AI Review for Data Processing Agreements (DPAs)

Learn how integrating AI contract review into your Data Processing Agreements (DPA) can improve your contract negotiation, ensuring clarity, precision, and mutual understandin

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What is a Data Processing Agreement?

A Data Processing Agreement (DPA) is a legally binding contract between a Data Controller ("Controller") and a Data Processor ("Processor"). The agreement outlines the rights and responsibilities of both parties concerning the processing of personal data. DPAs are an essential tool for defining the relationship between the Controller and Processor, ensuring compliance with data protection laws, and protecting the rights of data subjects.

DPAs are widely used across various industries that handle significant amounts of personal data, including technology and software, e-commerce, healthcare, finance, education, marketing and advertising, telecommunications, and travel and hospitality.

Why Use a Data Processing Agreement?

There are several key reasons why businesses should use DPAs:

  1. Compliance with data protection laws: With the increasing regulatory scrutiny on data privacy and security, having a DPA in place ensures compliance with data protection laws such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), among others. By delineating who is responsible for what in terms of data protection, a DPA plays a critical role in managing legal and operational risks and providing a safeguard against potential data breaches or mishandling of personal data.
  2. Trust and transparency: A DPA helps instill trust and transparency in the relationship between the Controller and Processor. By stipulating the types of data to be handled, the purpose of processing, the methods of processing, and the security measures to be adopted, the DPA provides clarity and mutual understanding. This ensures that the Processor is aware of its responsibilities and that the Controller can maintain oversight of how its data is being handled.
  3. Protection of data subjects' rights: A DPA is a critical document for data subjects, as it ensures their personal data is being processed and protected in accordance with applicable laws. It reinforces the rights of individuals whose data is being processed and provides guidance on how to handle requests from data subjects to exercise their rights.
  4. Adaptability to changes: DPAs address the dynamic nature of data processing and the evolving landscape of data protection laws. The terms of the agreement can be modified to align with changes in law, technology, or the nature of the services provided. This allows for adaptability and ensures that the agreement remains relevant and effective over time.
  5. Dispute resolution and remedies: A DPA provides mechanisms for dispute resolution and remedies in case of non-compliance or breach. This is essential for managing potential conflicts, protecting the interests of both parties, and ensuring that any issues are addressed promptly and effectively.

What Should Be Included in a Data Processing Agreement?

The top provisions to consider in a Data Processing Agreement are:

  1. Scope of Agreement: This clause sets out the terms of the relationship, including the types of data to be processed and the purpose for processing. For the Controller, it specifies the extent of data processing and ensures the data is used appropriately. For the Processor, it outlines the parameters within which they are to operate and serves to limit their liability by explicitly stating what data and processes they are responsible for.
  2. Processing of Personal Data: This clause sets out the obligations and responsibilities of the Processor in relation to handling personal data. For the Controller, it provides assurance that the data will be processed lawfully, securely, and only for the purposes specified. For the Processor, it clearly defines their role and responsibilities, thereby avoiding any misunderstanding or non-compliant processing.
  3. Sub-Processing: This clause defines whether the Processor can delegate some of its data processing activities to a Sub-Processor. For the Controller, it ensures that any Sub-Processors are held to the same standards and obligations as the primary Processor, maintaining the integrity and security of their data. For the Processor, it provides the flexibility to outsource tasks, provided they have obtained the necessary permissions and that the Sub-Processor complies with the agreement's conditions.
  4. Data Subject Rights: This clause reinforces the rights of the individuals whose data is being processed. For the Controller, it ensures that they can fulfill their obligations under data protection laws to uphold data subjects' rights. For the Processor, it provides guidance on how to handle requests from data subjects to exercise their rights, thus supporting the Controller and ensuring lawful processing.
  5. Data Breach Notifications: This clause is crucial for establishing the procedure to be followed in the event of a data breach. For the Controller, it ensures timely notification of any breaches, which is essential for risk management and regulatory compliance. For the Processor, it provides a clear protocol for handling data breaches, helps to manage potential reputational damage, and can limit their liability in the event of a breach.
  6. Data Portability: This clause is essential to ensure that the Controller can retrieve the data in a usable format if they choose to switch Processors or need the data for other purposes.

In addition to these top provisions, a comprehensive Data Processing Agreement should also include:

  1. Security Measures: Specify the technical and organizational measures the Processor must implement to ensure the security of personal data. This may include encryption, access controls, employee training, and regular security audits.
  2. Confidentiality: Require the Processor and its employees to maintain the confidentiality of personal data and any other confidential information shared by the Controller.
  3. Audit Rights: Grant the Controller the right to audit the Processor's compliance with the DPA and applicable data protection laws. This may include on-site inspections, questionnaires, or third-party certifications.
  4. Liability and Indemnification: Define each party's liability in case of a breach of the DPA or applicable data protection laws. Include provisions for indemnification, where one party agrees to defend and hold the other harmless from third-party claims arising from their actions or inactions.
  5. Governing Law and Jurisdiction: Specify the jurisdiction whose laws will govern the interpretation and enforcement of the DPA. This is particularly important for cross-border data transfers and ensures that the agreement is enforceable in the relevant jurisdiction.
  6. Termination: Outline the circumstances under which either party can terminate the DPA and the consequences of termination, such as the return or deletion of personal data.

