Carbonite Lawsuit Reveals Data Loss update from March 2009

Here's a tough question: how do you balance the value of a problematic lawsuit against a vendor against the potential damage to your company's reputation? Executives from Carbonite Inc. may be pondering that calculus this morning amid disclosures that the fast-growing online backup company lost data belonging to 7,500 customers.

The data loss was disclosed in a lawsuit Carbonite filed against two companies that supplied it with hardware. The legal dispute was covered by The Boston Globe Saturday and picked up this morning by TechCrunch and The Register, where it will no doubt be read by many of Carbonite's customers and prospects. 

The incident is the latest high-profile stumble for cloud storage providers, following previous events at FlexiScale and The LinkUp.

Carbonite is suing two companies that sold it more than $3 million worth of hardware that it says was responsible for the loss of data for thousands of customers. Carbonite is seeking unspecified damages from the defendants, one of whom has publicly denied the allegations in the suit.

Carbonite said the failures caused "serious damage to Carbonite's business and to its reputation as a reliable source for backup data service." That's certainly true for the 7,500 customers whose data was lost.

But I'm not aware that the company's problems had been public prior to the lawsuit. Now readers of several of the most popular IT industry web sites are also aware that Carbonite lost customer data. Headlines about the incident could creep into search results, preserving the company's headline risk for future prospects who may have missed the initial stories.

One thing is certain: The financial recovery from the lawsuit, if any, could be months if not years away. The publicity surrounding the lawsuit is a here-and-now challenge.