e-discovery 2.0

In their latest survey, entitled “E-Discovery Market Trends: A View from the Legal Department,” Enterprise Strategy Group (ESG) analysts Brian Babineau and Katey Wood analyze a number of interesting statistics and provide a range of insightful conclusions.  By surveying general counsel from large, mid-market (500-999 employees) and enterprise-class organizations in North America they were able to dive into a range of eDiscovery topics, including pain points, operational expenses and prioritizations on a go-forward basis.  Some are more intuitive than others, but in either case the results serve as good calibration metrics for those who endeavor to understand the corporate eDiscovery state of the nation.

“Most corporations are not tracking e-discovery spending…” In what may be the most notable finding of this ESG report, 60% of survey respondents claim that they did not track annual eDiscovery spending in 2010.  The authors correctly note that the eDiscovery process, “which can be highly unpredictable due to its project-by-project nature to begin with, has historically been outsourced to service providers charging at variable rates and often billed back to companies via their law firms.”  Despite the significant challenges of tracking eDiscovery spending, it’s nevertheless irresponsible for organizations to keep their heads in the sand regarding such a significant operational expense.

As the old saw goes, “you can’t manage what you can’t measure,” so it’s almost inconceivable to think that so many organizations aren’t tracking such a significant expense category.  For organizations who want to create a repeatable business process, as opposed to the fire-drill chaos that is typically associated with eDiscovery, it’s vitally important to accurately capture core eDiscovery metrics.  For starters, it’s useful to understand basic collection parameters, such as of the typical numbers of key custodians, average data volumes per custodian, data expansion rates, de-duplication statistics, etc.  Once these metrics are in place, it then becomes possible to manage the process and reduce costs.

Katey went on to expound in an exclusive quote for EDD 2.0:

“E-discovery can be managed as a strategic business process with an understanding of costs, performance and outcomes. When there’s no basis for reporting or comparison, it’s pin the tail on the donkey.  Corporate litigants won’t ever know they’re getting their money’s worth if they don’t even know what they’re spending.”

“E-Discovery accuracy/efficiency isn’t being measured, in large part.” Similar to the failure to measure eDiscovery costs, a full two thirds of GCs (67%) aren’t tracking the “efficiency and/or accuracy of e-discovery document review.” Until corporate counsel can link expectations of competency/efficiency with oversight and performance metrics, outside law firms will likely avoid having their feet held to the fire.  This passive stance makes transparency and process improvement difficult at best.  Additionally, this model of having expectations for efficiency, with low or no accountability, doesn’t bode well for the quick adoption of enabling technologies like predictive coding, since the driver has to inherently be the need/desire for increased efficiency (which axiomatically equals lower law firm review bills).

“Corporate information governance and litigation readiness (especially defensible deletion) are a priority, but not yet a reality.” From an internal prioritization perspective, more than two thirds (69%) of respondents identified their desire to expire/delete data more consistently, “thereby limiting unnecessary data retention for future litigation requests.”  Savvy enterprises correctly recognized the “multi-prong threat of unregulated data retention: the large amounts of irrelevant data ultimately produced for legal review, the greater difficulty of hanging onto potentially litigious documents past their required retention periods.”

This finding is very encouraging, and it ties into the upward momentum the industry is seeing regarding information governance generally – particularly linking the reactive (right) side of the EDRM with the logically connected and proactive (left) side of the EDRM.  As a good first step it’s critical to see organizations now associating good information governance hygiene with lower costs and better eDiscovery response times.  The ESG finding also triangulates with results from the recent Information Retention and eDiscovery Survey, which found that companies having good information governance hygiene were often able to respond much faster and more successfully to an eDiscovery/investigation requests, often suffering fewer negative consequences.

The only downside to the positive information governance trend, as reported by the survey, was that,

“while there are great benefits to defensible deletion, internal initiatives for implementing it too often are stymied by difficulty in obtaining cross functional consensus and authorization, particularly as it touches so many other critical processes like regulatory compliance and legal hold.”

“Legal hold processes are still very manual.” Another similar question revealed that many companies are attempting to get their information governance house in order, but are still in the very early stages.  When asked about their  current legal hold notification and tracking process, a whopping 69% of organizations said that they are using a “manual process performed by internal staff using e-mail and spreadsheets, etc.”  And, another 6% said they either had no formal process or tracking mechanism.

Given the risks attendant to flaws in the preservation process this area is ripe for improvement.  The good news is that 54% of survey respondents are intending to improve their legal hold process, with 25% planning improvement within the next 12 months.  This is a healthy acknowledgement that there is risk, and with a modicum of investment (time, personnel, procedures, and technology) the legal hold area can be brought up to current best practices.

