On Dec. 1, 2006, the Federal Rules of Civil Procedure (FRCP) will be amended to respond to some of the problems facing businesses regarding discovery of electronic information including the maintenance, production and acquisition of electronic data and documents in litigation. These amendments will apply only to litigation pending in federal courts, although many state courts have enacted their own rules governing "e-discovery" or have study panels working on those issues. In March 2005, Waller Lansden suggested steps that businesses could take to stay ahead of the e-discovery curve in our bulletin Electronic Discovery-Practical Considerations for General Counsel and Risk Management Executives in Advance of Inevitable Litigation. While some of the federal rule amendments simply recognize the existence of "electronically stored information" (ESI), others have the potential to alter significantly the way businesses and their counsel approach federal cases involving electronic information. Among the most important changes are: (1) increased protections for electronic information that is stored in forms deemed "not reasonably accessible," (2) creation of a "safe harbor" from sanctions for electronic data lost through the "routine" and "good-faith" operation of a computer system, (3) the creation of a "claw-back" procedure for retrieving inadvertently produced information subject to the attorney-client privilege or work-product doctrine, and (4) increased emphasis on the litigants_ working out e-discovery issues at an early stage of the litigation. Treatment of Electronic Information Deemed "Not Reasonably Accessible" Recognizing the expense and difficulty of obtaining certain forms of electronic information, the FRCP will permit a party responding to discovery to avoid producing electronic information stored in forms that the party "identifies as not reasonably accessible because of undue burden or cost." While the FRCP does not provide examples of such forms, probable categories include "data tapes" stored for disaster-recovery purposes, data stored on unused and obsolete systems and possibly "deleted" but recoverable information. The party seeking discovery may challenge a "not reasonably accessible" designation as inappropriate or if it considers the information sufficiently important to the case. In such a challenge, the party withholding the information will have the burden of showing the information is "not reasonably accessible," and the party seeking the information will have the burden of showing that the information is sufficiently important to the case that it should nevertheless be produced. Although the FRCP does not specifically address the issue, courts presumably will still have the option of shifting some or all of the cost of producing such information onto the party seeking it. "Safe Harbor" Against Sanctions The most controversial amendment to the FRCP related to e-discovery is the creation of a "safe harbor" against sanctions. As our prior client bulletin discussed, litigants have been sanctioned, sometimes harshly, for failing to preserve relevant electronic information. Through this new amendment, the FRCP will recognize that companies delete, overwrite and alter data routinely or automatically in their day-to-day operations. The FRCP provides that outside of "extraordinary circumstances," a party will not be sanctioned for losing electronic information "as a result of routine, good-faith operation of an electronic information system." Parties have an obligation, however, to preserve electronic information as soon as litigation appears probable. Therefore this "safe harbor" amendment may not be as significant as it first appears. Under best practices, parties should continue to implement relatively aggressive "litigation hold" strategies as soon as litigation appears probable, including the sequestering of electronic data that is apt to be relevant to the anticipated litigation. The "Claw-Back" of Inadvertently Disclosed Privileged Information This amendment may be the most significant because, unlike the others, it is not limited exclusively to electronic information. It focuses, rather, on privileged information - information that, despite its relevance, is not subject to discovery, so long as it remains confidential. Electronic information has substantially increased the overall amount of information that must be processed during litigation, which, in turn, has increased the likelihood that privileged information will be accidentally disclosed in litigation. This amendment addresses this problem. Under this amendment, if the party asserting the privilege properly notifies the party receiving the privileged information, the receiving party "must promptly return, sequester, or destroy the specified information" and even take "reasonable steps" to retrieve any copies of the specified information from any other persons to whom it was disclosed. If the receiving party disagrees with the assertion of privilege, it may seek the court's assistance to determine whether privilege is being properly asserted. Crucially, this amendment leaves unanswered whether a party following this procedure automatically preserves the privilege against a claim that the party waived the privilege by inadvertently disclosing the information. If courts look to previous law on inadvertent disclosure of privileged information, they may well decide that it does not. Parties must continue to exercise extreme care in reviewing information, electronic and otherwise, for privilege before production in litigation. Conference on E-Discovery Issues Early in Litigation This amendment may have the most immediate effect. The FRCP already provide that litigants must "meet and confer" about a wide variety of issues early in the litigation and typically before discovery can be initiated. Among other things, the parties are supposed to agree, or attempt to agree, on how discovery is to be conducted. This amendment now requires the parties to discuss specifically "provisions for disclosure or discovery of electronically stored information." These e-discovery issues include those addressed above, as well as any number of issues specific to the particular case. As our prior bulletin explained, it is important for counsel to become familiar with the client's document-retention policies and data-storage architecture, as well as the basics of data storage. This amendment only increases the importance of obtaining this familiarity, so that counsel can be adequately prepared for the conference. Counsel will have no choice but to address these issues intelligently and knowledgeably usually before it is clear what information will be sought. In addition, counsel also must become familiar with the various formats (e.g., PDF, TIFF, etc.) in which electronic information can be produced, and decide whether certain information should be produced in a standard, agreed-upon format, or should be produced in its "native" format (i.e., the format in which it was originally created). If you have any questions regarding electronic discovery or the information in this bulletin, please contact Robb Harvey, Rick Sanders or any other member of Waller Lansden's Trial and Appellate Practice or Intellectual Property Practice at (615) 244-6380. The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.