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Companies Face New Rules on Keeping Data

U.S. companies will need to know more about where they store e-mails, instant messages and other electronic documents

(Washington) U.S. companies will need to know more about where they store e-mails, instant messages and other electronic documents generated by their employees in the event they are sued, thanks to changes in federal rules that took effect Friday, legal experts say.

The changes, approved by the Supreme Court's administrative arm in April after a five-year review, require companies and other parties involved in federal litigation to produce "electronically stored information" as part of discovery, the process by which both sides share evidence before a trial.

Federal and state courts have increasingly been requiring the production of such evidence in individual cases. The new rules clarify that the data will be required in federal cases.

Under the new rules, an information technology employee who routinely copies over a backup computer tape could be committing "virtual shredding" once a lawsuit has been filed, said Alvin F. Lindsay, a partner at Hogan & Hartson LLP and expert on technology and litigation.

Companies still could routinely purge their archives if the data aren't relevant to cases companies have pending or expect to face, though specific sectors such as financial services remain governed by other data-retention rules.

The new rules make it more important for companies to know what electronic information they have and where, especially because of a provision that requires lawyers to provide information much earlier than before on where their clients' data are stored and how accessible they are.

Large companies are likely to face higher costs from organizing their data in order to meet those deadlines, said James Wright, director of electronic discovery at Halliburton Co. Besides e-mail, he said, companies also will need to know about things more difficult to track, like digital photos of work sites on employee cell phones and information on removable memory cards.

There are hundreds of "e-discovery vendors" and these businesses raked in approximately $1.6 billion in 2006, Wright said. That figure could double in 2007, he added.

Lawyers will have to spend time reviewing electronic documents before turning them over, Lindsay said. Although electronic searches can help narrow the amount of data, some high-paid lawyers will still have to sift through casual e-mails about subjects like "office birthday parties in the pantry" to find the relevant information, he added.

But Martha Dawson, a partner at the Seattle-based law firm of Preston Gates & Ellis LLP who specializes in electronic discovery, said companies will not have to alter how they retain their electronic documents. Rather, she said, they will have to do an "inventory of their IT system" in order to know better where the documents are.

The new rules also provide better guidance on how electronic evidence is to be handled in federal litigation, including guidelines on how companies can seek exemptions from providing data that isn't "reasonably accessible," she said. This could actually reduce the burden of electronic discovery, she said.

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