The ESG survey is a welcome temperature gauge into the state of corporate legal departments.  It notes, in conclusion, “with the staggering growth, diversity and dispersion of data, the pain e-discovery is currently causing large and serial litigants are only a symptom of the larger problem of unwieldy and under-developed information management affecting all businesses.”  With data insights from the ESG survey, it’s becoming clear that foundational information governance elements (like deploying auditable legal hold procedures, tracking eDiscovery spending, updating data maps, etc.) are desperately needed by the many organizations that want to turn eDiscovery into a repeatable business process.  The good news is that many of these organization have improvements in mind for the next 12 months, and the challenge will be to make sure these proactive projects maintain the same level of organizational urgency that it often present for more reactive tasks.

We’ve all heard the phrase that “everything is bigger in Texas” and the little “mini-conference” held in Dallas, TX last Friday was no exception.  The Discovery Subcommittee held a small, one-day conference to tackle some big issues related to preservation and sanctions that could ultimately lead to amendments to the Federal Rules of Civil Procedure (Rules).

The Subcommittee’s primary purpose was to discuss “preservation and sanctions issues” by using the following topics as guidelines:

• The nature and scope of the current “problem”
• The role of technology
• Possible solutions to the problem

Counsel from large companies like Google, General Electric, and Exxon Mobil participated side by side with outside counsel from both plaintiffs’ and defense bar to discuss what some characterized as a lack of clear direction in the current Rules.  Government lawyers, academics, and federal judges including Judges David Campbell (D. Az.), Shira Scheindlin (S.D.N.Y.), Paul Grimm (D. Md.), John Facciola (D.D.C.), Lee Rosenthal (S.D. Tx.), Michael Mosman (D. Ore.), and Nan Nolan (N. D. Ill.) helped round out the field to make for a lively discussion with multiple perspectives represented.  The following summary highlights some of the key viewpoints and areas of contention debated throughout the day.[1]

The nature and scope of the problem

An underlying theme throughout the day was whether or not preservation and sanctions challenges warrant amending the Rules.  Not surprisingly, counsel for large organizations that commonly bear the brunt of large and frequent document requests lobbied for rule amendments that provide more certainty around when the duty to preserve evidence is triggered, the scope of that duty, and how sanctions are applied.

In support of this position, some corporate attorneys argued that the lack of certainty in the current Rules unfairly requires organizations to err on the side of preserving evidence early and broadly to avoid the risk of sanctions.  Since preserving evidence can be extremely expensive and the duty may be triggered before litigation even begins, they argue that changes to the Rules are necessary.  One corporate attorney framed the issue by providing specific details about costs associated with preserving data for different cases.  He explained that in one situation, his organization has spent more than $5 million to locate, collect, preserve, and maintain data for an ongoing matter even though a complaint has never been filed.  He went on to explain the dilemma by stating: “not preserving asks us to take a chance with our reputation.”

In response, a few attendees questioned how preservation related expenses could spiral so high even before attorney review.  Others pointed out that if the current Rules were better utilized, specifically the meet-and-confer provisions of Rule 26(f), then many preservation challenges could be minimized.  Supporters of better Rule 26(f) engagement complained that counsel for large organizations often refuse to discuss preservation related issues and thereby fuel problems related to the scope of preservation themselves.   Others suggested that if organizations enforced better information management policies instead of keeping “everything forever”, then the magnitude of the problem could be reduced.

Technology

The Subcommittee members generally agreed that the evolution of technology has led to massive data growth which creates new electronic data challenges.  Electronically stored information (ESI) is often duplicative, typically resides in many different technology systems, and can be difficult to locate on a case by case basis.  There was some thoughtful discussion about how data archiving and cloud computing technology are important tools for helping organizations manage these information problems more effectively.  Another commentator acknowledged that although “predictive coding” may be helpful for “reviewing” data, it requires significant human involvement and simply does not solve the problem at hand.

Surprisingly, aside from the comments above, the technology discussion focused mainly on the issue of what constitutes “possession, custody or control” under Rule 34 in today’s environment of social media, cloud computing, and mobile devices.  Unfortunately, there was no discussion of either the role legal technology solutions play in minimizing risk and cost or of the impact the current Rules have on public policy.  For example, the Subcommittee did not address whether organizations that invest in technology in order to automate their internal data management and electronic discovery process should be afforded more protection under Rule 26(b)(2)(B) (“not reasonably accessible because of undue burden or cost”) than organizations that choose not to invest in technology.  If an organization’s technology investment (or lack thereof) is not a factor, does Rule 26(b)(2)(B) have the unintended effect of stifling meaningful legal technology investment by some organizations?  Similarly, do advancements in legal technology diminish the need for a Rule amendment that, at its core, is geared toward reducing costs?  In my opinion, the manner in which organizations are using technology today is an important factor that warrants deeper discussion and a subject I intend to address in a future publication soon.  Stay tuned.

