e-discovery 2.0

Fulbright & Jaworski has conducted their Litigation Trends survey for nearly the past decade and the results are always interesting since they tend to capture the mindset of inside counsel and litigators as they anticipate the upcoming year.  In their 8th Annual Litigation Trends Survey, Fulbright noted that 92% of U.S. respondents predict that litigation will either increase or stay the same in the upcoming year.  This trend bodes well for players in the litigation services and eDiscovery sectors, and confirms the counter cyclical nature of the industry.  Breaking down the perceived increases across industry verticals, the Survey noted that the biggest anticipated jumps were in the technology, financial services, healthcare and insurance sectors.  Meanwhile energy (the leading sector from the prior year) was one of the few that predicted a decrease.

Going behind the scenes, there were a number of factors that caused respondents to predict litigation increases.  First and foremost, respondents indicated that “stricter regulation was the number one reason” for the increases, particularly with insurance, financial services, health care and retail sectors.  These concerns around regulatory compliance have been increasingly keeping GCs and corporate boards awake as the governance climate continues to heat up.  This regulation driver showed a demonstrable increase with 46% of all respondents having retained outside counsel to assist with regulatory proceedings, up from 37% in the prior year.  The Survey noted that U.S. companies facing a regulatory investigation were most likely to be under pressure from the DOJ (27%), State Attorney General (24%), OSHA (18%), the EPA (16%) and U.S. Attorney (13%).  Also on the regulatory front, U.S. respondents have increasingly begun to recognize the potential jurisdictional reach of the U.K. Bribery Act, with 25% of U.S. companies stating that they have already conducted a review of existing procedures in preparation for implementation.

In addition to managing risk, most in-house counsel are keenly concerned with controlling litigation costs.  The good news here is that associated costs are predicted to be generally flat.  Yet, eDiscovery remained the largest category targeted for increased spending, with 18% of respondents making this their top priority.  Interestingly, though, large enterprises seem to have been doing a good job of getting eDiscovery expenses under control (likely by taking expensive elements of the EDRM in-house), with these expenses declining among the largest companies, from 42% last year to 24% this year.

The Survey noted that the use of cloud computing has gained speed, with 34% of all public companies using the cloud.  And yet, only 40% of those companies using cloud computing have had “to preserve and/or collect data from the cloud in connection with actual or threatened litigation, disputes or investigations.”  This number appears curiously light, and it should definitely rise during the upcoming year as the plaintiff’s bar gets more savvy about this relatively new source of responsive electronically stored information (ESI).

On the narrower eDiscovery front, the Survey honed in on newer issues like cooperation.  Here, the Survey noted that this Sedona-sponsored concept still hasn’t completely taken hold, with nearly 40% of all respondents claiming that “their company has not made the effort to be more transparent or cooperative” due to a litigation strategy of “defending on all fronts.”  This area appears particularly muddled, with one third saying their previous attempts haven’t been reciprocated and another quarter feeling that their company was already transparent.

All in all,  the 2011 Fulbright Litigation Trends Survey notes trends that appear to be largely in line with the primary drivers of (1) managing risk and (2) lowering litigation costs.  On the risk side, compliance with an increasingly complex regulatory environment is offsetting any potential lull in the litigation environment.  And, on the cost side, eDiscovery continues to be a hot button issue, particularly with the relatively new challenges associated with ESI distributed on social media, cloud computing and mobile sources.

The data explosion that has burdened organizations across the globe for the past decade has become increasingly expensive to manage.  Many experts point to storage as the most obvious culprit for higher information governance costs.  There are, however, other factors driving those costs.  For example, demands for electronically stored information in legal and regulatory proceedings have significantly increased expenses surrounding data management.  Those demands have forced organizations to meet the high expectations that courts and regulatory bodies have for how they address their information or face the consequences.

Those consequences include sanctions and regulatory fines for groups that fail to account for how they store, manage and discover their information.  The $919 million verdict rendered in the E.I. du Pont de Nemours v. Kolon Industries case is paradigmatic of this trend.  That verdict was inextricably intertwined with the court’s instruction to the jury that executives and employees for defendant Kolon Industries deleted key evidence after the company’s preservation duty was triggered.

