Overview of the Data Act
EU Regulation (EU) 2023/2854 (Data Act), a wide-ranging and sector-neutral piece of legislation regulating several aspects of the data economy, came into force on January 11, 2024. With its provisions becoming partially applicable already on September 12, 2025, players in the data industry are encouraged to plan now for new compliance measures.
The Data Act contains provisions regarding personal as well as non-personal data in business-to-business (B2B), business-to-consumer (B2C), and business-to-government (B2G) contexts and is therefore relevant for many parties. The main chapters of the Data Act focus on the following topics:
- Chapter II sets rules concerning access and use of connected product and related service data (both in B2B and B2C contexts) to empower users of connected products and related services (and third parties on their behalf) with respect to such data
- Chapter III aims to create a legal framework for B2B data sharing agreements when a data holder is obliged to make data available under the Data Act or any other EU or national law obligation
- Chapter IV prohibits unfair contractual terms in B2B data transactions, where unilaterally imposed by one contracting party
- Chapter V imposes a data sharing obligation on businesses to share – in cases of exceptional need – the data they hold with certain public bodies
- Chapter VI incorporates rules with regard to switching between data processing services (including cloud and edge services)
- Chapter VII contains measures to prevent unlawful international governmental access and transfer of non-personal data for providers of data processing services
- Chapter VIII provides various interoperability and minimum requirements for data processing service providers, providers of applications using smart contracts, and participants in common European data spaces.
Chapter VI: Termination rights when switching between data processing services
This alert focuses on Chapter VI of the Data Act, which imposes requirements on providers of data processing services to facilitate their customers’ switching between data processing services. In particular, this alert outlines the termination rights that must be granted to customers in contracts and the fees that can permissibly be charged under the Data Act in the context of such termination. In addition, this alert explains the relevance of these requirements to data processing service providers and provides recommendations on how to address these requirements while protecting the providers’ interests.
Data processing services
Under the Data Act, the generic term data processing services covers a considerable number of services with a very wide range of different purposes, functions, and technical structures. According to the general understanding, data processing services consist of one or more of the following three models for the provision of data processing services: “Infrastructure-as-a-Service” (IaaS), “Platform-as-a-Service” (PaaS), or “Software-as-a-Service” (SaaS).
However, the applicability of the Data Act is not limited to these three basic delivery models. New variations of data processing services with other specific combinations of information and communication technology resources, such as “storage-as-a-service” and “database-as-a-service,” are not necessarily out of scope. Ie, data processing services under the Data Act can be categorized in more detail and divided into a non-exhaustive list of data processing services that have the same main purpose and functions and the same type of data processing models that are not related to the operational characteristics of the service (same service type).
Right to switch between service providers
Termination for convenience following two months’ notice
Art. 25 requires a provider of a data processing service entering into any contract with an EU customer to permit a customer to switch to a competitor provider or its own internal solution by terminating the agreement and to port all exportable data as part of this process.
There are very limited exceptions to this requirement if many of the main features of a service are custom built for that customer and not offered on a broad commercial scale or if the services are provided for a limited period of time for testing and evaluation purposes. Therefore, most SaaS, IaaS, and PaaS providers will need to comply with the requirement to grant this termination right. A provider may not require that the customer give more than two months’ notice to terminate the agreement in order to initiate the process of moving to an alternative solution, see Art. 23 lit. a), 25 lit. d) Data Act.
Essentially, the Data Act grants any in-scope customer a statutory termination-for-convenience right, regardless of the terms of the contract. This also applies for contracts concluded before September 12, 2025, regardless of any previously agreed minimum contract period.
Permissibility of early termination penalties vs. switching fees
If corresponding information is provided pre-contractually, providers can impose “early termination penalties,” see Art. 29.4, to the extent the customer invokes the termination right. However, by January 12, 2027, SaaS providers will be unable to impose “switching charges,” see Art. 29.1, 29.2. While “switching charges” are defined in Art. 1.36 Data Act as “charges, other than standard service fees or early termination penalties, imposed by a provider of data processing services on a customer for the actions mandated by this Regulation for switching to the system of a different provider or to on-premises ICT infrastructure, including data egress charges,” the Data Act itself does not clearly determine what permissible “early termination penalties.”