Possible solutions

Discussion about possible solutions to the problem revealed more about the contrasting viewpoints in the room.  Notably, the Department of Justice representatives and those typically aligned with the plaintiffs’ bar tended to lobby for better adherence to the framework contained in the existing Rules in lieu of drafting new Rules.  These folks generally appeared to fall into the “No New Rule” or “Not Yet” camp, and cited the relative newness of the 2006 Rule Amendments and the fact that only about one percent of federal cases involve sanctions in support of their position that Rule amendments are premature or not needed.  Along the same lines, many called for further study and evaluation of the issues through organizations such as The Sedona Conference and the 7th Circuit Electronic Discovery Pilot Program.  Others referenced the importance of looking to evolving case law for more guidance before moving forward with Rule amendments.

In stark contrast, those on the other side of the aisle that typically represent large organizations, lobbied for bright line rules or at least “guideposts” to provide more certainty regarding preservation.  For example, one participant suggested that the duty to preserve evidence should begin when a complaint is served.  Another suggested that the duty should be triggered when a potential litigant is “reasonably certain to be a party to litigation” – a standard that is arguably narrower than the commonly applied “reasonably anticipates litigation” standard articulated in Judge Scheindlin’s frequently cited Zubulake v. UBS Warburg line of decisions.

Those calling for more certainty regarding triggering events also provided recommendations for addressing the scope of the preservation duty and the application of sanctions.  A suggestion to incorporate language that presumptively limits the number of custodians (10) and documents (by age) met resistance on the grounds that trying to apply a one-size-fits-all rule fails to acknowledge that the facts and circumstances of every case are different and so too are the litigants.  Similarly, recommendations to limit sanctions for evidence spoliation to situations where a litigant’s conduct is “intentional” or “willful” were met with a chilly reception by those favoring better adherence to the current Rules.

Conclusion

Time did not permit comprehensive discussion and analysis of every perspective, but the mini-conference highlighted the complexity surrounding preservation and sanctions issues and revealed some polarized viewpoints about how to solve those issues.  Perhaps one glimmer of consensus was the acknowledgement that “pre-litigation” obligations to preserve evidence before service of a complaint is often challenging for large organizations.  However, whether this and other issues should be addressed through better education, more stringent enforcement of existing rules, or by modifying the existing rules to include more “guideposts” remains unsettled.

What do you think?  Please respond to the poll, above right, to let us know whether you think amending the Federal Rules of Civil Procedure (FRCP) is necessary to address some of the preservation and sanctions issues discussed above.

To join the conversation and receive automatic updates when new information is posted to this blog, please subscribe to e-discovery 2.0.

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[1] A more exhaustive list of participants and sample questions was incorporated into the Federal Rules Advisory Committee’s June 29, 2011 memorandum announcing the mini-conference.  Similarly, the events leading up to the mini-conference are described in more detail as part of my previous postings on the same subject.

It is my great pleasure to welcome Matt Nelson to the E-Discovery 2.0 writing team. Matt is our third licensed attorney and, like Dean Gonsowski and Brandon D’Agostino, will be writing on the legal aspects of electronic discovery. In doing so, he will draw upon his prior experience as a litigation attorney at Ropers, Majeski, Kohn & Bentley, and as a legal technology consultant at Kroll and Summation. He’s a really bright guy with a wry sense of humor, and I’m looking forward to hearing his perspective on the broad range of issues that legal professionals engaged in e-discovery wrestle with every day.

Given the size of our writing team, it’s worth taking this opportunity to say a few words about what you (the reader) can expect from our blog. Our team meets on a monthly basis to discuss topics of interest. In doing so, we hope to speak with one voice on broad range of issues:

• Kurt Leafstand and Venkat Rangan will write about the latest technology trends and their impact on electronic discovery;

• Brandon, Dean, and Matt will cover case law and best practices from both a corporate and law firm perspective; and,

• I will continue to write about the business of electronic discovery, and its development as an industry.

All of us aim to inform in a style that’s engaging and easy to read. We hope you enjoy reading our posts as much as we do writing them.

Maybe this will show my age, but I’ve been around the electronic discovery business since the days when pricing was both simple and very expensive. Terabytes were at the mythical high-end of the spectrum and gigabytes of “e-docs” (not “ESI”) cost $3,000 – $4,000 to process. Understandably (and fortunately for most), pricing models have evolved, thanks in part to more educated consumers and initiatives such as Sedona’s RFP + Vendor Panel.