Going to Cloud Services for Data Archiving and eDiscovery

These rising data costs – and the risks they pose – are driving organizations to explore new technologies and methods for managing their data.  The latest alternative to traditional on-premise solutions involves leveraging cloud-based services.

The hype surrounding the cloud has generally focused on the opportunity for cheap and unlimited storage.  While cost effective data storage is important, that factor alone should not be determinative for selecting a cloud service provider.  Organizations must have the actual – not theoretical – ability to retrieve their data and do so in real time.  Otherwise, they may not be able to satisfy legal or regulatory requests, let alone the day-to-day demands of their operations.

In an analogous context, courts have traditionally compelled paper document productions even though the requested materials may be buried in a messy warehouse.  In one such case from this year, a U.S. district court in New York ordered a company to turn over decades-old records that were commingled with other materials in poorly labeled, shrink-wrapped boxes.  The court reasoned that disorganized record-keeping should not excuse an organization from producing relevant information.  See Brooks v. Macy’s (S.D.N.Y. May 6, 2011).

The rationale from the Brooks case is equally applicable to cloud-based services.  Cloud-based data must be intelligently organized so that companies can retrieve data in a timely fashion for business and legal purposes.  Otherwise, the savings achieved through cheap storage will be negated by the resulting legal quagmire.

Paring Back Superfluous and Duplicative Information

To facilitate the data retrieval process, the right cloud service provider should have the capacity to implement and observe applicable company retention policies.  An effective retention policy will generally help a company retain information that must be kept for business, legal or regulatory purposes – and nothing else.  The service provider should enable automated retention rules to ensure that information is kept only for a designated time period.  This will allow data to be expired once it reaches the end of that period.  And by expiring that data, the company will limit the amount of potentially relevant information available for follow-on litigation.

The pool of information can also be decreased through single instance storage.  This deduplication technology eliminates redundant data by preserving only a master copy of each document placed into the cloud.  This will reduce the amount of data that needs to be identified, collected and reviewed as part of the electronic discovery process.  For while unlimited data storage may seem ideal now, reviewing unlimited amounts of data will quickly become a logistical and costly nightmare.

Tools to Facilitate Discovery

A cloud service provider should ideally have eDiscovery functionality.  At a minimum, the service provider should be able to deploy legal holds to prevent users or automated policies from overwriting and destroying data.  Advanced search capabilities should also be included within the cloud-based service to reduce the amount of data that must be analyzed and then reviewed.  Moreover, the provider should support compatible load formats for export to third party review software.

Another key discovery issue is whether the cloud service provider can establish a clear audit trail for transmissions of company data.  Since information could be modified in transit by the routine operation of a service provider’s computer systems, an audit trail is necessary to prove that company documents and their metadata were not affected or otherwise compromised during transmission.  Without this assurance, a company may not be able to demonstrate the authenticity of its data before a tribunal or comply with key regulations.

A cloud server provider that can quickly retrieve and efficiently discover data has the potential to help organizations address their legal and regulatory demands in a cost effective manner.  Such a provider may be just the solution for organizations that are looking to properly address their runaway information governance costs.

The Advisory Committee on Civil Rules recently announced that a “mini-conference” has been scheduled to discuss potential amendments to the Federal Rules of Civil Procedure (FRCP) that could change the way preservation and sanction issues are handled throughout the federal court system today.  The mini-conference is scheduled for September 9^th in Dallas, Texas and will be led by the Discovery Subcommittee – a committee appointed by the Advisory Committee.

The mini-conference is important because it is part of a seven step process that could ultimately lead to new rule amendments affecting all litigators and the organizations they represent.  Any new rule proposals developed by the subcommittee at the September mini-conference will be considered by the Advisory Committee this November in Washington D.C.   The proposals, in one form or another, could ultimately become law.  Both Supreme Court and Congressional approval are ultimately required, so don’t expect any rule changes to go into effect before 2013.

