e-discovery 2.0

Many people, including me, have written about how our current economic malaise will likely drive a wave of regulation and litigation that, in the long-term, will increase the need for electronic discovery solutions. But in the short-term, we are facing a severe recession and – as some readers have pointed out to me over email – that may have a dampening effect because of smaller legal budgets. Recent events present a mixed picture. On the one hand, law firms like Heller Ehrman, Thelen, and Dreier have collapsed and FTI has missed its revenue targets. On the other, many e-discovery software companies and litigation support service providers are growing at a rapid clip.

My own research, which has involved talking to dozens of attorneys, litigation support professionals, and in-house counsels, suggests a more nuanced picture, with the recession spurring changes to the type of electronic discovery that’s being conducted. Consider the following data points:

• According to a practice leader at a large e-discovery consulting firm, “discretionary litigation” such as many IP-related matters is down significantly, as firms are less inclined to fight every patent claim. But conversely, litigation related to the financial crisis, and regulatory inquiries from bodies such as the SEC and the FDIC, are up.

• According to a partner at a major law firm, second requests are down, along with M&A activity generally. The example he gave is the car industry: a year ago, if Chrysler had talked of merging with GM, there would have been all sorts of anti-trust concerns; today, the government is likely to encourage the deal. But on the other side of the coin, there are a lot more contract disputes as companies cannot live up to commitments they made in better times.

• According to a GC at a leading technology company, his CFO has become intensely interested in e-discovery as potential area for cost savings. As a result, the in-house legal team is actively evaluating in-house solutions to both lower costs and increase predictability.

I could go on with many more, similar anecdotes, but the themes coming out of these conversations are the same. More and more enterprises are waking up to electronic discovery as a way to make their cost savings targets for 2009. These are value-oriented buyers, who want cost effective solutions with a predictable fee structure. They are more cautious about what kind of litigation to pursue and are more inclined to settle cases where possible. That suggests more early case analysis, as a pre-cursor to settlement talks, but less document-by-document linear review, since fewer cases make it to the stage where linear review is necessary.

These shifts in the type of e-discovery being done will have a big impact on the vendor landscape. It promises to be a very interesting new year.