Leaving the WABAC machine and moving into present times, we’ve starting to see some variance from traditional pricing models that primarily focus on data “into” the processing machine. More and more companies (such as Kroll Ontrack) are moving to models that price on data “out” of the process. Since that’s a bit nebulous, an example might illustrate:

Traditionally, in a somewhat simplified fashion, an electronic discovery project would be priced by the amount of data in the initial corpus (say 100 gigabytes) and processing would be priced at $500 a gigabyte (for round numbers purposes). Leaving out the sometimes significant caveat that the 100 gigabytes would likely increase due to expansion of compressed files, this would mean that the bulk of the project expenses would be $50,000 ($500 x 100), plus relatively nominal costs for monthly hosting and user access rights.

At the end of the day, after elimination of system files, deduplication and application of search terms (reducing the initial corpus by say 70% collectively) there would be 30 gigabytes remaining for hosting and possible production, both of which are most often priced separately.

Given rampant commoditization there’s an arms race underway among certain service providers where they’re now changing the above model to give away initial processing as a loss leader – pricing only on the data that comes out the end of the processing/search step. In this approach the above workflow would largely stay the same, but the vendor would charge a higher rate for what ultimately is hosted on the back-end. If this back-end fee was $2,000 per resulting gigabyte and the same 30 gigabytes was seen out the back end, then the customer would pay $60,000 for the project. But, if the deduplication, searching, culling, etc. was more effective (at say 80%) then the resulting 20 gigabytes would only cost $40,000.

The question then, as Clint Eastwood would put it, is: “Do you feel lucky?” This pricing model forces attorneys and litigation support managers to guesstimate what culling, search, and de-duplication rates they’ll likely get on the data corpus. Guess right and they save the end client money, guess wrong and they’re way over budget.

The dynamics of this purchasing decision are a bit atypical because the buyer (usually counsel) doesn’t pay the bills, so the decision can often be more vexing than most. When a direct consumer gambles on pricing things will ideally balance out over time, with money being saved in some instances and some being overspent in others. But, when the buyer doesn’t pay the bills the motivation is less clear.

Thoughts run to Maslow’s hierarchy of needs to determine which pricing model is ultimately more compelling: (a) price certainty/adherence to budget, or (b) cost variability and the opportunity to save money. While it’s never good to understate the upside of saving money (Esteem), I think ultimately there’s a more fundamental need (Safety) to stay within budget and avoid the painful (sometimes client imperiling) call to discuss how a given e-discovery project has gone way over budget.

This calculation is made further vexing because it not only pits the purchasing party against unknown data culling/searching rates, but it also puts the vendor in an ethical bind where they make less money if they’re supremely effective at data reduction, whereas if they’re either intentionally or accidentally beneficiaries of relatively little data reduction then they stand to make a ton of upside.

It’s like you went to Vegas to gamble your kid’s college fund and on top of the already questionable house odds you knew that the dealer stood to profit by your losses. So, as for myself, no, I don’t feel lucky.

I was at the Sedona Conference Working Group’s Mid Year meeting last week where 80 or so electronic discovery practitioners and judges met to discuss hot topics in bucolic Denver, Colorado.  Without getting into the particulars of any discussion, several themes continue to stay on the front burner, including the progress of the cooperation proclamation and the relatively newer issue of proportionality (as highlighted recently by The American College of Trial Lawyers Task Force on Discovery).

Aside from those overarching themes I was struck by how polarizing the discussion was around one recent case in particular.  While many notable commentators have already made this the most talked about cases of the year, Phillip M. Adams & Assoc., LLC v. Dell, Inc., 2009 WL 910801 (D. Utah Mar. 30, 2009) continues to stimulate discussion.   Adams v. Dell is a patent infringement case where the plaintiff, alleged that one of the defendants (ASUS) destroyed critical pieces of evidence and should be sanctioned accordingly.

The underlying facts and timelines are fairly complex, but in summary the dispute centered around the alleged infringement of several patents developed to resolve defects in floppy disks during in the late 80′s.  What makes this decision so vexing is that it starts out as a preservation case, but quickly confuses that concept with data retention and information management practices/policies.

So, starting with the preservation angle…  Both sides fortunately agreed about the definition for the duty to preserve evidence, which in the 10^th circuit begins when a party “knows or should know [it] is relevant to imminent or ongoing litigation.”  The triggering of the preservation duty was not surprisingly much more complicated and ASUS (the responding party) claimed that its duty to preserve wasn’t triggered until early 2005, when they received a letter warning it of potential litigation because of the alleged patent infringement.  But, the Magistrate held that “counsel’s letter is not the inviolable benchmark” and the duty to preserve was triggered much earlier (in the 1999-2000 time frame) because similar litigation was rampant in the industry, highlighted by a late 1999 suit where Toshiba paid billions of dollars in a class action settlement related to similar floppy disk issues.