Checklist for a Good Data Processing Agreement

To ensure that your DPA is effective, comprehensive, and legally compliant, use this checklist:

  • Define the scope of the agreement, including the types of data and the purpose of processing
  •  Specify the obligations and responsibilities of the Processor in handling personal data
  •  Address sub-processing and the conditions under which it is permitted
  •  Reinforce data subject rights and provide guidance on handling requests from data subjects
  •  Establish a protocol for data breach notifications
  •  Include provisions for data portability
  •  Specify security measures to be implemented by the Processor
  •  Require confidentiality from the Processor and its employees
  •  Grant audit rights to the Controller
  •  Define liability and indemnification provisions
  •  Specify the governing law and jurisdiction
  •  Outline termination conditions and consequences
  •  Ensure the DPA is reviewed and approved by legal counsel
  •  Obtain signatures from authorized representatives of both parties
  •  Securely store executed copies of the agreement

AI Contract Review for Data Processing Agreements

To give you a sense for the benefits of leveraging ai legal contract review trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

These samples represent a small sample of the pre-built, pre-trained AI Contract Review solution for Data Processing Agreements. If you’d like to see more, we invite you to book a demo.

PROCESSING OF PERSONAL DATA

For: Controller

Alert: May be missing an article regarding the processing of personal data.

Guidance: To guarantee data protection and legal compliance, it is essential for the processor to comply with the terms and conditions set forth in the DPA. This obligation is particularly significant when the controller engages a third-party service provider (the processor) to handle sensitive data, such as customer information in a CRM system.

By explicitly outlining the processor's obligation to process personal data in accordance with the DPA, both parties can establish a clear understanding of their respective responsibilities. This helps to preserve data privacy and adhere to applicable laws and regulations.

Relevant statutes or laws to consider in this context include federal and state privacy laws, such as the California Consumer Privacy Act (CCPA) and the Virginia Consumer Data Protection Act (VCDPA), as well as sector-specific regulations like the Health Insurance Portability and Accountability Act (HIPAA) for healthcare data. If the data processing involves personal data of individuals in the European Union, the General Data Protection Regulation (GDPR) may also be applicable.

It is crucial to be aware of the extensive reach of state-specific laws like the CCPA, which can impact businesses located outside of California if they process personal information of California residents. Ensuring compliance with these laws and any other applicable state data protection laws is vital for maintaining a secure and legally compliant data processing environment.

Sample Language:

PROCESSING OF PERSONAL DATA

1. PROCESSOR shall not collect, retain, use, or disclose the Personal Data (and has not collected, retained, used, or disclosed the Personal Data) for any purpose other than to perform the Services pursuant to this Agreement, except, where a Data Protection Law applies to particular Personal Data, where and only to the extent permitted or required by that Data Protection Law.

2. Without limiting the generality of the foregoing, and for the avoidance of any doubt, PROCESSOR:

(i) shall not collect, retain, use, or disclose the Personal Data for a commercial purpose (other than providing the Services);

(ii) shall not sell the Personal Data (where “sell” means selling, renting, releasing, disclosing, disseminating, making available, transferring, or otherwise communicating the Personal Data, orally, in writing, or by electronic or other means, to another person or entity, for monetary or other valuable consideration);

(iii) shall not collect, retain, use, or disclose the Personal Data outside the direct business relationship between Provider and Customer;

(iv) shall not collect more than the minimum Personal Data necessary, nor retain the Personal Data longer than necessary, to perform the Services;

(v) shall not use the Personal Data to build or modify a profile about a natural person to use in providing services to an entity other than CONTROLLER; and

(vi) shall not correct or augment the Personal Data nor otherwise combine it with Personal Data from another source (including from PROCESSOR itself).

This Agreement does not authorize processing of Personal Data for “targeted advertising” or “cross-context behavioral advertising.”

SUB-PROCESSING

For: Processor

Alert: May be missing an article regarding the use of sub-processors.

Guidance: It is generally acceptable to consider allowing sub-processing under DPAs. This approach enables the data processor to delegate specific tasks to sub-processors, resulting in increased efficiency and cost-effectiveness while ensuring the data controller's requirements and data protection obligations are met.

A practical example of this suggestion's effectiveness is when a cloud service provider, acting as a data processor, engages a third-party data center to store and manage the data controller's data. By permitting sub-processing, the data processor can utilize the specialized services of the data center while maintaining compliance with the DPA and meeting the controller's data protection requirements.

