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.