpaid services) should be determined by free market mechanisms and agreement between customer and CSPs. Such stakeholders also seem skeptical about compulsory interoperability at this early stage of the industry, as it may curtail innovation and industry growth, and perhaps may be required only at a later stage if similar efforts are made in other parts of the world. It is also debatable whether it is within TRAI's ambit to formulate parameters applicable to entities that are not subject to any license. A new licensing framework for CSPs has already seen strong opposition as an additional barrier to entry.

In fact, nearly all the issues discussed above will most likely be resolved if a binding international framework is established, like the WIPO, for CSPs and cloud services. TRAI has recognized this, but efforts for such a framework are currently fragmented and seem a few years away from formalization.

Footnote

1 The definition of "Telegraph" under the Telegraph Act includes any apparatus capable of use for transmission or reception of signals of any nature by electromagnetic emissions.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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