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Wednesday, April 4, 2007

Go Ahead, Sue Me!

It is a truism to say that it is easier to dispense advice than to follow it, and with good reason. How many venture capital firms practice the financial discipline they preach to their portfolio companies? How many management consulting companies employ the innovative management theories they advocate to their clients? And how many technology companies actually leverage leading-edge technology to solve their own business problems?

The answer, at least based on my experience, is “not very many”. For example, if you look at Silicon Valley’s leading technology companies, the vast majority do not have an e-discovery solution in place. Yes, there are some exceptions but for the most part, when it comes to e-discovery, the likes of eBay, Google, Yahoo, and (until recently) Intel have preferred to muddle through with manual, error-prone, expensive processes.

The justifications are typically the same. Some technology companies argue that they don’t need a legal discovery solution because theirs is not a litigious industry; others say they delete everything off their Exchange servers within three weeks and so don’t have any email to discover; all agree that things like email and document retention policies are needlessly bureaucratic.

The danger of this “we- don’t- need- car- insurance- because- we- will- never- have- an- accident” approach has been brutally exposed in the past few weeks by the painful experience of Intel. In case you missed the press coverage: AMD sued Intel for anti-trust violations. Like any company on the receiving end of a subpoena, Intel was obliged to provide opposing counsel with all email and documents relevant to the case.

If Intel had an e-discovery solution, that would have been a straightforward process. Intel’s IT group would simply identify a group of messages by date range, person, and perhaps keyword within their larger email archive. The legal group would then use an analysis product to cull down the messages to only those relevant to the case. The whole thing would take a few days. But that’s not what happened. Since Intel did not have an e-discovery solution, the company had no simple way to preserve and analyze the relevant data. Intel’s legal department was obliged to inform over a thousand employees that they could no longer delete data at will. Somewhere along the line, the message did not get through and employees kept on deleting. As a result, Intel was forced to go back to the judge with the proverbial “the dog ate my homework” defense, while AMD cried foul.

How much this costs Intel is yet to be determined. But my guess is that they will end up spending more on lawyers to fix the mess than they would have spent on an e-discovery solution that would have avoided the problem to begin with.

While I have given up on venture capitalists and management consultants, I remain optimistic that the technology industry will practice what it preaches and leverage technology to solve its own business problems in e-discovery. As Intel discovered, it is not enough to have smart lawyers on staff. You also need to equip them with an e-discovery solution that allows them to preserve and analyze information relevant to the case.

To do otherwise is an open invitation to your competitors to sue you. Just ask Larry Ellison – or better yet, SAP.

1 comment:

Sean said...

My wife and I were walking around our local downtown and walked by a brand new red Ferrari. To our surprise, attached to the steering wheel was The Club. Do you remember these devices? It’s basically a $19 gadget that any bumbling thief could remove (car thieves routinely froze & busted the lock to remove it)--and they were using it on a $100k+ Ferrari!! I’m sure there was also a sophisticated alarm but it made me think about this post and how companies worth billions of dollars are not protecting themselves appropriately.