Leaving the murky preservation issue by the wayside for a bit, the Magistrate then moved into ASUS’ claims that FRCP 37(e) provided a safe harbor for its alleged destruction.

“ASUS claims it can find a safe harbor against sanctions because of the recently adopted rule that sanctions may not be generally imposed for ‘failing to provide electronically stored information lost’ if a party can show the loss was ‘a result of the routine, good-faith operation of an electronic information system.’”

Nice try, but strike two for ASUS…

“ASUS provided an extensive declaration from an experienced consultant in e-discovery. While he stated the reasons for and history of ASUS’ ‘distributed information architecture,’ he did not state any opinion as to the reasonableness or good-faith in the system’s operation. And while he says ‘ASUSTeK’s data architecture relies predominantly on storage on individual user’s workstations,’ his 31-page declaration does not show he is familiar with the precise practices pointed out in the declarations of employees. Those employees’ declarations describe the practice of ASUS’ email system to overwrite old data regardless of its significance; ASUS’ reliance on employees for all email and data archiving; and the process of replacement of computers, which also relies on employees to transfer data from their old to their new computers. Neither the expert nor ASUS speak of archiving ‘policies;’ they speak of archiving ‘practices.’

The court’s distinction between “policies” and “practices” seems like a convenient (perhaps “Deus ex machina”) way to discount ASUS’ data retention activities and prevent the use of the FRCP 37(e) safe harbor.  Since in most instances, “bona fide, consistent and reasonable” document retention “policies” have been found to be presumptively valid by everyone ranging from Sedona (Guideline 3) to Carlucci v. Piper Aircraft Corp. and Arthur Andersen LLP v. United States, 125 S.Ct. 2129 (2005).  It’s not clear how he draws the important “practices” distinction and why said practices are exponentially different from presumptively valid “policies.”

It’s precisely this line of thinking that confuses the alleged failure of the duty to preserve (discussed at the outset of the opinion) with the duty to retain information.  The court seems to think it’s an “unreasonable” practice to have custodians responsible for compliance with data retention and this deficiency made the safe harbor unavailable.

“ASUS has explained that it has no centralized storage of electronic documents, email or otherwise, and relies on individual employees to archive email (which will be deleted if left on the server) and electronic documents (which reside only on individual workstations).”

Not only is this custodian-based retention practice, in and of itself, reasonable; it’s probably the most common form of data retention practices seen at corporations today.  While a number of vendors have promised intelligent retention systems that work without any significant human intervention, for the most part those solutions are still in their infancy.  Additionally, there are significant technical challenges to have an application manage *all* ESI (Electronically Stored Information) that exist for a given custodian (including desktop files, instant messaging, text messaging, social media, etc.) As such, most companies must inherently rely upon their custodians to both retain and preserve data pursuant to company policies.  The court not only seems to miss this point, but also attempts to impose an obligation that corporations must prevent the “loss of data” above and beyond specific preservation obligations.

“ASUS’ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs. ASUS alone bears responsibility for the absence of evidence it would be expected to possess. While Adams has not shown ASUS mounted a destructive effort aimed at evidence affecting Adams or at evidence of ASUS’ wrongful use of intellectual property, it is clear that ASUS’ lack of a retention policy and irresponsible data retention practices are responsible for the loss of significant data.”

Although the exact rationale was unclear, the court held that ASUS violated their duty to preserve and that the loss of evidence could not be excused as a “routine, good faith operation of electronic information systems.” While the court ruled that sanctions were appropriate, it reserved final sanctions pending the close of discovery.   Depending on what those ultimate sanctions look like, it seems pretty likely that this decision will be subject to appellate review.  Until then, it’s probably too soon to treat this questionable holding as gospel.  Wary corporations however should continue to bolster the “reasonableness” of their information management/retention/destruction policies and practices so that in hindsight a court won’t be able to take away the FRCP electronic discovery 37(e) safe harbor by casting those “practices” as being unreasonable.

In today’s economy, controlling electronic discovery costs has taken on a new urgency.  Because the financials of many companies have deteriorated so quickly, there is great interest in finding methods to reduce any costs in the short-term.  As  a result, anyone in a company’s IT or legal department that comes up with a plan to substantially reduce their company’s electronic discovery costs in the short-term is likely to become a hero in their company.  So, what’s the best way to reduce electronic discovery costs quickly?

