EU Data Act: update on draft SCCs for cloud switching

The Data Act is designed to enhance the EU’s data economy by making data, particularly data generated by internet-of-things devices, more accessible and usable. Its primary goals are to foster a competitive data market, encourage data-driven innovation, and increase data availability. The Data Act strives to ensure fairness in the allocation of data value among all actors in the data economy, clarify who can use what data and under which conditions, and establishes general conditions for data sharing between businesses and public sector bodies.

Additionally, it aims to protect companies from unfair contractual terms related to data sharing and includes measures to increase fairness and competition in the European cloud market.

In November 2024, the expert group of the European Commission met with businesses, policymakers, lawyers and industry experts to discuss their first draft SSCs under the EU Data Act.

From the beginning, the expert group emphasised that these SCCs are intended to be incorporated into existing cloud computing contracts. They are drafted as a consistent set of standards, and businesses deviating from individual clauses should seek legal advice to ensure this does not cause issues with the overall framework.

On the material scope, the expert group pointed out that data processing services shall include without limitation cloud computing services.

Based on the new regime for switching, which is set out in Chapter VI of the EU Data Act, the expert group defines four scenarios for termination:

Event A: successful switching

In this scenario, the agreement is terminated upon the successful completion of the switching process. This means that once the data has been successfully transferred from the source provider to the destination provider, the agreement is considered terminated. The provider must notify the customer that the contract is terminated, but this notification is merely informative as the agreement is already terminated. No formal termination notice or procedure under the agreement is required.

Event B: request for erasure

If the customer does not wish to switch but requires all data to be erased, the agreement will be terminated at the end of the maximum notice period. The provider must notify the customer that the contract is terminated. Similar to event A, this notification is informative, as the agreement is already terminated. The provider cannot charge any fees under the terminated contract, even if there is a delay in notification.

Event C: data availability

In this scenario, the customer wishes to extend the availability of their data from the source provider for a longer period for example to have it backed-up, whether or not this is preceded by service switching or by a simple service termination without any switch. Therefore, the customer needs only a service of limited functionality. This new scope of services requires a new agreement or an amendment to the existing agreement. The parties should agree on an alternative data retrieval period, which would start at the end of the contractually agreed period of data retrieval. The original agreement will be terminated once the customer has, at their sole discretion, accepted the solution and confirmed the termination of the original agreement.

This scenario is not expressly mentioned in the Data Act but has been rightfully identified and considered by the expert group. 

Event D: fixed-term contracts

This scenario is also not explicitly mentioned in the Data Act itself: a fixed-term contract expires before the switching process has occurred or has been completed. If the switching ends before the scheduled term, the agreement will also expire, but there may be early termination penalties. If the switching process is not completed by the expiry date, the customer must notify the provider, or the data will be erased.

The termination clause stipulates that even in cases of termination subject to statutory law, the agreement together with the agreed services and functions will not be terminated or expire before any of the above events have clearly occurred.

Extension of agreement

If the switching process is unsuccessful, the parties shall be obliged to extend the agreement and shall cooperate in good faith to resolve the issue. This shall include identifying and resolving the matter to improve the switching process, enabling a timely transfer of data, and maintaining continuity of the services. The expert group suggests submitting a complaint to the competent authority under the Data Act for resolution. However, alternatively the parties can also use legal means available under their jurisdiction, for example by submitting a claim or requesting injunctions from civil courts.

Our view

The proposed termination regime would significantly alter current termination practices and necessitate changes to fixed-term contracts.

The expert group is likely to refine its draft SCCs further, as the current draft lacks clarity on how the source provider is expected to notify the customer upon successful switching, given there is no obligation for the destination provider to inform the source provider when the switching is complete. The switching process relies on the customer managing both the source provider and destination provider. Direct coordination between these providers could be more efficient, but it is currently only suggested in cases when switching is unsuccessful and the customer decides to involve the destination provider.

Also, the relationship between traditional termination clauses and the proposed new termination regime under the Data Act requires careful consideration. Both the provider’s and the customer’s related contracts along the supply chain may not be subject to termination under the Data Act but involve longer statutory termination notices, which could introduce additional business risk if not aligned.