A key focus of the meeting is to investigate whether or not new preservation or sanctions amendments are necessary.  Some, including former US Magistrate Judge Ronald Hedges, feel that it’s too early to consider changing the rules on the heels of the 2006 amendments.  If the Subcommittee decides rule amendments are necessary to address current issues, then the question becomes what rule changes should be made.  Given the controversy surrounding the preservation of electronically stored information (ESI) and an increasing number of eDiscovery-related sanctions, the discussion is likely to create plenty of healthy debate about when the duty to preserve evidence should be triggered and when sanctions are warranted.

In the words of the Subcommittee, “anxiety bordering on anguish” has resulted from uncertainty related to the beginning, scope and duration of the duty to preserve evidence and the concomitant risk of sanctions for spoliation.  In other words, organizations routinely exposed to the possibility of sanctions are crying out for language that clarifies when the duty to preserve ESI is triggered, what must be preserved, and when the duty expires.  One challenge the Subcommittee faces if they decide to propose rule changes, is figuring out how to address these cries for more specific guidelines without sacrificing fairness.

For example, some may favor a rule amendment stating that the duty to preserve evidence is triggered only after a complaint has been served.  Although this bright line rule provides certainty in terms of when the duty to preserve evidence is triggered, it could certainly lead to unfair results where bad actors simply delete damaging evidence as soon as they anticipate being served.  This approach would also likely lead to a race to the courthouse and more lawsuits in an already heavily burdened court system, since filing a complaint would be required to trigger preservation requirements for opponents.

The inherent conflict between the desire for bright line rules and the need for flexibility in a fact-driven profession is likely to test the mettle of the Subcommittee in September.  To help frame the discussion, attendees have been asked to consider a number of questions related to the nature and scope of the problem, technology related issues, and possible solutions.  A complete list of attendees and the questions they have been asked to consider are contained in the Advisory Committee’s June 29, 2011 memorandum.  Some of the questions below provide a glimpse into the complexity of the issues to be discussed:

To what extent are you finding that preservation of ESI is a problem in your organization or practice?

Has technology helped you reduce review costs?  How?

What implications will cloud computing have for civil litigation?

How would a rule help reduce some of the costs you are incurring?

Although no formal rule amendments have been proposed, the mini-conference will consider three possible approaches crafted in April of this year.  Stay tuned for my next blog post discussing the differences between these proposals and what it means if they are adopted.

As the saying goes, “I’ve seen the future and the future is now.”  This was my first reaction after analyzing two recent surveys regarding social media and eDiscovery.  The first one was from Clearwell (now a part of Symantec) and the Enterprise Strategy Group, entitled: “Trends in E-Discovery: Cloud and Collection.”  Beyond examining cloud issues it also queried respondents about the growing impact of social media on electronic discovery.  While many of the responses struck me as intuitive, I was taken by the fact that we seem to have crossed over the chasm of social media to the point that this content simply cannot be ignored any longer.  For ages, and perhaps some still today, email was the 800 pound gorilla in the eDiscovery context, often to the dangerous exclusion of other forms of electronically stored information (ESI).

But, in 2011 we’ve now reached the tipping point – with 58 percent of respondents of the ESG survey expecting to manage social media applications as part of eDiscovery, more than double the 27 percent who did so in 2010.  That’s not only a massive increase in one year, but it also moves social media from a fringe element to a mainstream source of ESI.  When asked what types of social media applications would be the most relevant for eDiscovery, 79 percent of survey respondents named Facebook, followed by Twitter (64 percent) and LinkedIn (55 percent).

Similarly (and coincidentally), Applied Research and Symantec (who just acquired Clearwell) queried 1,225 senior enterprise IT professionals around the world in a Social Media Flash Poll.  In one of the main findings, the Flash Poll found that social media is extremely ubiquitous in the enterprise environment, with 45 percent of respondents using it for personal uses and 42 percent using it for business reasons.  Rating highly were a number of disparate social media devices including blogs, multimedia sharing, business forums and, of course, social networking – both personal (e.g., Facebook) and business (e.g., LinkedIn).

The impact on eDiscovery, while somewhat obvious, is nevertheless a significant challenge for many enterprises.