To distinguish between early termination fees and switching charges, most recently the following consideration has been shared by officials and in literature: Data processing service providers have a legitimate, regularly compelling interest under company law in ensuring that the initial costs associated with each customer relationship are amortized. In some cases, this objective can only be achieved by agreeing on a fixed contract term or a fixed purchase quantity of computing power. Such contractual agreements typically provide the necessary calculation security on the provider side to make (new) investments in infrastructure and to take innovation measures. They serve essential economic needs and must be clearly distinguished from switching fees. If a change of provider takes place and the data processing service provider subsequently asserts a claim for compensation due to premature termination of the contract or failure to achieve the minimum purchase quantity, this should not constitute a switching fee within the meaning of Art. 29.1 Data Act. However, the validity of such contractual penalties and claims for damages qualifying in general as “early termination fees” must be determined in accordance with the general rules set out in the applicable law, including terms and conditions law, as well as the details of individual cases.
Depending on the applicable material law, this could therefore mean that in some cases, fees paid – but not yet applied (such as advance payment of subscription fees) – in reasonable reliance on the expectation that the customer would use the product through the end of the agreement’s term (or for a reasonable projection period in the case of agreements with indefinite terms) could be charged as “early termination penalties.” This would allow providers to retain advance payments of subscription fees for the terminated portion of the subscription term. In any case, respective information must be provided pre-contractually to a customer and particular care should be taken to not characterize such advance payments as switching fees or data transfer fees to reduce the risk of such non-refundable payments being treated as impermissible switching fees under the Data Act.
Why this is relevant to SaaS, PaaS, and IaaS providers
Given the broad definition of data processing services under the Data Act and the global accessibility of most respective offerings, most of these same providers are subject to the Data Act by virtue of offering their services to EU customers. The Data Act would therefore require that such providers adjust their standard customer contracts to comply with the Data Act’s requirements, including the termination rights and restrictions on switching fees outlined above and in addition provide relevant pre-contractual information to their EU-based customers. Failure to do so would expose these providers to potential financial penalties under the Data Act, see Art. 40 Data Act. While the precise quantum of these financial penalties is still being finalized by implementation law in each EU member state, the Data Act directs EU member states to establish penalties that are “effective, proportionate and dissuasive,” meaning they could scale with company size and customer base to ensure a consistent “proportionate and dissuasive” effect for both small and large service providers.
Recommendations and next steps
Consequently, the Data Act has introduced several significant new obligations in Chapter VI that providers of data processing services with customers based in the EU need to comply with. Most relevantly, providers must:
- Remove barriers to switching between data processing services (Art. 23)
- Comply with introduced requirements for contract clauses related to switching (Art. 25)
- Comply with specific (pre-contractual) information and transparency obligations towards customers (in particular Art. 26, 28)
- Comply with new fairness/good faith requirements (Art. 27)
- Define rules on (gradual) abolition of switching fees and possible penalties (Art. 29)
- Implement specific technical requirements for switching (Art. 30)
As we await further updates and guidance in FAQ’s that are anticipated to be released by the European Commission in the next few months, service providers may want to review their documentation of early termination fees and associated investment expenses incurred to support the customer through the original term. Such documentation may be helpful in supporting a position that any fees that are paid to or retained by the SaaS vendor should be treated as “early termination penalties,” rather than “switching fees.”
Additionally, it may be useful to consider tailoring such provisions and the limitation of liability clause to expressly allow the service provider to retain amounts paid as “early termination fees.” Service (SaaS, PaaS, and IaaS) providers should consider reviewing their contracts and determining whether, given the nature of the contractual relationship (ie, B2B or B2C), under the applicable law governing the contract, a contractual term that provides for advance payments for subscription terms to be non-refundable and retained as an early termination fee would be enforceable. This is particularly important since most service providers typically avoid giving customers a termination-for-convenience right. However, because the Data Act mandates an early termination as a consequence of a switching request, it is critical that the contract clearly addresses the treatment of prepaid subscription fees upon exercise of such termination and provides upfront clarity together with associated documentation.
As a first step in achieving compliance with the new Data Act requirements, providers of SaaS, PaaS, IaaS or other relevant cloud or edge services are encouraged to map their contractual landscape against the new requirements and update their terms and agreements correspondingly.
In addition, and due to the newly introduced termination right, as most providers are focused on recurring revenue as a metric for success or growth, particularly those that may be using such metric for seeking financing from investors, the potential impact of having to refund prepaid fees because they are characterized as impermissible switching fees may be significant. Service providers should consult with their financial and accounting advisors to confirm whether the statutory termination-for-convenience right and the characterization of amounts as early termination fees support the intended revenue recognition treatment.
For more information, please contact the authors.