With the widespread acceptance of electronic data rooms (or virtual data rooms) in recent years, most users realize that the details of their data room usage can be tracked. This is widely accepted as one of the inherent features of virtual data rooms – and is often promoted by data room providers as an advantage of their service.

Users need to ask themselves whether this is appropriate for their particular project.  In a collaborative team setting it may be useful for an administrator to be able to confirm access and review of documents by each user.   In a more adversarial setting, however, this kind of visibility into another party’s use of the data room may not be appropriate.

For example, in a business acquisition transaction setting, why is it appropriate for the seller to see exactly which buyer employees (and advisers, including attorneys) with access to the virtual data room looked at which documents, how many times, and for how long?  Prior to the advent of electronic data rooms, no buyer (let alone a buyer’s attorney) would tolerate the seller looking over their shoulder and recording exactly which documents were studied and how much time was spent on each page.

A seller might argue that it is their confidential information being disclosed, and they have a right to know exactly who sees it.   However, that concern can be addressed with a solid confidentiality agreement and a provision with a list of a buyer’s employees who need access to the information (or even separate confidentiality agreements signed by each individual buyer employee).  It is the data about detailed usage and review that is objectionable, and it is hard to see how that data is necessary to serve a seller’s interest in protecting its confidential information.   The only purpose of that data is for observation – by only one party – and that seems unfair.

It is only a matter of time before this data room usage information will be critical evidence in transaction litigation regarding whether a particular party had knowledge of a topic that was in the document reviewed.   It is enough of a challenge to deal with the substantial amount of data that can be loaded into a virtual data room in an instant – in many situations in an instant that is too close to the signing of an agreement – and the argument that “you had access to it – it was in the data room.”  Now a quick opening and skimming of a document will be met with “you opened the document twice and looked at it for 10 minutes the second time, so of course you saw what was on the exhibit.”

Is this kind of “big brother” observation really the proper purpose for a virtual data room?  The efficiencies of a virtual data room are substantial, and the ability to track access within a team setting is a useful management tool, but these efficiencies should not come at the price of routine acceptance of one party being given the power to view detailed data room usage information that should be private.