Initially, the increased use of social media intrinsically means that email isn’t likely to be the sole source of responsive information pertaining to a lawsuit (or governmental inquiry).  While this hasn’t really been the case for a while, it’s time for the attorneys scoping eDiscovery matters to face facts and abandon old school notions that email axiomatically equals eDiscovery.  For good or ill, our world of potentially responsive ESI simply isn’t that homogenous.

The Flash Poll also honed in on how this increased use of social media is impacting IT professionals.  While information governance concepts (compliance with regulations and retention polices – both at 45 percent) rated higher on their risk index, the management of eDiscovery was still a significant (and growing) concern at 37 percent.  And, while IT folks are increasingly concerned, it’s safe to say that their attorney counterparts (who have a heightened sense of risk profiling) are even more worried about the impact of social media on the already complex eDiscovery process.

So, what can be done in the face of this changing eDiscovery landscape that used to be dominated by email?  First and foremost, it’s imperative to understand your unique regulatory and legal requirements.  This facilitates the mapping of new social media technologies and content to the requisite policies that address data mapping and the retention of social media content, either in a proactive sense (i.e., archiving) or in a reactive sense (i.e., litigation hold).

As Glenn Close frighteningly said in her 1987 thriller, Fatal Attraction, “I will not be ignored.”  That warning fits the entire social media genre as it relates to eDiscovery in 2011.  And, just like ignoring Glenn Close, failing to pay proper attention to social media is done at significant peril to both IT professionals and attorneys alike.

Clearwell just announced major enhancements to our Identification and Collection Module that together usher in a new generation of targeted collection capabilities for e-discovery. Why are we excited about this? Because it promises to provide our customers with a dramatic increase in their ability to perform quick and efficient collections across the enterprise with a small fraction of the cost and effort traditionally required.

Before Clearwell, vendors could only rely on building their own indexes when attempting to collect content by keyword from unstructured document sources. They did this in one of two ways.

The first method was to build one-off indexes with each collection, indexing content and then discarding the index after collection is complete. This minimized the amount of infrastructure required to maintain the index, but was painfully slow and wasteful of computing and network resources. These sorts of solutions came from vendors who originally focused on the forensic investigation side of the world, whose tools had been designed around small-scale collection from individual devices and hard drives. Unfortunately, they simply don’t scale to meet the demands of today’s large enterprises with their ever-increasing data volumes.

The second method was to attempt to create an uber-index of all of the information in an enterprise and keep it continually updated so that it would be ready at a moment’s notice for your collection needs. This approach proved to be incredibly challenging to implement, required a huge amount of infrastructure to maintain, and, worst of all, didn’t really work: creating the uber-index, as it turns out, was uber-difficult.

In talking with hundreds of customers over the last couple of years, we realized that there was a better “third way,” which combined the lightweight nature of the first method with the comprehensiveness of the second. How? By leveraging the indexes that enterprises already have in place. From comprehensive, robust archiving solutions like Symantec Enterprise Vault to the fully-searchable indexes found on Microsoft SharePoint, Exchange, and file servers, the way of finding the information you need quickly for e-discovery is, by and large, already out there. It’s simply a matter of building an e-discovery platform sophisticated enough to leverage those indexes and, when necessary, be intelligent enough to build its own when not available from another source. That’s exactly what we’ve done with Clearwell’s targeted keyword collection feature.

One of the most exciting things about this approach is that, while it works great for today’s enterprise information infrastructure, it is perhaps even more powerful in tomorrow’s. As your company’s information stores gradually shift toward the cloud, leveraging the indexes in the cloud becomes essential to being able to access the information that lives there in a fast and efficient manner. It’s simply not feasible to be able to use the “one-off” or “uber-index” approaches when data is living in a cloud infrastructure, since data access rates are often slower because they are occurring over a wider-area network.  Last year, Clearwell was the first e-discovery platform to support direct access of cloud Exchange and SharePoint environments, and now with keyword collection we have made another great stride forward in achieving our customer’s vision for next generation e-discovery. And there’s still more to come as we accelerate our product development by integrating with Symantec’s world-class information management team. Stay tuned!