A natural first step is to decide where to focus.  Which electronic discovery activities are the most costly today?  Which have the greatest room for cost reductions?  The EDRM model serves as a good guide for answering such questions by breaking electronic discovery activities into Information Management, Identification, Collection, Preservation, Processing, Analysis, Review, Production and Presentation.  One thing I have noticed when interacting with enterprises is that the IT and legal departments tend to focus on different stages within electronic discovery based on their perspective.  IT managers naturally concentrate on the information management, identification, collection and preservation activities because these are the activities in which they are most involved.  Similarly, legal managers naturally look to preservation, processing, production and review.

Given these different perspectives, it’s important to take an objective approach to calculating electronic discovery costs.  Doing so is not that easy.  Costs can vary significantly depending on each company, the nature of the case, nature of the data, which vendors/technologies that are used and a variety of other factors.  Costs also come in many different forms: direct hard dollar costs, such as spending on legal discovery and electronic discovery fees delivered by third parties; indirect hard dollar costs, such as time spent by company employees; and soft dollar costs, such as increased risk that could lead to adverse judgments and sanctions.  Finally, electronic discovery costs are often buried across both legal operating budgets and IT budgets making it hard to separate these costs from the costs of other activities.

Undertaking an internal analysis to understand your company’s electronic discovery costs is a valuable activity if you want to better control these costs.  However, while costs do vary between companies, most companies will find that the same activities contribute the most direct hard dollar costs and that these are the costs that are easiest to control in the short-term.  To demonstrate this, let’s walk through a generic cost analysis of a typical case.  Fortunately, we don’t have to start from scratch in doing this.  Leonard Deutchman, an author of several excellent electronic discovery articles, has already done most of the work in a May 2007 article, “Get Ready for the Rules Changes, Part VIII“.  In this article, Mr. Deutchman walks the reader through a hypothetical litigation between an Investor and a Venture Capital firm.  He describes the typical electronic discovery activities and calculates the direct hard dollar costs for these activities including:

• Collection: Mr. Deutchman calculates that it costs $10k to collect 400GB from 8 hard drives and the data of 8 custodians on file and email servers using an outside vendor (doing it in-house can be less expensive).  Note that this excludes any collection from back-up tapes, which can be more costly.
• Culling & Processing: it costs $4k to reduce the 400GB to 90GB by removing non-relevant file types prior to processing.  Processing 90GB costs $90k at $1000/GB.  De-duplication and the application of search terms reduce the data to 25GB.
• Production: it costs $4k to produce the 4GB of data that is deemed responsive and not privileged to produce to the other side.

Mr. Deutchman doesn’t identify direct hard dollar costs for Information Management, Identification or Preservation.  These activities are typically not associated with direct hard dollar costs on a per matter basis.  Rather, they involve indirect hard dollar costs such as employee time and software licenses.  Mr. Deutchman also does not provide an estimate for the costs of review.  However, since review does contribute significant direct hard dollar costs for every matter, this gap needs to be filled in order to get a complete sense of the direct hard dollar costs.  The two big buckets of cost in review are: attorney review costs and review software costs.  In Mr. Deutchman’s hypothetical litigation one might imagine the following scenario for these costs:

• 25GB translates into 195,000 documents using the low end of the documents per GB email (9,000/GB) and documents per GB files (7,000/GB). Industry survey data that is available from EDRM.  This example assumes that 40% of the 25 GBs is email.
• The attorneys reviewing the data charge $75/hour and make 100 document decisions per hour.  This translates to approximately $146,000.
• The hosted review service costs $50/GB/month and, in this case, let’s assume we host it for 6 paid months.  This costs $7,500.

If we tabulate these costs and calculate the direct hard dollar cost shares for each stage, the clear take-away is that Processing and Review costs comprise the vast majority of direct hard dollar costs.  Collection and Production direct hard dollar costs are significantly smaller in comparison.

EDRM Stage	Hard Dollar Costs ($k)	Share
Collection	10	4%
Processing	94	36%
Review	153	58%
Production	4	2%
Total	261	100%
Total for Processing & Review	247	94%

Now, it’s possible to come up with many arguments for why Mr. Deutchman or my estimates could be high including different assumptions for attorney hourly review costs, higher document decision rates, cheaper vendor pricing, etc.  Similarly, it’s possible to come up with many arguments for why the estimates could be low including the need to perform multiple review passes, slower document decision rates, more expensive vendor charges, etc.  In addition, each company will have their own unique circumstances that will change this picture.  However, this generic analysis strongly suggests that more customized analyses would come to the same conclusion: if you want to reduce electronic discovery costs quickly, then you need to focus on processing and review costs.  One can also imagine that even if you were to use some form of activity-based costing to allocate indirect hard dollar costs on a per matter basis, it would likely not change the importance of Processing and Review costs.

