Susan Hall spoke with Marie-Charlotte Patterson, vice president of market strategy for records compliance management company AXS-One.

Hall: Can you briefly explain the difference between backup and archiving?
Patterson: Let's think about what backup is and what it's meant to do. Backup is meant to be a snapshot of something in your business, an application, and the reason for doing a backup is so you can restore your data back to that point in time. Therefore, you're really not concerned that you're going to be backing up the same data over and over and over again. All you're really concerned with is, if this application goes down, can I restore the data?

Now let's think about what an archive is and why a company wants to archive records. So as an introduction, AXS-One has been in the archiving business as a software vendor for about 15 years. We introduced our first archiving software back in 1993 and we developed it in conjunction with four of the largest banks in the world and with the SEC. The reason our customers wanted to archive was they needed to retain company records because of regulatory requirements. The SEC had changed regulation 17A and this required them to retain specific electronic records.

Generally, an archive, from our perspective, is about keeping business records generated by a specific application for a specific amount of time, with the understanding that you're going to need to access that record relatively quickly in the event of an audit by a regulatory body or litigation, an e-discovery request. And at the end of the retention period, you're going to delete it.

If you think about it in the old paper world, you'd have filing cabinets for your records, so a carbon copy would go in the file and after year two or five or whatever your company policy is, it would be shipped to an offsite vendor and those records would be kept for a certain number of years. What we're doing in the archiving world is the electronic version of that.

Hall: I understand the part about finding a specific item quickly is very central to that.
Patterson: Exactly. Where we see companies go wrong is that they haven't established archiving policies for electronic records and they're relying on their backups. Whether it's through IT or very often the business side of the house, because they don't understand what their IT system looks like, [the result] is that if we ever need to find that, it's somewhere in our backups.

There are two issues a company needs to think about. First of all, the massive IT cost and overhead of using your backup as an archive. Companies wind up hanging onto their backups for years and years and years and years, just in case. There's always this "just in case" thinking. If you're doing incremental backups, think about how many times in just a year you're saving the same information.

Now, even though the cost of storage in real terms has gone down, the overall cost of maintaining that information is monumental. It's a complete waste of company money. From a regulatory or litigation perspective, it's also problematic because if you're relying on backup tapes, it's a matter of where is it? We know the specific record we want to find is somewhere in this bunch of tapes, but we're not quite sure where.

What usually happens is that a big bunch of tapes will be shipped off to a tape restoration company, and there's this huge process of going through the tapes to recover the records you believe you want.

The risk there, apart from the cost element, first of all, is the time element. So we have customers, especially in the insurance business, which is so heavily litigated, that tell us, "OK, we're faced with litigation. Opposing counsel petitions the court and the court agrees on this particular discovery order and we have to hand over correspondence between the plaintiff and this part of our organization between date A and date B. So we'll go through all of our tapes at a massive cost — because it's very expensive to do this — and we'll hand over those records because they're part of the discovery order. Opposing counsel will look at those records and say, 'Well, actually, we know there's some additional records, so we're going to have to increase the scope of the discovery order.'" What are you going to do? You're going to have to do exactly the same work again, going through exactly the same tapes again because they're expanding the scope of the search. So say the original search cost a million dollars; the expanded search will be a million dollars plus whatever with the additional records.

The time lag factor is very significant, and as a result of the beginning of December's changes to the Federal Rules of Civil Procedure, companies don't have the luxury of that amount of time to conduct their searches. So that's a major issue.

The second thing, and again it falls into the concerns about changes to the federal rules, in the event of litigation — and there's verbiage about what that means — the company needs to place a legal hold, a case hold, on the records and that means you need to prevent someone in the company from accidentally or purposely deleting company records. Unless you have a systematic way to archive those records, it's very difficult to ensure that you haven't accidentally or purposely deleted records. We've seen companies time and time again falling into that trap.

I don't know if you've been following what's going on in the Intel vs. AMD case, but that particular issue has been at the center of the case, in that certain records have to be turned over and the way that Intel did its case hold was to send out an e-mail to employees whose records needed to be part of this case and said, "Don't delete anything," with the expectation that those records would be somewhere on a backup. And AMD has come back and said, rightfully, "Well, no, that's not the case. We know there are records missing here." And the courts have a very poor view now of companies that are managing their business in that manner.

Hall: What about companies that use instant messaging more than e-mail? How does that fit in?
Patterson: This comes down to companies' records management policies. And this is an issue near and dear to our hearts because AXS-One is an archiving vendor. Our technology allows you to archive any electronic data type. We know that's important. I keep coming back to the federal rules, but the federal rules refer to this new term of electronically stored information, which is any electronically stored information, it doesn't specify only e-mail. It can cover Web mail, instant messaging, SMS, phone records, records from legacy applications, anything. So when we talk about archiving, we're talking about an organization thinking about how it will retain all of its electronic records. Just on the communications side, if you allow your employees to use e-mail, instant messaging, BlackBerries, whatever it happens to be, then it's incumbent on you as an organization to have technology and policies in place to retain the records generated by that application. Then it's important that your records retention and your archiving are consistent across all data types.

Hall: Do you find that a lot of companies are still confusing backup and archiving?
Patterson: I'm not sure what the correct answer is there. I think some organizations have made the assumption for a long time that, in the event that they need to find and produce records, those records will be on their backup tapes. I think that, particularly for organizations in financial services, the Morgan Stanley debacle was a very rude awakening. I know they've just settled for $12.5 million, which is a long way from the $1.45 billion it was initially facing in terms of total punitive damages, but I think the court took such a dim view of the company, and the fact that it was recognized that from an IT perspective it is a very sophisticated organization, that was kind of a rude awakening. And that comes back to it was assumed those records were on its tapes, and maybe they were, but the fact that the company could not assure the courts that it had turned over all its records and it kept finding tapes in closets and all the rest of it, it painted a picture of how so many companies are running their business.

In our terms, archiving has gone from something that was being discussed in the basement or in the back office only to something that is discussed up to and including boardroom level. Part of Sarbanes-Oxley touches on accurate retention and accurate production of company records. When all that started in the post-Enron period, suddenly archiving has a different nuance.