In December 2006 the U.S. Federal Rules of Civil Procedure were amended to address electronically stored information, with the result that ESI is now subject to discovery, meaning it can be requested as evidence in court cases.

Most corporate legal departments understand these changes, but many company management teams and departments that create and manage ESI may not be aware of their exposure should they get involved in litigation. The consequences of not creating a proactive electronic discovery (e-discovery) process can be fines, unfavorable judgments and increased operating costs. All of these can result in diverting attention from running the business, as well as costs in money, time and corporate reputation.

ESI is defined as a distinct category of discoverable information, separate from print documents. ESI includes structured data (such as database archives) and unstructured data, which may include e-mails, instant message logs, Word documents, PowerPoint presentations, scanned documents and more.

E-discovery is the process of identifying, collecting, preserving, reviewing and producing relevant electronic data or documents as evidence for use in financial investigations and/or litigation. Knowing what ESI is relevant can be complex, and standards for handling ESI are still emerging. One thing is clear, however: The ability to quickly access the right ESI and identify authors of the information is critical to limiting risks.

E-discovery risks range from quantitative (such as fines, unfavorable judgments and increased operating costs) to qualitative (such as corporate reputation and loss of intellectual property):

Fines and unfavorable judgments — Courts can impose large fines for noncompliance with production requests for discoverable information. Furthermore, companies unable to provide proper discoverable information assume a plea of guilty.

Increased operating costs — Companies taking a case-by-case approach to e-discovery risk facing costly, repeat fire drills when litigation comes up. One unprepared company was given six weeks to come up with ESI and had to assign 10 people to work 50-hour weeks (some of them lawyers charging $600 an hour). Disclosure for this $50 million fraud investigation cost the company $10 million.