What does this mean for IT and legal managers in Corporations?  These kinds of analyses make it pretty clear that, even though they are more involved in the Information Management, Identification, and Collection phase of electronic discovery, IT managers need to focus more on helping the legal team optimize Processing and Review activities.  You are not going to get the biggest bang for your buck in the short-term by trying to reduce costs in Information Management, Identification, Preservation, and Collection.  Similarly, legal managers need to work more closely with IT in order to focus on how to reduce processing and review costs.

So, the obvious question coming out of such an analysis is what’s the best way to reduce Processing and Review costs?  We’ll discuss this issue in a future post.

In the meantime, tell me what you think by participating in our first e-discovery 2.0 poll.  See the sidebar here: Which Phase of Electronic Discovery Do You Think is the Most Costly?

If you have been to LegalTech before, you know that – by the end of the day – you could use a nice stiff drink to recover. So why not do it with some company? We (Aaref, Dean, Kurt, and Will) will be at the Bridges Bar at the Hilton at 7pm, and we are happy to buy drinks for the first 50 E-Discovery 2.0 readers who join us (we will have a big E-Discovery 2.0 sign on our table, so feel free to just stop by and introduce yourself). It’s a great way to meet us, suggest ideas for what we should cover on the blog, and get warmed up before going to the B-Discovery event later that evening.

Come early though. We mentioned the idea to Brandon, who runs the E-Discovery 2.0 group on LinkedIn, and he invited his group to arrive shortly after, so the seats (and the drinks!) may go fast.

It’s a new year in legal technology, and the visions of sugarplums dancing in our heads quickly give way to visions of LegalTech 2009. After all, who can help but dream about another opportunity to brave the icy streets of New York City in February? Fond memories of attempting to wolf down a stale croissant and cold cup of coffee while jostling for an uptown cab outside the New York Hilton can set even the most jaded litigation support manager’s heart aflutter.

The weather and the Manhattan traffic may remain the same, but, as we’re all painfully aware, this year’s show takes place in the context of a dramatic global recession that is having a huge impact on the legal industry’s use of technology, particularly electronic discovery. It’s in challenging times that innovation often thrives the most, so this year’s LegalTech may actually yield a surprising number of new ideas and technologies.

Innovation aside, this year’s LegalTech will likely have a bit of a different “look and feel” from last year:

	LegalTech 2008	LegalTech 2009
Dining hot spot	Le Cirque	Le Hot Dog Cart
Evening activity	Attending swanky club parties hosted by eager and generous vendors	Watching Law and Order in your hotel room while eating Chinese take-out
Cheap giveaway	Demo CDs	Devalued CDOs
Hilton elevator waiting time	20 minutes	20 minutes
Top discussion topic while waiting for the elevator	Managing the costs and risks of electronic discovery	Managing the costs and risks of electronic discovery

Some things, of course, never change. Fortunately, the team at Incisive Media has been working overtime to put together a stellar lineup of practitioners, legal experts, and judges to provide insight into some of the key issues of legal technology. While electronic discovery is top-of-mind for many, there’s a lot of more than that on tap. Key sessions include:

• Patrick Oot, Director of Electronic Discovery and senior litigation Counsel at Verizon will lead the first-ever LegalTech Town Hall meeting, to be featured on YouTube. The Town Hall will be an interactive discussion where participants will be able to submit questions in real-time to a panel of experts for immediate feedback and insight on the topics that are of top concern.
• John W. Woods, a partner at Hunton and Williams, will deliver a keynote on “How eDiscovery is Changing the Relationship Between Law Firms and their Corporate Clients”. Clearly there’s a sea change going on here, which seems to be being accelerating by the economy, and it will be very interesting to hear what John has to say.
• Finally, LegalTech would not be complete without a contribution from a leading light of the bench. And this year, none other than United States Magistrate Judge John M. Facciola of Peskoff v. Faber and United States v. O’Keefe will be presiding. Ralph Losey said he’s “just about my favorite judge of all time” and it’s sure to be a fantastic session to get up to speed on the cutting edge of electronic discovery law.

The fantastic speaker lineup, of course, just scratches the surface. LegalTech is also an incredible networking opportunity to meet with fellow practitioners and vendors. However, it can be a little overwhelming, particularly to first-time attendees. So, we thought we’d close with a video that Monica Bay put together last year that provides a quick “how-to” guide for making the most of your time at LegalTech.

As a final note, I’ll be attending the E-Discovery 2.0 LinkedIn Happy Hour before B-Discovery’s LegalTech event.  It’s at the Hilton’s Bridges Bar from 8:00 – 9:00pm on Monday February 2^nd.  Come by and say hello.  If you are not a member of the E-Discovery 2.0 LinkedIn group, sign up here.  See you at the show!

