There's an interesting legal interpretation coming out of the Electronic Freedom Foundation (EFF) around the Megaupload case, and the EFF has said this:
"The government maintains that Mr. Goodwin lost his property rights in his data by storing it on a cloud computing service. Specifically, the government argues that both the contract between Megaupload and Mr. Goodwin (a standard cloud computing contract) and the contract between Megaupload and the server host, Carpathia (also a standard agreement), "likely limit any property interest he may have" in his data. (Page 4). If the government is right, no provider can both protect itself against sudden losses (like those due to a hurricane) and also promise its customers that their property rights will be maintained when they use the service. Nor can they promise that their property might not suddenly disappear, with no reasonable way to get it back if the government comes in with a warrant. Apparently your property rights "become severely limited" if you allow someone else to host your data under standard cloud computing arrangements. This argument isn't limited in any way to Megaupload -- it would apply if the third party host was Amazon's S3 or Google Apps or or Apple iCloud."
What the government actually says is that the state of Mr. Goodwin's property rights depends on his agreement with the cloud provider and their agreement with the infrastructure provider. The question ultimately comes down to: if I upload data onto a machine that you own, who owns the copy of the data that ends up on your machine? The answer to that question depends on the agreements involved, which is what the government is saying. Without reviewing the agreements, it isn't clear if the upload should be thought of as a loan, a gift, a transfer, or something else.
Lacking any physical embodiment, it is not clear whether the bits comprising these uploaded digital artifacts constitute property in the traditional sense at all. Even if they do, the government is arguing that who owns the bits may have nothing to do with who controls the use of the bits; that the two are separate matters. That's quite standard: your decision to buy a book from the bookstore conveys ownership to you, but does not give you the right to make further copies of the book. Once a copy of the data leaves the possession of Mr. Goodwin, the constraints on its use are determined by copyright law and license terms. The agreement between Goodwin and the cloud provider clearly narrows the copyright-driven constraints, because the cloud provider has to be able to make copies to provide their services, and has surely placed terms that permit this in their user agreement. The consequences for ownership are unclear. In particular: if the cloud provider (as opposed to Mr. Goodwin) makes an authorized copy of Goodwin's data in the course of their operations, using only the resources of the cloud provider, the ownership of that copy doesn't seem obvious at all. A license may exist requiring that copy to be destroyed under certain circumstances (e.g. if Mr. Goodwin terminates his contract), but that doesn't speak to ownership of the copy.
Because no sale has occurred, and there was clearly no intent to cede ownership, the Government's challenge concerning ownership has the feel of violating common sense. If you share that feeling, welcome to the world of intellectual property law. But while everyone is looking at the negative side of this argument, it's worth considering that there may be positive consequences of the Government's argument. In Germany, for example, software is property. It is illegal (or at least unenforceable) to write a software license in Germany that stops me from selling my copy of a piece of software to my friend, so long as I remove it from my machine. A copy of a work of software can be resold in the same way that a book can be resold because it is property. At present, the provisions of UCITA in the U.S. have the effect that you do not own a work of software that you buy. If the district court in Virginia determines that a recipient has property rights in a copy of software that they receive, that could have far-reaching consequences, possibly including a consequent right of resale in the United States.
Whether or not Jon's interpretation is correct, there are some huge legal implications of this interpretation of the cloud, because data "ownership" is going to be the defining legal issue of the next century.