In a prior post a few months ago, I wrote about the electronic discovery challenges that the duty to preserve electronically stored information (ESI) imposed on a cloud-based computing environment. Following that post, we will continue to examine another area that the Federal Rules of Civil Procedures (FRCP) requires with respect to document production. As stated, the FRCP Rule 34 (a) (1) offers guidelines on the duty to:

“…produce and permit the requesting party or its representative to inspect, copy, test, or sample the following items in the responding party’s possession, custody, or control.”

The key phrase “possession, custody or control” is something to be examined more closely in the context of Cloud Computing environments, where typically the cloud customer is the party in control and the cloud service provider is the party in possession and custody. In cases where the cloud customer is the party in litigation, it is natural to serve pre-trial a discovery request under Rule 26 (b) to the cloud customer and expect that since they are the party in control, and can therefore instruct the cloud provider to perform at least some form of collections. Now the question that remains is whether the same request can be made of the cloud provider, since they are the party in possession and/or custody. It is evident that requesting the cloud provider to perform a discovery request on behalf of their customers is impractical since any assertion of privilege or confidentiality would require the cloud customer to be involved in the discovery request. Besides, the cloud provider producing documents without consent from the customer of the cloud would run afoul of the Stored Communications Act (SCA). For these reasons, the broader three-pronged test of “possession, custody or control” embodied in Rule 34 (a)(1) should be revised to mean only “party in control”.

This view is supported in the seminal decision on Flagg v. City of Detroit, Slip Copy, 2008 WL 787061 (E.D.Mich.) . A great analysis of this case by Timothy Ackermann is available in The Federal Lawyer, November/December 2009 article, titled Consent and Discovery under the Stored Communications Act . As stated, when it comes to the application of “possession, custody or control”, the most significant test for cloud based deployments is “control”. For the cloud customer, “possession and custody” are not relevant, because in a strict sense, it is the cloud provider that can claim possession and custody. However, the cloud customer is clearly in “control” of the data, as evidenced by pretty much every service contract that gives the customer “the legal right to obtain the documents on demand”. Also, the cloud customer has the right to give “consent” to the cloud service provider to make the documents available. Thus, a cloud customer cannot claim that since they did not have “possession or custody”, the e-discovery obligations cannot be waived.

From the cloud provider’s perspective, the mere fact they have “possession or custody” does not require them to produce documents, unless the cloud customer gives lawful consent per the Stored Communications Act. Yet again, for the application of FRCP electronic discovery34(a)(1) , we find that the party in control over the data is the one that determines discoverability of data in the cloud. In contrast, the third party that is merely in possession or custody is not required to produce responsive ESI, given the provisions of the SCA. As noted in Flagg v. City of Detroit, the district court did not find the need to consider the issue of having a subpoena issued to the cloud provider (SkyTel Communications), since the required evidence was more easily acquired by an e-discovery request to the cloud customer (City of Detroit). A similar argument is made in the Crispin v. Audigier Inc., a case involving postings on familiar social networking sites, Facebook and MySpace. Here, District Judge Margaret M. Morrow goes to great lengths explaining why the provider is not required to produce documents based on protections offered by the SCA.

In summary, the nature of cloud deployments and their usage redefines the scope of ESI to those that the customer has control. Regardless of the interpretation of Rule 34, common sense dictates that the cloud provider and cloud user cooperate when it comes to e-discovery requests. Of course, one of the challenges with cloud deployments is the SCA and its interpretation for cloud-resident ESI. This will be the subject of my next post.

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One of the new buzz words of the last few years in computing has been Cloud Computing. After the initial hype, and the subsequent shakeout of its potential, everyone is beginning to recognize that it represents a paradigm shift in how we purchase, deploy, and utilize computing resources. The general impetus for the cloud has been its potential to reduce capital costs, offer flexibility in purchasing computing resources, and reduce operational costs in maintaining hardware resources.

A lot of what the cloud offers is achievable using existing technologies, but repurposed in new and innovative ways. Several forms of the cloud, with specific benefits to customers, are being packaged and promoted. The offerings are delivered as cloud services, such as Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Software as a Service (SaaS). Without getting into specifics, each service offering comes with a set of service agreements between the purchaser and provider of the cloud services.

