The limitation of liability clause in a contract for cloud computing is often listed in the overview of the potential risks of cloud computing (also at dataitlaw.com). From the perspective of a buyer, damages, resulting from using cloud, might be higher than a limit set in a contract.
The article gives a brief overview of case-law applicable for such situation. It is based on an interesting article by Timothy J. Calloway. The author divided these cases in two categories.
Early days of the internet
According to Calloway, in the early days of the Internet, courts usually refused to enforce contract with limitation of liability clauses. The examples of these cases (with the main issue of the case):
1. Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 99 (3d Cir. 1991)
“a clickwrap agreement was unenforceable due to lack of affirmative assent”
2. Foresight Res. Corp. v. Pfortmiller, 719 F. Supp. 1006, 1010 (D. Kan. 1989)
“there is some reason to question the enforceability of any such agreement”
3. Vault Corp. v. Quaid Software Ltd., 655 F. Supp. 750, 762-63 (E.D. La. 1987)
“finding that a shrinkwrap agreement was an unenforceable contract of adhesion under basic contract law”
However, the author describes a jurisdictional shift towards enforceability of these contracts. The examples of such cases (with the main issue of the case):
1. Treiber & Straub, Inc. v. United Parcel Serv., Inc., No. 04-C-0069, 2005 WL 2108081 (E.D. Wis. Aug. 31, 2005)
“court enforced a limitation on liability clause in UPS’s click wrap agreement, covering only 0.1 percent of the loss suffered by the plaintiff”
2. XPEL Techs. Corp. v. Md. Performance Works Ltd., No. SA-05-CA- 0593-XR, 2006 WL 1851703 at *7–8 (W.D. Tex. May 19, 2006)
“holding a choice of forum provision in a clickwrap agreement enforceable based upon evidence of assent through clicking”
3. i.Lan Sys., Inc. v. NetScout Serv. Level Corp., 183 F. Supp. 2d 328, 336–39 (D. Mass. 2002)
“stating that a limitation on liability clause in a clickwrap agreement should be enforceable”
4. Hotmail Corp. v. Van$ Money Pie, Inc., No. C-98 JW PVT ENE, C 98-20064 JW, 1998 WL 388389 at *6 (N.D. Cal. Apr. 16, 1998)
“upholding the validity of a clickwrap license as a whole”
The list is not final. For more cases, you may look at articles about the limitation of liability clause and click-wrap contracts in general.
It is difficult to determine the best solution. Without the clause, the price of cloud service might rise, since the risks, associated with using cloud, may get very high for cloud providers. Therefore, the best solution is to find a right balance in every specific situation. Unfortunately, it is not always possible to negotiate.
Thank you for reading the article. We would be happy to hear any comments, critique, opinions or experience about the issue, so do not hesitate to contact us.
Note: This article is intended as a summary of issues. Its purpose is not a to provide legal advice or create an attorney-client relationship between you and the author of this article.