New Data-Archiving Rules Impact IT Managers

New rules that compel companies to produce electronically stored information for civil litigation could boost demand for solution providers who sell systems for tracking and archiving e-mail, electronic documents, digital images and spreadsheets.

At the very least, the Federal Rules of Civil Procedure, which took effect Dec. 1, are forcing many IT managers to take a second look at their electronic record-archiving policies. That, observers say, could increase spending in 2007 and beyond for data-storage hardware and document-management applications.

"We call it 'The Enron Effect.' These new rules will definitely increase our business," says Esther Falconer, president of A! Consulting Group, a Newport Beach, Calif., solution provider that resells Zantaz' EAS e-mail archiving system and electronic data discovery and litigation support applications to law firms.

In the past, courts have awkwardly applied electronic records rules for producing paper documents for civil litigation -- everything from shareholder lawsuits, to Securities and Exchange Commission investigations, to patent disputes and product liability cases. Under the new Federal Rules of Civil Procedure, businesses have 120 days to turn over electronic documents requested as evidence in civil cases. And if that information is going to be prohibitively difficult or expensive to produce, the onus is on the business to prove that to a judge. While the rules specifically apply in federal courts, state courts are likely to adopt them as well.

The rules don't specify what electronic records businesses must retain or for how long. Companies, in fact, are allowed to purge unneeded electronic documents as part of their regular data retention practices, but not if they have been requested for a civil case. Last May, financial services giant Morgan Stanley paid a $15 million fine to settle an SEC charge that it destroyed e-mail pertaining to an SEC investigation into Wall Street business practices.

The upshot: IT managers are figuring out that they must be more proactive in developing policies for what electronic records they retain, for how long, and how and when to dispose of those documents.

"In-house [legal] counsels are going to CIOs to understand their company archiving policies and procedures. And in some cases, CIOs are responding: 'What archiving?'" says Jim Addlesberger, president of CEO of Zantaz reseller NavigateStorage, Concord, Mass.

"Most companies are woefully unprepared for these rules," agrees Craig Rhinehart, vice president of compliance products and markets at FileNet, the content management software vendor acquired by IBM in October for $1.6 billion. "This is a big problem and, ergo, a big opportunity."

NEXT: What's in it for solution providers. Most vendors and solution providers have yet to see a surge in demand for their products and services spurred by the new rules. But the opportunities for solution providers are likely to grow. At one level, demand for data archiving and protection systems like those provided by NavigateStorage is likely to increase as businesses begin to understand the new requirements.

The rules are also likely to drive demand for solution providers with expertise in developing policies and business processes for retaining, protecting and disposing of electronic records. Solution providers like A! Consulting Group that combine data archiving technology and services with legal know-how will be especially sought after.

"This is where we look to partners and our distribution channel to provide expertise," FileNet's Rhinehart says. FileNet's flagship product, FileNet P8, automates the capture and storage of electronic documents. But FileNet relies on channel partners to provide proficiency in business processes such as managing legal records, as well as developing specific tools such as software used to "redact" documents (remove privileged or irrelevant information) before submitting them for litigation.

Zantaz relies on its channel partners, which range from large service companies like IBM Global Services to small "boutique" companies, to resell its EAS products, provide first- and second-level support, and offer a range of professional services such as expertise in document management processes. Zantaz's software, for example, includes a "policy engine" for setting parameters for archiving e-mails (such as determining which ones to keep and for how long), but it takes business and legal acumen to establish those parameters. That's one of the key services A! Consulting Group provides its law firm customers.

Along with Filenet and Zantaz, leading vendors in the electronic record management space include EMC, which offers a broad range of e-mail archiving, content management, data security and digital rights management systems; Network Appliance and its line of data storage, protection, archiving and compliance hardware and software products; OpenText with its Livelink ECM document and e-mail management and archiving solutions; and Symantec whose Enterprise Vault product helps businesses archive e-mails, instant messages, and other electronic records.

Anticipating the new Federal Rules of Civil Procedure, Symantec in August debuted a new release of its Enterprise Vault Discovery Accelerator tool for locating archived electronic records needed for civil litigation or investigations. The software helps legal teams enforce "legal holds" on material that needs to be retained indefinitely for litigation, says David Campbell, Enterprise Vault product marketing manager. (EMC provides a similar "lock-down" capability in its Documentum document management software.) Symantec also provides APIs to third-party developers of legal and e-mail analysis applications to link their software to Enterprise Vault and Discovery Accelerator.

Between 60 percent and 70 percent of Symantec's Enterprise Vault sales are through channel partners, Campbell says, and most of those sell to IT management. But Campbell says the new Federal Rules of Federal Procedure "effectively bring a business issue to the IT world" and offer solution providers the opportunity to meet up with business managers (such as those charged with records management) and corporate legal counsels " all in a position to influence IT buying decisions.

In a case of a vendor teaming up with a reseller to develop a solution to the "e-discovery" problem, OpenText unveiled in October Livelink ECM " Litigation Management, software for managing the process of searching for electronic documents needed for court cases. The package combines OpenText's records management software with TCDI's ClarVergence litigation-support applications. The combined software, which both companies sell, complies with the new federal rules, says Bill Forquer, executive VP of OpenText's compliance solutions business.

"Some of these e-discovery costs can reach millions and millions of dollars very quickly, even in a small case," says Bill Johnson, CEO of Greensboro, N.C.-based TCDI.

NEXT: The cost of locating e-records.

Calling in outside experts to help locate electronic records needed for litigation can cost upward of $50,000 per day. Businesses hope new electronic record archiving systems and policies will help reduce those costs, in addition to complying with the new civil procedure rules.

Some businesses turn to tape backup systems when facing demands for digital documents in civil litigation. But locating specific documents and e-mails on backup tapes that contain huge volumes of information is a tedious and expensive process.

"Backup tapes are meant for disaster recovery, not for finding documents," says Mike Gaines, EAS product marketing director at Zantaz.

And failure rates for reading data on aging tapes runs between 30 percent and 50 percent, says Manish Goal, vice president and general manager of data protection and retention solutions at Network Appliance. Businesses already are moving away from tape to disk for data backup and Goal thinks the new Federal Rules of Civil Procedure will accelerate that trend. He cites one customer, a major construction company, which digitally stores all its construction project designs and records in perpetuity.

But it may be 2008 before solution providers really see a surge in demand fueled by the new civil procedure rules, says Ron Tonts, president of XSM Systems, Vancouver, B.C., which sells e-mail archiving systems based on Network Appliance and Symantec products. (Canadian companies that do business in the U.S. will be subject to the rules.) That's because IT budgets generally lag technology needs by a year, he says.

He has a point. In a July survey of more than 600 IT decision makers for the VARBusiness 2006 Market Insight Mid-Market/Enterprise Report, only 32.1 percent said that addressing data storage utilization and archiving issues was a driver in their IT purchasing decisions.

It will be during 2007 that most businesses discover just how inadequate their electronic record management systems are, Tonts says, when they find themselves facing a lawsuit and can't find the electronic records they need.