💡 Plain English Explanation

When you share confidential information with a partner who uses cloud infrastructure, your data is only as secure as their security practices. A receiving party's weak security could expose your trade secrets, customer data, and sensitive business information to breaches, regardless of how secure your own systems are.

This clause establishes minimum security standards that the receiving party must maintain when handling your confidential information. It addresses modern cloud security realities including encryption requirements, access controls, compliance certifications, and incident response procedures.

Key security areas addressed by these clauses:

⚠ Why This Matters for SaaS Companies

Vendor Risk is Your Risk: When a partner stores your confidential information in their cloud environment, their security posture becomes your vulnerability. A breach at a partner's system can expose your data just as effectively as a breach at your own company.

Customer Trust Implications: Your customers trust you to protect their data. If you share customer information with a partner who suffers a breach due to poor security practices, the reputational damage falls primarily on you, regardless of who was technically at fault.

Regulatory Compliance Chain: If you are subject to regulations like GDPR, CCPA, or HIPAA, your partners who handle covered data must also maintain compliant security practices. The NDA should establish these obligations clearly.

📄 Clause Versions

Balanced Version: Establishes reasonable security baseline requirements without imposing specific technology mandates. Suitable for partnerships between companies with mature security practices where mutual trust exists. 
CLOUD SECURITY OBLIGATIONS

1. Security Standards. The Receiving Party shall maintain administrative, technical, and physical safeguards designed to protect the confidentiality, integrity, and availability of Confidential Information. Such safeguards shall be no less rigorous than those used to protect the Receiving Party's own confidential information of similar sensitivity, and shall include:

   (a) Encryption: Confidential Information shall be encrypted at rest using AES-256 or equivalent, and in transit using TLS 1.2 or higher;

   (b) Access Controls: Access to Confidential Information shall be limited to personnel with a business need, using role-based access controls and unique user authentication;

   (c) Authentication: Multi-factor authentication shall be required for access to systems containing Confidential Information;

   (d) Logging: Access to Confidential Information shall be logged with sufficient detail to support security investigations; and

   (e) Network Security: Systems containing Confidential Information shall be protected by firewalls, intrusion detection, and regular vulnerability scanning.

2. Compliance Certifications. Upon request, the Receiving Party shall provide evidence of:
   (a) Current SOC 2 Type II report or equivalent third-party security assessment; or
   (b) Documentation of security controls if SOC 2 certification is not available.

3. Personnel Security. The Receiving Party shall:
   (a) Conduct background checks on personnel with access to Confidential Information, where permitted by law;
   (b) Require personnel to acknowledge confidentiality obligations; and
   (c) Promptly revoke access for terminated personnel.

4. Incident Response. In the event of a Security Incident affecting Confidential Information:
   (a) The Receiving Party shall notify the Disclosing Party within forty-eight (48) hours of discovery;
   (b) The notification shall include the nature of the incident, categories of data affected, and remediation steps taken;
   (c) The Receiving Party shall cooperate with the Disclosing Party's investigation; and
   (d) The Receiving Party shall implement reasonable measures to prevent recurrence.

5. Subcontractors. If the Receiving Party engages subcontractors who will access Confidential Information, such subcontractors shall be bound by security obligations no less protective than those in this section.
Disclosing Party Favor: Comprehensive security requirements with specific technical standards, audit rights, and strict incident response timelines. Use when sharing highly sensitive data with parties whose security practices you cannot independently verify. 
CLOUD SECURITY OBLIGATIONS

1. Mandatory Security Standards. The Receiving Party SHALL implement and maintain the following security controls for all systems that store, process, or transmit Confidential Information:

   (a) Encryption Requirements:
       - Data at rest: AES-256 encryption with keys managed using HSM or equivalent
       - Data in transit: TLS 1.3 (TLS 1.2 permitted only where 1.3 is not technically feasible)
       - Key rotation: Encryption keys shall be rotated at least annually
       - Key management: Encryption keys shall be stored separately from encrypted data

   (b) Access Control Requirements:
       - Zero-trust architecture: No implicit trust based on network location
       - Principle of least privilege: Access limited to minimum necessary
       - Just-in-time access: Privileged access granted only when needed and automatically revoked
       - Multi-factor authentication: Required for all access, using hardware tokens or authenticator apps (SMS not permitted)
       - Session management: Automatic timeout after 15 minutes of inactivity

   (c) Infrastructure Security:
       - Firewalls and WAF protecting all internet-facing systems
       - IDS/IPS monitoring with 24/7 alerting
       - Vulnerability scanning at least weekly
       - Penetration testing at least annually by qualified third party
       - Patch management: Critical patches applied within 48 hours

   (d) Logging and Monitoring:
       - Comprehensive logging of all access to Confidential Information
       - Log retention for minimum of one (1) year
       - SIEM or equivalent centralized log analysis
       - Real-time alerting for suspicious activity

2. Required Certifications. The Receiving Party shall maintain:
   (a) SOC 2 Type II certification covering Security, Availability, and Confidentiality trust principles; AND
   (b) ISO 27001 certification or equivalent ISMS.

