One year after revisions to the Federal Rules of Civil Procedure were put in place to address confusion and increased costs associated with electronic discovery, corporations are still struggling to comply with the new guidelines.

“Companies are taking a pro-active approach to electronic discovery,” says Allison L. Brecher, who is litigation counsel and e-discovery coordinator at Marsh & McLennan Cos. “The burdens of compliance, though, remain very difficult.”

Although it may be too early to gauge the ultimate impact of the rules, which went into effect on Dec. 1, 2006, attorneys agree that businesses are spending more money and time on electronic discovery.

The stakes are high. Companies that neglect the new obligations may face sanctions if they cannot produce evidence sought in litigation.

The short-term burdens of complying are reflected in several recent surveys. Some of the findings:

* Almost 55 percent of the 140 in-house counsel surveyed by the e-discovery consultant Lexakos said their companies needed to spend more time developing e-discovery and litigation readiness plans.

* Fifty-two percent agreed that they had to improve their litigation hold procedures, which require companies to preserve all data that may relate to a legal action involving the company. And almost half expressed the need to develop a process to segregate privileged communications and thus avoid high document review costs.

* Of the 76 people surveyed by Lexis Nexis at the Association of Corporate Counsel’s annual meeting, 44 percent said that their companies had not been prepared for the new rules. Although 61 percent said they were now very or somewhat confident that they were fully compliant, 30 percent still said that they were not very confident and 5 percent not at all confident.

* Twenty-seven percent of respondents to a litigation trends survey released earlier this year by Fulbright & Jaworski said that the rules have made handling of e-discovery issues in federal litigation more difficult. Eighteen percent said they have made the process at least somewhat easier. The remainder detected no change.

The amendments include revisions and additions to Rules 16, 26, 33, 34, 37 and 45, as well as Form 35. Among the matters addressed were the definition of discoverable material, the procedure for asserting privilege or work product after production and the early attention to electronic discovery issues.

The new protocols have made e-discovery compliance a prime litigation issue. H. Christopher Boehning of Paul, Weiss, Rifkind, Wharton & Garrison says that cases are increasingly being dismissed or companies heavily sanctioned based on the loss of electronic evidence.

“Cases are being derailed as a result of discovery issues,” Boehning says. “You want cases to be decided based on the merits, not on an e-discovery sideshow.”

So far, Boehning says, the rules have not improved the situation.

“Everybody is still trying to find their way,” he says.

Under the revised rules, parties have no initial duty to produce electronic data that is reasonably identified as inaccessible. A judge, however, can still order the evidence to be produced if she or he deems that there is good cause.

The rules also allow for a subpoena to be served to “permit inspection, copying, testing, or sampling” of electronically stored information.

This occurred in a recent U.S. District Court for the Southern District of New York case, Bridgeport Music v. UMG Recordings. In this copyright infringement dispute, defendants UMG Recordings, Napster, Apple Computer and Yahoo! deposed attorney Stewart L. Levy, a nonparty, during discovery and subsequently issued a subpoena seeking production of certain licensing agreements for “new media.”

Bridgeport Music and Southfield Music argued that production of these documents would be unduly burdensome. But U.S. Magistrate Judge James C. Francis IV disagreed. He ruled that the burden of production was “not so great as to justify quashing the subpoena, even if it is imposed upon a nonparty such as Mr. Levy.”

Costs for complying with the new discovery rules can run into hundreds of thousands of dollars.

Courtney Ingraffia Barton, an attorney who is vice president of industry relations for LexisNexis Applied Discovery, and Deborah House, Association of Corporate Counsel’s vice president and deputy general counsel, say one of the biggest challenges companies are facing is securing the resources to implement a system that addresses electronic discovery issues.

David J. Lender, a partner in Weil, Gotshal & Manges, acknowledges that creating an electronic document preservation system is costly, but says that companies save money in the long run, because they save on litigation expenses by having a system already in place.

And Adam I. Cohen, co-chairman of the New York State Bar Association’s e-discovery committee, says that a documented process for handling information is beneficial in litigation.

“If mistakes are made you can defend your good faith by showing that you have devoted resources and developed methods” for dealing with this type of data, Cohen says.

Brecher of Marsh & McLennan, says her company was using a “team-based” approach.

“We are partnering with the IT department, and educating each other,” Brecher says.

She says that sometimes this education takes the form of training sessions and may involve bringing an information technology colleague to an e-discovery seminar.

Patrick Oot, director of electronic discovery and senior counsel in Verizon’s legal department, says his company has developed a litigation manual that identifies the company’s policies with regards to electronic document preservation. It also identifies the specific actions that information technology and in-house legal counsel must take.

He says that having some type of efficient and uniform process for dealing with data requests is “invaluable.”

However, Robert D. Owen, a partner in Fulbright who is co-head of the firm’s e-discovery and information management practice group, says that rather than instituting e-discovery policies, many companies have decided to play “the e-discovery lottery.”

“They have decided to take the chance that they won’t be hit,” Owen says. “It’s a gamble.”

Beth Bar is a reporter with the New York Law Journal , a Texas Lawyer affiliate in which this article originally appeared.