As business rapidly shifts to electronically stored information (ESI) and the cost of storage drops dramatically, organizations have been saving massive amounts of data — endless iterations of documents memos, emails, PowerPoints, etc. All of this data comes back to haunt the organization the moment even the possibility of litigation looms.

The 2006 revision of the Federal Rules of Civil Procedure (FRCP) elevated ESI to a prominent position in civil litigation. At the same time, the steadily falling cost of data storage was leading organizations to pursue a save-everything strategy because it was cheaper to store electronic data than to cull it. The combination of the two, FRCP and cheap data storage, left massive amounts of data as a sitting duck for anyone pursuing litigation.

“The problem is that so much information sits on a server and becomes a corporate record. That creates a huge risk exposure,” says Tom Russo, adjunct professor, Widener Law School, and president of doeLegal, a litigation management company, Wilmington, Del.

How big a risk? The cost of such litigation can get ridiculously high. Purdue Pharma L.P. spent more than $400 million defending consumer claims against its drug product, OxyContin, as reported in The Wall Street Journal. A big part of that was the cost of searching through massive piles of ESI, a process called ediscovery.

OK, maybe Purdue Pharma represents an extreme case. Still, if the ediscovery part of just one lawsuit costs 10 percent of that, what does that do to your balance sheet?

Companies are shoring up their litigation defenses mainly by purchasing a wide range of technology tools intended to streamline and manage the ediscovery process. This is turning into a multibillion-dollar market.

Socha Consulting, a firm that produces the annual Socha-Gelbmann ediscovery survey, estimates that 2007 commercial electronic discovery revenues ran about $2.8 billion. The firm projects an increase of approximately 21 percent for 2008, another 20 percent in 2009, and 15 percent more for 2010.

Gartner teamed with Socha in 2008 to produce its ediscovery vendor marketscope. The leading vendors were CT Summation, IBM, Epiq Systems, Kazeon, iCONECT, Mimosa, Lexis Nexis, PSS Systems, Recommind, and Zylab. At one point, Socha estimated that almost 1,000 companies and service providers offered ediscovery capabilities of some sort or another.

But technology, although it can help, doesn’t really address the underlying problem of too much data sitting around needlessly. “The way to reduce exposure is to groom electronic data and be careful how it is preserved. That means don’t keep 15 years of backup data on tape if it is only intended for disaster recovery,” says Russo. No company’s survival should have to rely on recovering 15-year-old data.

Also get rid of email, fast. “People use email as their personal file room. That’s an invitation to go after your data,” says Russo. Instead, create sensible retention policies that specify the elimination of data as soon as it loses its business value. For compliance, keep only what you have to keep and not a moment longer than required. If you define, communicate, and consistently enforce your retention policies, you should have little to worry about from an ediscovery cost standpoint when litigation hits. ###