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Accumulation Of Electronic Data Creates New Risks

By Tony Polk

When Microsoft Chairman Bill Gates was asked during his taped deposition about his interest in forging an alliance with Netscape in 1995, he said, “I did not see that as something that made sense.” However, an e-mail he sent to a Microsoft executive earlier that year stated, “We could even pay them money as part of the deal, buying a piece of them or something.” This apparent contradiction and others found among his e-mail correspondences caused prosecutors to question Gates’ credibility. It is not surprising that Gates’ sworn testimony was far less convincing than his personalized, zealous e-mail messages when one considers how frank and informal e-mail messages tend to be. Though deceptively casual and seemingly inconsequential, e-mail communications stand up in court as documentary evidence.

An important lesson from the Microsoft antitrust trial is that the unrestricted retention and accumulation of data in computer systems can create important liability issues for all organizations. The role that e-mail has played in the Microsoft case illustrates a shocking truth: many organizations are oblivious to the electronic data that is retained in their computer systems and lack the preparation needed to efficiently produce such data when it is requested during the discovery phase of litigation. Lacking such knowledge, these organizations are not taking appropriate steps to mitigate the risks associated with electronic data in litigation. Many large corporations already have been sanctioned because of mistakes in how their electronic data is managed, such as:

• Not teaching employees internal electronic-processing procedures
• Inadvertently destroying data in routine backup procedures
• Not producing electronic data in a reasonably useable form
• Failing to identify strategic personnel within an organization to respond to discovery requests

The Trouble With Email

Unlike traditional paper files requested during discovery, electronic files can contain far more revealing information, such as who created the file and when, as well as a record of all deletions and modifications. Even after e-mail messages are deleted, they remain in the computer until the occupied disk space is written over. Messages also remain on the e-mail server until deleted.¹

E-mail in particular is a growing concern because people tend to use less caution when drafting e-mail than they do in writing letters or facsimile documents. Thomas Schweich, in his book Protect Yourself from Business Lawsuits, states: “Complaints, gossip, rumors, and angry viewpoints frequently appear in corporate e-mails, and these seemingly innocuous messages have cost companies millions of dollars in verdicts, judgements and bad settlements.” Poorly written documents tend to appear as key pieces of evidence in trials.

Too Much Data Equals Litigation Headaches

“Liability in litigation based solely on the electronic evidence in corporate computer systems is enormous,” says John H. Jessen, president of Electronic Evidence Discovery, Inc. of Seattle, Washington.² “Because of the incredible amount of information produced on computers, electronic discovery is a well-spring for plaintiff’s attorneys. In addition, the cost of producing electronic discovery can be astronomical for the ill-prepared company. Companies can be forced into crippling strategies.” For example, if a company has 20,000 backup tapes retaining information over a number of decades, a court order mandating that it produce that data as evidence may prompt the company to accept a costly settlement to avoid the even higher cost of producing such data.

To Save Or Not To Save

The problem is two-fold. First, most companies retain far too much digital data. Second, most organizations are not prepared to efficiently, properly and economically review and produce relevant data when required by discovery to do so.

“The data-retention problem is daunting,” Jessen said. “Corporate information systems departments, by and large, historically have retained everything that was created electronically.” As a result, vast repositories of electronic data have accumulated, which are all potential targets of electronic-discovery requests. Plaintiff’s lawyers and prosecutors routinely target this repository of data, and companies hit with discovery requests learn-to their dismay-that producing the data is costly and disruptive.

What To Do?

So how can companies prepare themselves for litigation in the digital age? Jessen says legal and IS departments should:

• Conduct a logical, systematic and comprehensive analysis of the corporation’s hardware, software, policies, procedures and electronic data to identify potential litigation liability
• Analyze aging data to determine what must be saved and what can be discarded
• Develop a comprehensive litigation response plan that enables legal and IS departments to quickly and economically respond to electronic discovery requests
• Eliminate risk-creating practices and restructure systems that cause the accumulation of data that is unnecessary for legal or business reasons (including backup systems, internal networks and electronic mail)
• Reduce risk and discovery costs by using software programs that systematically erase all deleted files on a pre-scheduled, company-wide basis
• Create and implement policies and procedures regarding electronic-data-retention and electronic-systems usage, addressing issues and practices involving e-mail, backup systems, encryption, Internet, home computer usage and others
• Train corporate staff in appropriate policies and practices regarding electronic data
• Conduct periodic audits to ensure continued compliance with stated policies

Some law schools such as UCLA are already offering electronic discovery classes, and such aggressive plaintiff firms as Milberg, Weiss, Bershad, Hynes & Lerach, LLP, are carefully examining electronic discovery issues for their own practices.³

Conclusion

As illustrated by the Microsoft, Sprint and Hughes cases, when a company fails to understand or disregards the crucial role that electronic information plays in litigation, the results can be very costly. If a company is not prepared for the discovery of electronic evidence, it can be faced with sometimes overwhelming requests that may end with unnecessarily high production costs or unfavorable settlements. Without proper preparation, a careless mistake (such as the overwriting of backup tapes by Sprint & Hughes) could result in sanctions and high-profile legal defeats. Details such as turning over the electronic evidence in a proper format, modifying standard backup procedures to ensure proper preservation of relevant data, and ensuring cooperation between different departments within a corporation are further reasons that a company should be prepared long before it is actually involved in a lawsuit.

Effectively addressing electronic evidence in litigation can be difficult, requiring companies to make fundamental changes in records retention and other important practices and policies. However, once those changes have been made and a company has implemented an effective program for retrieving and evaluating its own data, the company will be at a tremendous advantage in litigation.

Companies that reduce the accumulation of unnecessary data will be less vulnerable to electronic data in litigation, can slash their litigation costs and assure their systems will run more efficiently. 

Notes
¹ Topic H-8, Practical Risk Management (12/98)
² John H. Jessen, can be reached at 206-343-0131 or by e-mail at jessen@eedinc.com.
³ See Recent Developments in the Area of Spoliation of Evidence, American Law Institute (1997).

ABOUT THE AUTHOR

Tony Polk is a legal journalist and can be reached at 213-386-8898, ext. 11, or by e-mail at tpolk@earthlink.net. Electronic Evidence Discovery provides electronic discovery and processing services to litigants and electronic risk reduction services to corporate law departments.

riskVue | The webzine for risk management professionals
October 1999