Costs for e-discovery are soaring and few companies are well placed to deal with document requests
It’s the bad news many corporate secretaries dread: when their company is hit with a lawsuit, expenses just keep on multiplying, especially when an e-discovery motion is in play. ‘I have seen compliance alone ranging in cost from $1 million up to $10 million. E-discovery is very expensive,’ says Howard Iwrey, an antitrust attorney with Dykema.
Suddenly, e-discovery is emerging as a much more common demand in many lawsuits, simply because as the business medium of communication has shifted from the telephone to email, there are vast data storehouses available for attorneys on the prowl for information that may support their case. Nowadays, busy, high-powered executives routinely generate as much as a gigabyte of email a month – and this is a treasure trove for lawyers, who can earn large sums sifting through the data.
Montgomery Kosma, a director with legal operations consulting firm MetaJure, estimates that a single gigabyte of email would cost $10,000-$30,000 in legal review charges, even after computers strip out irrelevant information via a keyword search. A gig of stored files, says Wayne Matus, partner at Pillsbury Winthrop Shaw Pittman, probably amounts to 60,000 pages of documents and email; with a lawyer speeding through this at a typical 300 pages per hour, the costs quickly add up.
Costs skyrocket so high, say many attorneys, that some cases are settled early just to dodge the e-discovery bullet. It might be cheaper to settle than to slug it out because companies today typically have so much data on hand that sifting through them – even in accordance with strict rules designed to pinpoint only what’s important – is an expensive task.
The question is: why is there so much data? The answer, say the experts, is that numerous federal, state and regulatory requirements prompt most organizations to save important documents for varying lengths of time (sometimes forever). The vagueness in that sentence is unavoidable. Ask six experts what a business has to save and there will be six different answers, which is why the operative position is that it’s best to save literally everything, forever.
‘Some companies are afraid to throw anything away,’ observes Patrick Eitenbichler, director of worldwide product marketing for Hewlett-Packard’s Information Management unit, a leading provider of electronic records management solutions. ‘They think throwing more storage at the problem solves it.’
But that raises its own problems, involving both technology and cost. Eitenbichler notes that ‘digital information doubles every 12-18 months’ – witness the proliferation of YouTube videos, digital voicemails and digitized faxes. Add in shrinking IT budgets, and the potential for very real problems soon escalates.
This brings the focus back to the core question: when does a company have to preserve a document? In answer, Kosma observes that ‘recent court rulings have made this area rather murky.’
When to destroy
The 900-pound gorilla in that regard is Rambus v Infineon Technologies, a decision that chastised chip maker Rambus for a document retention policy that involved destroying 2 million documents at a time when the company was contemplating filing suit for alleged intellectual property infringement. The court’s ruling against Rambus hinged not on the document destruction per se, but on the possible connection between destroyed documents and the pending litigation.
That changed all the rules because, before the Rambus ruling, courts generally accepted any rational and consistent document retention-destruction policy as good business and within a company’s rights. But the Rambus decision, say the experts, implies that document destruction involves risk.
Conversely, ‘inadvertently storing information can come back to haunt a company,’ says Philip Upton, a records management expert at PricewaterhouseCoopers. Hanging on to files that only serve to raise new questions when turned up in e-discovery is simply not good business practice.
So what should an organization do? Step one, says Iwrey, is to articulate a clear policy outlining what’s to be retained (and for how long) and what can be destroyed. As for what to include in a policy, most experts point to the guidelines established by the Electronic Document Reference Model working group. It is important to note that organizations that already are – or are likely to be – in litigation ought to be much more meticulous about retaining documents than companies in sectors with little litigation. That’s common sense, but it was made vivid by Rambus. ‘If a policy is not routine, if it is ambiguous, it may be challenged,’ warns Iwrey.
Next step, Iwrey says, is to conduct a periodic inventory to ensure retention policies are being followed. ‘Most companies now have retention-destruction policies, but they don’t check in with employees to see that the policies are followed,’ he notes. This cuts two ways – some employees save everything, others delete everything – but either approach can prove painful in court. The antidote is to keep checking in with employees to ensure they are all saving what they really need and deleting what they should.
Don’t take too narrow a view of what constitutes a record, advises KPMG’s Kelli Brooks, a records management expert. She points to voicemail as a type of file that just may need saving. ‘In e-discovery, voicemail may be as important as email,’ she says. ‘An organization needs retention rules for voicemail, faxes, anything that can be construed as a record.’
Keeping pace
It’s important to keep updating corporate policies. Case in point: ‘tweets’ on the micro-blogging service Twitter, which has been all the rage in mid-2009. Do tweets need to be saved? Legal opinion differs but, probably, if it’s the CEO tweeting, yes; if it’s the file clerk, probably not. Either way, know that a workable, valid retention policy needs to be consistent. Upton adds that policies need to be company-wide. ‘Historically they have been left to individual departments, and that is just not what works now,’ he warns.
Then prune, prune, prune, consistent with good business practices and the advice of lawyers about what courts are likely to expect to be made available through e-discovery.
In that regard, it’s well within the rights of most companies to prune electronic records of superfluous duplicates, suggests Elise Dieterich, a partner in law firm Sullivan & Worcester. ‘Electronic files tend to duplicate themselves,’ she says. One copy of a PowerPoint file may well be necessary, but there’s no obligation to retain the many dozens of copies that have proliferated within the system. Pruning unnecessary duplication is a big step toward cost-effective electronic document management.
Going through an e-discovery process almost always makes a company much better at electronic records management. For most firms, however, the real wake-up call is the lawsuit with attendant e-discovery; savvy businesses, say the lawyers, are jumping on this at the front end, because only then will the expenses be controlled.
