Baker Hostetler New York attorneys Fernando Bohorquez and Alberto Rodriguez authored “How to Keep the ‘Cloud’ from Bursting in Litigation,” which appeared in The National Law Journal on December 20, 2010.
The article details how many companies are now exploring the use of online business services and emphasizes the importance of properly managing electronically stored information (ESI).
“Online business services, commonly referred to as ‘cloud computing,’ promise significant cost reductions, potentially saving a company as much as 50% in information technology labor expenses,” the authors explain.
The authors point out that cloud computing also has its downside in that it can add risk to a company’s ability to monitor data that it maintains with third parties. That risk is increased when a company faces litigation.
“In-house and outside counsel, charged with fulfilling discovery obligations under the Federal Rules of Civil Procedure, face particular challenges because they have a duty to stay on top of electronic information that has made its way onto the ‘cloud.’” Under the Federal Rules and case law, “counsel have an obligation to become sufficiently familiar with their client's ESI to comply with discovery duties to identify, preserve and produce relevant information.”
They continue, “The better company counsel understands how cloud vendors handle their company information, the easier it will be to manage and mitigate e-discovery costs should litigation arise.”
The authors note that e-mail is a very common form of ESI and is frequently requested during discovery. Counsel should be familiar with the terms of any agreement with a cloud-based corporate e-mail service provider to understand the location, retention and accessibility of this ESI before the onset of litigation. Counsel should further implement a plan for identifying ESI maintained by third-party cloud-computing vendors.
“Another important risk-preventive step is to evaluate current or prospective cloud-vendor agreements to determine how much control the company actually has over its information and assess potential e-discovery risks,” the authors add.
The authors conclude by stating that “companies engaging in cloud-computing services need to understand that, although they may have outsourced IT services to a third party, they have not outsourced their discovery obligations. Not only does it make good business sense to be prepared to meet those duties, courts are making crystal clear that the penalties for failing to preserve relevant ESI can be severe and felt by a company and its counsel.”
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