e-discovery 2.0

On of August 14, 2009, the California Judicial Counsel amended their Rules of Court to augment discussion of electronic discovery issues during the meet and confer process.

Rule of Court 3.724 was amended to require discussion of “Any issues relating to the discovery of electronically stored information” no later than 30 calendar days before the date set for the initial case management conference.  The broad language (i.e., “any”) was augmented by eight specific categories that must be expressly discussed:

(A) Issues relating to the preservation of discoverable electronically stored information;

(B) The form or forms in which information will be produced;

(C) The time within which the information will be produced;

(D) The scope of discovery of the information;

(E) The method for asserting or preserving claims of privilege or attorney work product, including whether such claims may be asserted after production;

(F) The method for asserting or preserving the confidentiality, privacy, trade secrets, or proprietary status of information relating to a party or person not a party to the civil proceedings;

(G) How the cost of production of electronically stored information is to be allocated among the parties;

(H) Any other issues relating to the discovery of electronically stored information, including developing a proposed plan relating to the discovery of the information;

Many of these issues track FRCP language (including forms of production, preservation, privilege issues, etc.).  However, section G seems somewhat novel given the historical “American Rule” where the producing party is required to bear all necessary costs of production.

Curiously missing, in comparison with FRCP 26 B(2)(b), is the need to discuss the handling of “inaccessible” ESI, although this could easily be subsumed in the “any other issues” language of section H.  Also missing is a discussion about proposed searching and/culling protocols (aka “keyword negotiations”) which are often part of the core meet and confer topics in Federal court.

Nevertheless, the scope is broad enough to require *a* discussion of all likely relevant electronic discovery issues, which was often lacking historically.  Once that discussion starts, reasonably savvy counsel should be able to flesh out most of the significant issues.  And, given this broad language a judge would presumably give them a hard time for any material omissions.

“Large storage vendor buys small electronic discovery software company to round-out broader corporate initiative.” That was the story in December 2007, when Seagate bought e-discovery company Metalincs for its i365 solution; and, it’s the same story today as EMC announced its acquisition of Kazeon for its SourceOne archiving solution. The terms of the EMC-Kazeon deal were not disclosed, but sources with knowledge of the transaction tell me that the acquisition price is approximately $75 million. That’s slightly less than what Seagate paid for Metalincs ($82 million), and less than what FTI Consulting paid for Attenex ($88 million). But it’s well within the usual range of $50-100 million that most acquirers pay for technology that has not yet matured into a business.

The deal will come as a relief to Kazeon’s long-suffering shareholders. The company was founded in 2003 and, over the past 6 years, it raised over $60 million in equity financing, double the amount it usually takes successful software companies to reach profitability. But despite all that investment, revenue has been hard to come by. According to former Kazeon employees, the company’s revenue totaled only $7 million over the past 12 months. Perhaps as a result, there’s been a lot of management turnover, and last year the board retained a recruiter to find a new CEO. In light of all that, selling the company for $75 million, or 10 times trailing revenue, is a great outcome for Kazeon’s shareholders. It also provides some level of job security for Kazeon’s employees, many of whom have been offered retention bonuses to stick around.

On the other side of the coin, the deal also makes sense for EMC, which needed to flesh out SourceOne, its recent re-branding of the Email Extender archive. In launching SourceOne in April 2009, EMC described it as an integrated portfolio of products: SourceOne Email Management for email archiving; Discovery Manager for legal holds of email; Celerra and Centera for storage; and Discovery Collector for identifying and collecting data from desktops and file shares. EMC owned all of those products except one: Discovery Collector, which instead was to come from EMC Select Partner, StoredIQ. It is widely known that EMC tried repeatedly to acquire StoredIQ but was rebuffed. So instead, it purchased Kazeon (i.e., the Kazeon Information Server) so that it now owns all aspects of SourceOne and does not have to rely on partners.

Will this eDiscovery deal be successful? We will have to wait and see, but Seagate’s experience is not encouraging. A year after it acquired Metalincs, Seagate laid off most of the staff and hired UBS to help it sell what was left of the electronic discovery company. There have not been any takers.