It is always important to ensure that any sub-processors engaged are contractually bound to adhere to the same data protection obligations as the data processor. Relevant statutes or laws to consider in this context include federal and state data protection laws, such as the California Consumer Privacy Act (CCPA) and the New York SHIELD Act, as well as industry-specific regulations like the Health Insurance Portability and Accountability Act (HIPAA) for healthcare data. Additionally, if the data processing involves the personal data of EU citizens, the General Data Protection Regulation (GDPR) should also be considered.

Sample Language:

SUB-PROCESSING

PROCESSOR may engage third-party sub-processors to process Personal Data on behalf of CONTROLLER, provided that PROCESSOR enters into a written agreement with the sub-processor that contains data protection obligations that are no less protective than those set out in this Agreement.

DATA SUBJECT RIGHTS

For: Controller

Alert: May be missing an article regarding data subject rights.

Guidance: To safeguard data subjects' rights and promote transparency in data processing activities, it is advisable to include provisions addressing data subject inquiries in DPAs. This approach helps establish trust and demonstrates compliance with data protection laws.

In practical terms, this entails that parties involved in data processing activities should create and maintain a transparent and accessible channel for addressing data subject inquiries. For instance, when a data subject contacts the data processor to inquire about their personal data, the data processor should be capable of providing the necessary information or directing the data subject to the appropriate party for further assistance.

Relevant statutes or laws to consider in this context include federal and state privacy laws in the United States, such as the California Consumer Privacy Act (CCPA) and the Virginia Consumer Data Protection Act (VCDPA). Moreover, the European Union's General Data Protection Regulation (GDPR) may offer guidance on best practices for addressing data subject inquiries, even though it is not directly applicable in the United States.

Sample Language:

DATA SUBJECT RIGHTS

1. PROCESSOR will assist CONTROLLER in fulfilling its obligations to respond to requests from data subjects to exercise their rights under Data Protection Laws.

2. PROCESSOR shall not respond to requests from data subjects as to Personal Data, except where and to the extent applicable Data Protection Law requires a response directly from PROCESSOR. However, this Agreement does not authorize or permit PROCESSOR, on CONTROLLER’s behalf, to respond to requests from data subjects, or other third parties unless the parties agree otherwise in a writing signed by both parties.

Best Practices for Using Data Processing Agreements

To make the most of your DPAs and ensure their effectiveness, follow these best practices:

  1. Conduct due diligence: Before entering into a DPA, conduct thorough due diligence on the Processor to ensure they have the necessary technical and organizational measures in place to protect personal data and comply with applicable laws.
  2. Be specific and detailed: Clearly define the scope of data processing, the responsibilities of each party, and the security measures to be implemented. The more specific and detailed your DPA is, the less room there is for misinterpretation or non-compliance.
  3. Regularly review and update: As data protection laws evolve and the nature of data processing changes, your DPA may need to be updated. Schedule regular reviews of your DPA to ensure that it remains relevant, effective, and compliant with current regulations.
  4. Monitor compliance: Regularly monitor the Processor's compliance with the DPA and applicable data protection laws. This may involve conducting audits, reviewing security reports, or requiring the Processor to provide evidence of compliance.
  5. Communicate and collaborate: Foster open communication and collaboration with the Processor throughout the duration of the DPA. Regular check-ins and status updates can help identify and address any issues or concerns early on and ensure a smooth and compliant data processing relationship.
  6. Train your team: Ensure that all relevant employees, including those responsible for managing the relationship with the Processor, are familiar with the terms and conditions of the DPA. Provide training on data protection laws, the importance of the DPA, and how to monitor compliance.

Conclusion

Data Processing Agreements are critical for ensuring the lawful and secure processing of personal data, protecting the rights of data subjects, and managing the relationship between Controllers and Processors. By including essential provisions such as the scope of processing, the obligations of the Processor, sub-processing conditions, data subject rights, data breach notifications, data portability, security measures, confidentiality, audit rights, liability, and termination, DPAs provide a strong foundation for compliant and accountable data processing.

To ensure the effectiveness of your DPAs, it's important to conduct due diligence, be specific and detailed, regularly review and update the agreement, monitor compliance, communicate and collaborate with the Processor, and train your team on the importance and requirements of the DPA.

By investing time and effort into crafting comprehensive and tailored DPAs, businesses can foster trust, mitigate risks, and demonstrate their commitment to data protection and privacy.

Our guides are for informational purposes only. Such information is not legal advice and is not guaranteed to be correct, complete, or an up-to-date representation of LegalOn's legal content. Nor is the information tailored to the unique needs or objectives that accompany each transaction. For legal advice for a specific problem, you should consult an attorney licensed to practice law in the appropriate jurisdiction for each transaction.

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