Cloud Computing Raises Issues of Privilege, Billing, Ethics

CORRECTED September 6, 2011 Cloud Computing Raises Issues of Privilege, Billing, Ethics for Attorneys

With the proliferation of electronic discovery (e-discovery) in recent years and the increasing costs related to electronically stored information (ESI), many firms are turning to cloud computing as a solution for their data storage needs.

"Cloud computing/shared hosting raises issues for both the corporate client and the in-house counsel. For the corporate client, it adds an extra layer of complexity in the client's attempt to preserve trade secrets. For the in-house counsel, it invites the specter of a waiver of attorney-client privilege. These issues, along with a host of others, should be considered before a decision to move to shared hosting is made and must be addressed in any contracts with providers," Paul D. McGrady, Jr. of Greenberg Traurig told the LexisNexis® In-House Advisory.

Among the concerns for law firms – and therefore corporate clients – is cost. The proliferation of ESI began in 1985 with the advent and rapid adoption of email and other forms of electronic information by individuals and businesses.

Michael Arkfeld, founder of Arkfeld & Associates, told the Advisory that discovery of ESI increased starting in 2006 with a series of revisions to the Federal Rules of Civil Procedure.

“Prior to that time, ESI was always discoverable. [The courts] just incorporated that or perpetuated it in amendments. What’s happened is that it’s causing expense to the law firms and the ESI we’ve seen today is increasing rather rapidly,” Arkfeld said.

“A majority of the law firms today don’t charge for their ESI storing or handling,” said Arkfeld. “And so it’s a backwards kind of thing going on. The only other thing you can do is to obviously increase your hourly fee and keep the expense of your IT and your ESI as part of the overhead.”

Arkfeld is scheduled to speak at “Ethical Cost Recovery, Data Hosting and Cloud Computing” a complimentary CLE-accredited webinar provided by LexisNexis® on Sept. 20, 2011.

Overhead or Expense?

Arkfeld compared ESI costs to the older practice by law firms of charging for photocopies. “They’re trying to recoup the money for something that’s not advice-giving or practicing law. You know, it’s kind of an expense of the firm. So you have to be careful there as to whether it’s overhead or it’s a disbursable type of expense,” he said. Arkfeld said that law firms facing this increasing need for ESI storage as well as an increasing caseload have two options – either maintain the data in-house or go offsite.

“If you remain inside it’s becoming more complex,” he warned. “Just like the rules in cases are becoming more complex, IT is also,” which is why he recommends that law firms investigate using cloud computing as an alternative.

“Essentially you take your whole IT structure platform or structure within your law firm offsite and you move it to a more secure location, but you’re still in control of your applications,” he said.

The cloud computing can either be on a private server that the firm owns or leases, which no one else has access to, or a public server, where the firm shares the server with other parties. He said that the private OR PUBLIC server offers the advantage of allowing the firm to scale up or scale down based on its current needs.

The Security Challenge

“I think cloud computing has gotten a bad name, primarily because of the security violations that we’ve seen occur across the country. And those haven’t stopped. They will occur in the future,” said Arkfeld.

Another issue is how to handle the costs of cloud computing. “How you handle those is an ethical issue as well as a client relation issue,” he said. “What the ethical rules say is that you want to get a consent and agreement if you want to charge your clients for something other than just their reimbursable costs … so the way you do that is through an agreement.”

Arkfeld also recommended that firms investigate the use of a trusted service provider to help them utilize cloud computing to their full advantage.

“It’s really a turning point for law firms. They can either increase their billable hours… do a consent agreement and keep it in house, or move to a cloud computing system. If you keep it in house, I think you’re moving away from your core competency of practicing law,” Arkfeld cautioned.