Federal Rule 502 Opens the Door to Driving Down Organizational eDiscovery Costs and Risks

If compliance and eDiscovery were not already on the radar screen of every business prior to this current financial crisis, they better show up there pretty quickly. History tells us that anytime there is a financial crisis, more government regulations emerge that call for more visibility into corporate data stores and shorter time frames in which to produce requested information. But as Congress starts to have hearings and draft new legislation in response to this crisis, a question that companies need to answer now is who will pay for the technologies that they need to comply and which line item on whose budget should pay for it?

In the last few years, companies in all industries have faced an almost unprecedented wave of changes to existing rules as well as the introduction of new rules with which they are expected to comply. For instance, the Federal Rules of Civil Procedure (FRCP) were updated in December 2006 so that the inability to produce electronically stored information is now unacceptable. Corporate legal counsel must meet to negotiate what material will be disclosed, how it will be produced and in what timeframe. According to FRCP 26(f), most of this activity must be completed within 120 days of lawsuits being served in court.

However there is some good news on this front. To comply with the FRCP, companies are sometimes put in the position where they need to spend exorbitant amounts of money to produce information as well as avoid sharing information that is not germane to a case. If companies are not careful, they can inadvertently share information that is beyond the scope of what they are required to disclose.

In so doing, they provide the court and/or prosecution new information to pursue other lawsuits. To prevent this from happening, companies first do in-depth reviews of all documents that they plan to share which, in some cases, adds tremendous costs to the process, especially if there are time constraints and large volumes of data to review. The costs are incurred because companies need to hire third party consultancies to come in and do this review for them which tend to require a manual review process.

To take some of the risks and costs out of the eDiscovery process, Rule 502 was recently added to the Federal Rules of Evidence and signed into law by President Bush on September 19, 2008. The intent of this new rule is to help control eDiscovery costs and give companies some protection in the event that they inadvertently share information. If they do accidentally share information that is beyond the scope of the case, they are not automatically called into account for it.

Rule 502 frees companies to look at technology such as the Kazeon Information Server that searches, classifies and acts on documents without requiring the introduction of specialized and costly third party consulting firms to do it for them. But here’s the catch – companies may already have a line item in their budget to hire an outside consulting firm to do eDiscoveries the old way. However now that Rule 502 exists, it gives companies more freedom to perform eDiscoveries themselves since there is less risk associated with sharing information. The new problem becomes who in the organization – IT or Legal – owns the budget and is responsible for purchasing a solution like the Kazeon Information Server?

Obviously there is no one right answer to this question but, as a rule of thumb, it can be argued that the budget for this technology should reside with the IT department. While the Kazeon Information Server does eDiscoveries and certainly can be paid for by Legal, it also performs other functions such as classifying files and documents and then taking action on them. Managing these functions is historically done by corporate IT.

The difficulty in implementing new technology that expedites eDiscoveries was to date limited by the need to restrict how much information companies could share and under what circumstances. Rule 502 removes some of those barriers and, in so doing, creates new opportunities for companies to lower their short and long terms costs associated with eDiscoveris while solving other strategic information management problems.

eDiscovery must no longer remain an afterthought in corporate budgets but needs to become its own line item in IT and/or legal budgets. Sufficient evidence has accumulated over the last few years to demonstrably show that eDiscovery deserves as much or more attention than other areas within the IT and Legal decision making processes.

eDiscovery will only receive the appropriate level of attention within companies if they allocate monies for it. Rule 502 mitigates some of the risks of eDiscovery while opening the door for corporate IT and Legal to collaborate and bring eDiscovery in-house. But that will only occur if Legal and IT come together to make the best possible decision for the company that will prepare it to pro-actively anticipate and prepare for litigation rather than reacting to litigation as the company does now.

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