The Data Act

In this video insight Dermot McGirr, Partner in our Data & Technology team explains how the Data Act introduces new “switching rights” that effectively allow B2B customers to terminate data processing service contracts early for convenience. Dermot outlines how businesses must first assess whether their services fall within the Act’s scope, based on the definition of data processing services. The key takeaway is that companies should update their contracts promptly, as the Data Act came into force on 12 September.

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Some of the main questions I get asked about the Data Act are:

• Do the new switching rights contained in the Data Act amount to a termination for convenience right for my B2B customers?
• And secondly, do the switching rights apply to my services, and if they do, what can I do to protect my customer revenue streams?

The short answer to the first question is yes, the new switching rights do give B2B customers an effective early termination for convenience right.

The second question relates to the key initial gating exercise which needs to be undertaken to establish if a service is within scope of the switching rights.

This exercise entails an assessment against a rather broad but also technical and convoluted definition of “data processing services” - the key point being that if your service does not meet all of the definition then you may be in a good position to consider your services outside scope of the switching rights and therefore outside scope of the associated early termination issues.

If you are in-scope, then there are protections available. The first and perhaps most important of these is early termination charges. These are expressly envisaged in the Data Act and can be imposed by supplier parties where a switching right is exercised by a customer. It is important to make sure though that these are in your contract in the first place, which leads to the second key protection.

This is that technology businesses are in control of the drafting their own switching clauses. As with most types of laws which obligate parties to include provisions in contracts, so think for example Article 28 of the GDPR or the contractual requirements of DORA, the legislative requirements are not drafted as contractual clauses. So there is room to draft in a supplier focused manner or a customer focused manner, and this is one of the key protections which a supplier side party can use. It is one that we are working with many clients on.

In summary

The Data Act switching rights do entail an effective early termination right for customers, but your service needs to be in-scope for this to be an issue for your business. If you are in-scope there are available protections which can be included in your contracts. The key is to get those protections into your contracts as soon as possible, noting that the Data Act came into force on 12 September this year.

For more information and expert advice on the impact of the Data Act on your contracts, contact a member of our Data & Technology team.

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The content of this video is provided for information purposes only and does not constitute legal or other advice.