   Copies of current certifications and audit reports shall be provided to the Disclosing Party upon request and within five (5) business days.

3. Audit Rights. The Disclosing Party may:
   (a) Request and receive security questionnaire responses within ten (10) business days;
   (b) Conduct or commission third-party security assessments upon thirty (30) days notice;
   (c) Review the Receiving Party's security policies, procedures, and controls;
   (d) Access security logs related to Confidential Information; and
   (e) Require remediation of identified security deficiencies within agreed timelines.

4. Incident Response Requirements. Upon discovery of any Security Incident:
   (a) Immediate notification (within four (4) hours) to the Disclosing Party's designated security contact;
   (b) Initial incident report within twenty-four (24) hours including:
       - Nature and scope of the incident
       - Systems and data affected
       - Timeline of the incident
       - Immediate containment measures taken
   (c) Ongoing updates every twenty-four (24) hours until incident is resolved;
   (d) Root cause analysis within fourteen (14) days;
   (e) Remediation plan with implementation timeline;
   (f) Post-incident report within thirty (30) days; and
   (g) The Receiving Party shall bear all costs of investigation, notification, and remediation.

5. Data Localization. Confidential Information shall be stored only in data centers located in [SPECIFY APPROVED JURISDICTIONS]. Transfer to other jurisdictions requires prior written approval.

6. Subprocessor Restrictions. The Receiving Party shall not engage any subprocessor to handle Confidential Information without:
   (a) Prior written approval from the Disclosing Party;
   (b) Written agreement binding the subprocessor to equivalent security obligations; and
   (c) Ongoing oversight of subprocessor compliance.

7. Termination Data Handling. Upon termination:
   (a) All Confidential Information shall be securely deleted within fourteen (14) days;
   (b) Deletion shall use NIST SP 800-88 compliant methods;
   (c) Certification of destruction signed by security officer shall be provided; and
   (d) Backup systems shall be purged within thirty (30) days.
Receiving Party Favor: Flexible security obligations aligned with industry standards without mandating specific technologies. Appropriate for receiving parties with established security programs who need flexibility in implementation. 
CLOUD SECURITY OBLIGATIONS

1. Security Standard of Care. The Receiving Party shall maintain commercially reasonable administrative, technical, and physical safeguards to protect Confidential Information. The Receiving Party's existing security practices shall be deemed to satisfy this requirement if they:
   (a) Meet or exceed industry standards for companies of similar size and nature;
   (b) Are designed to protect against anticipated threats; and
   (c) Have not resulted in material security incidents in the preceding twelve (12) months.

2. Security Measures. The Receiving Party's safeguards shall include reasonable measures addressing:
   (a) Encryption of Confidential Information using current industry-standard methods;
   (b) Access controls limiting access to authorized personnel;
   (c) Authentication appropriate to the sensitivity of the information;
   (d) Network security including firewalls and intrusion detection; and
   (e) Regular security assessments and updates.

3. Compliance Evidence. Upon reasonable request (not more than once annually), the Receiving Party shall provide:
   (a) A summary of security controls applicable to Confidential Information; or
   (b) SOC 2 report or equivalent security assessment if one exists; or
   (c) Completion of the Disclosing Party's security questionnaire within thirty (30) days.

   The Receiving Party is not obligated to obtain new certifications solely to satisfy this Agreement.

4. Audit Rights Limitations. Any audit or assessment rights are subject to:
   (a) Reasonable advance notice of at least forty-five (45) days;
   (b) Execution of an appropriate NDA protecting the Receiving Party's security information;
   (c) Limitation to once per calendar year;
   (d) Costs borne by the requesting party; and
   (e) Scope limited to controls directly applicable to Confidential Information.

5. Security Incident Notification. The Receiving Party shall notify the Disclosing Party of confirmed Security Incidents affecting Confidential Information:
   (a) Within seventy-two (72) hours of confirmation;
   (b) With information reasonably available at the time of notification;
   (c) With updates as additional information becomes available; and
   (d) Notification of suspected but unconfirmed incidents is not required.

6. Subcontractors. The Receiving Party may use subcontractors who access Confidential Information provided:
   (a) Subcontractors are bound by confidentiality obligations; and
   (b) The Receiving Party remains responsible for subcontractor compliance.
   Prior approval for specific subcontractors is not required.

7. Limitation of Security Liability. The Receiving Party shall not be liable for Security Incidents to the extent caused by:
   (a) The Disclosing Party's actions or omissions;
   (b) Vulnerabilities in systems controlled by the Disclosing Party;
   (c) Zero-day exploits for which patches were not yet available; or
   (d) Nation-state level attacks that would defeat reasonable security measures.

8. Technology Flexibility. Nothing in this Agreement shall require the Receiving Party to:
   (a) Implement specific technologies or vendors;
   (b) Modify its existing security architecture;
   (c) Segregate Confidential Information from other data unless separately agreed; or
   (d) Maintain security measures beyond current industry standards.

💬 Key Considerations for Cloud Security