Knowledge Management Concerns

An edited version of the following was recently published in Law Times:

Bits & Bytes: Potential problems with knowledge management systems

Articles are frequently written about knowledge management or document management systems to highlight their advantages. I won’t bore you with yet another. Instead, I thought I would review some of the potential liability concerns surrounding their implementation and use.

A document management system, and particularly version control features can be a real benefit when multiple lawyers need to work on the same document. For example, a partner may need to review a draft prepared by an apprentice or other specialists in the firm may need to review specific sections of the same document. Better indexing may also make it easier to find a particular document worked on in the past when only limited information about the associated transaction can be remembered.

However, easy access to precedents and sample agreements may also make it easier for other lawyers in the firm to pull up a document for use on a transaction where they lack sufficient experience. This has been known to happen when someone having a slow billable month gets a call from a client needing helping in another practice area. However, an un-annotated contract used by someone lacking the proper experience can be a disaster waiting to happen.

Relying solely on the results generated by a document management system can also be a problem even for practitioners in the same practice area. While a document management system may help identify the most recent draft of a document, that draft may have been heavily negotiated and may not be the best version to start with on a new transaction. So, an important rule is to always speak to the author of a document before using it.

While these practice management issues can be a concern, they can typically be managed. The more important concern is the potential of generating liability for the firm either as a direct target, or indirectly if the firm’s client is sued or suffers damages due to the actions of the firm’s legal practitioners. The top two potential sources are copyright infringement and breach of confidentiality obligations.

Legal contracts, like other literary works, are protected by copyright. Many comprehensive agreements could cost tens of thousands of dollars to develop. A small portion may have been negotiated (and therefore changed) for a particular transaction but the remainder would likely still be protected as a copyrighted work of its author. Taking such a document, stripping out the confidential client information, and providing it to another client (even with further modifications) may expose the new client (and the firm) to liability for copyright infringement if discovered.

Also, in many transactions, the agreement may be constitute, or may even be specifically designated as, the confidential information of one or of each of the parties. Properly worded confidentiality provisions typically contain an express prohibition on any use or disclosure of the confidential information to any other person except on a need to know basis. The specific lawyer that is negotiating a transaction can be presumed to have a “need to know”. But how does one argue that another lawyer in the same firm who may wish to look at the agreement for a different purpose (for example, developing a precedent for a competitor of a client’s supplier) have a need to know? Could putting such a contract on a document management system and indexing it so that it can be easily “leveraged” by others in the firm cause the firm’s client to breach their confidentiality obligation to the other side?

Consider if a firm represents a customer in a transaction with a particular supplier and then is asked to negotiate a similar agreement for another customer with the same supplier. If the supplier subsequently discovers that the same exact language or unique terms being requested by another customer represented by the same law firm then that may be sufficient for them to prove the unauthorized access and use.

Even if the contract contains a general limitation on the client’s liability to the other side, the client’s liability for breach of confidentiality obligations may have been excluded. The confidentiality breach may also entitle the other party to terminate the contract “for cause” as a means of breaking what may have become a disadvantageous arrangement for other business reasons. So even if the other party’s damages are difficult to ascertain or prove, if they are able to successfully use the confidentiality breach as a means for terminating their contract with the firm’s client, the firm can end up with a liability exposure to its client.

Implementing a good knowledge management system can provide lots of benefits to a firm. However, its important to consider the legal issues surrounding their use and not focus solely on what they can do from a technical perspective.