As with any new initiative, there are new challenges to contend with including security and compliance with corporate policies and industry regulations.  Although these issues are substantial, for this article, let us consider the legal implications as it relates to electronic discovery. We all know that sooner or later, every organization faces litigation, and increasingly, fair number of them involves e-discovery. Traditionally, in house legal and IT teams have had an understanding of how to respond to legal requests and have focused on litigation readiness. But, how do these translate to the new cloud computing paradigm? I’ll examine some of the challenges in a series of posts on e-discovery and the cloud. For starters, let’s analyze the challenges and considerations inherent with the duty to preserve electronically stored information (ESI).

Duty to Preserve ESI

Before we get to the mechanics of electronic discovery and actual preparation for Rule 26(f) conference, the duty to preserve arises. The duty to preserve may be triggered when a legal proceeding is “reasonably anticipated” and increases in importance on receipt of pre-litigation correspondence or a similar trigger event. Traditionally, such duty to preserve is reflected by placing litigation holds. It is often the case that litigation holds are placed on at least a portion of the ESI well ahead of an actual triggering event. See Adams v. Dell as perhaps an extreme example. In fact, some organizations invest in litigation support software technologies for classifying data and placing holds on the most reasonable subset.

How does such a litigation hold translate into the cloud? As a customer of a cloud, one should craft service agreements to dedicate certain cloud-resident data, in the form of folders or other broad categories, to be preserved. If the cloud provider has deployed technology to ensure that no party within the customer’s user community can delete the preserved data, it is well and good. However, placing such restrictive access impedes normal running of the business, and becomes impractical. Essentially, data in the cloud that is available for normal course of business is in the hands of user-custodians. If they then delete the data either deliberately, or inadvertently, or through normal business functions, that data deletion is subject to spoliation claims. Even though the “safe harbor” from spoliation sanctions of Rule 37(f) applies when information is lost due to the “routine, good faith” operation of electronic information systems, when preservation order is in place, shelter under 37(f) is not possible. Thus, the actual implementation of litigation hold comes under scrutiny. Because of this, many implementations adopt preservation using a “copy and preserve” model. However, this model is at odds with live business data that is constantly evolving. Even if the latest point-in-time snapshot technology at the physical volume is employed, the result is inadequate – you end up preserving massive volumes of data in the cloud, unrelated to actual logical messages or files that need to be preserved. What is needed is some smartness in the form of an application in the cloud itself that can translate a litigation hold request into specific ESI in the cloud. Who owns and manages this application and what the service levels are for this application is a significant issue.

Now, the view from the cloud provider’s perspective is very different. In light of the flexible data management architectures available, there is a great temptation to share both data with a litigation hold and data without a litigation hold on the same physical infrastructure. As a result, the cloud provider   preserves all data from every customer that is resident on that infrastructure – a very conservative approach. As a consequence, this would preserve another customer’s ESI accidentally and that data is now discoverable, in the context of a different litigation, despite the second customer’s active management of the data. Preserving a set of live, constantly changing data in the context of a single enterprise is technically difficult; doing so across multiple customers, sharing the data infrastructure is exponentially harder.

Another related issue with preservation is the need for the ability to release preservation holds. Typically, when the litigation response team determines that the legal hold is not necessary, the hold is released. In the “copy and preserve” model of litigation hold, one has to verify that the released ESI does not overlap with other litigation holds and is marked for destruction. One of the benefits of the cloud is the flexibility in storing bits and pieces of data wherever data capacity is available. Applying the release can again be tricky for both cloud customer and the cloud provider.

Given these additional complexities of evidence in the cloud and the fact that the duty to preserve may arise well before the trigger event of litigation, the costs associated with the duty to preserve can add up very quickly. It’s essential to understand three critical items related to the duty to preserve in the cloud: 1) what the cloud provider would charge for ongoing preservation, 2) whether agreements with the cloud provider cover the legal issues raised by the duty to preserve and 3) what the cloud provider offers in terms of a flexible workflow for applying and releasing legal holds.

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