McNeill Discusses Virtual Warehouses and Potential Assertion of Article 7 Liens

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ABA Corporate Counsel

Cloud-based storage systems, which allow customers to use the Internet to store their data at an off-site location, are an increasingly important part of an ever-digitizing economy. The off-site locations, or data centers, consist of a number of servers storing customers’ data. When a customer wishes to save data to a vendor’s servers, the customer sends copies of the files over the Internet to the data center. The user can then retrieve or access the information via a web-based interface. The use of the external storage systems allows customers to increase their storage capacity, simplify their IT tasks, and easily back up data. See Jonathan Strickland, “How Cloud Storage Works, How Stuff Works (Apr. 30, 2008).

Like other vendors, cloud-based vendors have to contend with nonpayment. Traditional vendors who possess the goods of others can rely on a warehouseman’s lien under article 7 of the Uniform Commercial Code (UCC) as a recourse in the event of nonpayment. As the use of cloud-based storage systems increases, the likelihood of a cloud storage vendor asserting a warehouseman’s lien on data stored for its customer is likely to increase as well.

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