Corporations Spend To Avoid Liability in Paperless World

These days it's a good idea to assume any e-mails, text messages, or other pieces of electronic data can be retrieved by forensic information technology experts — no matter how well you think you've deleted or disposed of the information.

The paperless society — especially as it plays itself out in corporate America — has radically changed the way everyone does business. And in-house counsels will argue that their jobs have changed dramatically as a result.

The Argyle Forum's annual conference for chief legal officers yesterday revealed that in-house lawyers are facing a new list of considerations concerning electronic discovery, especially when it comes to companies whose trade secrets are in danger of being stolen by rogue employees.

Federal rules now fully recognize sources of information that are stored electronically. The most prudent and careful companies would do well to set up thorough electronic document retention policies, a panelist at the forum, a partner at Cadwalader, Wickersham & Taft, Jonathan Hoff, said. "Electronic discovery isn't the most entertaining topic, but it should attract the attention of corporate America," he said.

Mr. Hoff said it is imperative for companies to educate their employees on what they can communicate over electronic channels — as well as what they shouldn't be saying. "People think they've deleted emails, but most of the time they're not really deleted," he said.

Intel Corp.'s senior vice president and general counsel, Bruce Sewell, told the forum that he is working on a lawsuit that has so far involved 17 million documents, most of them stored electronically. "And we're in an early phase," he said.

Intel employs 1,000 document custodians who sort, file, and screen various company transmissions at any given time, Mr. Sewell said. "Think about it: Intel has 98,000 employees around the world, each with access to a networked PC. They're each sending 50 to 100 e-mails a day, many with attachments. The quantity of information being transmitted in a 24-hour period is staggering," he said.

Mr. Sewell said retention efforts help large companies cope with finding evidentiary needles in haystacks. "You have to devote an enormous amount of resources to save everything. It's better to have sophisticated programs that screen for keywords, because most of what is being e-mailed is irrelevant to your case," he said.

Another hot topic at the Argyle conference was the changing scope of 10b-5 filings, or general securities litigations. The amount of securities class actions filed annually in America has dropped by nearly half since the beginning of the decade (to 130 from 250), but the settlement amounts of those suits have skyrocketed, a panel of legal experts said.

Improved corporate governance has contributed to the drop in the number of filings, and so have recent court actions that have clarified criteria on when such cases should be dismissed. But larger stock market losses in the past few years have seen more complex cases filed with generally higher settlement values.

The senior managing director of forensic & litigation consulting at FTI Consulting, Stephen Prowse, urged lawyers to brush up on Monday's U.S. Chamber of Commerce report that recommend giving the Securities and Exchange Commission more flexibility to interpret Sarbanes-Oxley. The report also suggests that companies consider minimizing earnings guidance.