HP announced today that it has signed an agreement with Clearwell to resell the Clearwell E-Discovery Platform. The two companies have been partners for some time and have many joint customers such as Constellation Energy, Del Monte, and Universal Music. But, under this new agreement, thousands of HP sales people will now be compensated for selling Clearwell, giving them a powerful incentive to introduce their customer base to Clearwell’s e-discovery solution.

To my knowledge, this is the first time that a major archiving vendor has agreed to resell a partner’s e-discovery solution, and it raises a couple of interesting questions: why did HP do this deal? And, what does it mean for HP customers?

Ask anyone who tracks the email archiving market, and they will tell you that e-discovery is a major driver of archive purchases. As Gartner’s Carolyn DiCenzo observes: “Legal discovery is being mentioned by almost every client evaluating an e-mail archiving solution.” That’s because whenever a company has litigation, regulatory inquiries or internal investigations, IT is required to provide relevant electronic information to legal or information security. Far better to have it in one repository than spread out on user desktops, email servers, and file shares. So, CIOs are partnering with General Counsels to deploy email archives, much as they did – in years gone by – with the VP of Sales to implement CRM systems.

The problem is that, when you look at archives as e-discovery solutions, they only solve 50% of the pain. In EDRM terms, archives are a very effective solution for collection and preservation, but awful for processing, analysis, and review. They provide a bulletproof way to capture and preserve every message, but do not make it easy to perform early case analyses and cull down data to the very small set of documents relevant to the case at hand.

That’s why enterprise customers find it so compelling to pair up an archive, such as HP’s Integrated Archive Platform, with an e-discovery solution, such as the Clearwell E-Discovery Platform. So to summarize, HP is doing this deal because it’s the best way to provide HP customers with an end-to-end solution for e-discovery. The two products integrate out-of-the-box, have been proven to work together at several large enterprises, and can be purchased from a single supplier (HP). That’s a much easier, lower risk decision for many enterprises than purchasing separate point solutions and cobbling them together.

Very few companies have as much mindshare with corporate CIOs as HP. It can only be good news for the e-discovery market as a whole to have one the largest technology companies in the world out there educating its customers on the value of lowering the costs and risks of ediscovery.

Perhaps the single greatest component of e-discovery costs is review, meaning the pain-staking process whereby teams of attorneys evaluate information to determine its relevance to the case at hand. Why has review become so expensive? A recent Sedona Working Group Paper explains:

In 1990, a typical gigabyte of storage cost about $20,000; today it costs less than $1 dollar. As a result, more individuals and companies are generating, receiving and storing more data, which means more information must be gathered, considered, reviewed and produced in litigation. But, with billable rates for junior associates at many law firms now starting at over $200 per hour, the cost to review just one gigabyte of data can easily exceed $30,000.

That’s quite a difference: $1 to store a gigabyte of data vs. $30,000 to review it; and it has driven corporate legal departments and law firms to embrace e-discovery review platforms. These review platforms, which can be either packaged software or a hosted service, typically emphasize one of two main benefits:

• “Review Faster”: Traditional review platforms increase attorney productivity by increasing the number of documents they can review each hour. For example, the name “Attenex” derives from the claim that it will help attorneys review documents “at 10x” the speed that they could do otherwise. These products help to a point, but – no matter how good the software – there is a limited number of documents that the human brain can digest in a day, so, even with them, review remains very expensive;
• “Review Less”: More recent e-discovery solutions have focused on having attorneys review fewer documents by culling down data prior to review. This can massively reduce review costs, since 80%+ of documents can be eliminated without being read, but it does raise one serious question: how can you be sure that responsive documents do not inadvertently get culled?

The technical term for this issue is “elusion”, meaning: out of all the material judged as not responsive, how many are in fact responsive (i.e., how many false-negatives does your culling methodology produce)? It is virtually impossible to answer that question definitively without a human reviewing the entire dataset to assess relevance which, of course, defeats the point of culling in the first place. So the accepted practice is to use statistical sampling theory, whereby you test a sample that gives you a certain confidence level about the total population. For example, to get a margin of error of 2-sigma with 95% confidence level, you need to randomly select and process one-in-400 documents. How easy is this to do? Actually, it’s pretty straight forward. Any good e-discovery solution should let you create a separate folder containing a subset of non-responsive documents for human review as a quick check on the effectiveness of culling. You can determine the size of your sample according to what confidence level you want to have.

This is an area that Sedona and others have considered in great depth, and there are many excellent papers on the subject by people far more knowledgeable than me. To pick just a few, Herbert Roitblatt has written extensively about sampling in e-discovery and elusion; and, Daticon’s paper may be a few years old, but is well worth reading to understand the origins of the “review less” movement.

Practically speaking, as someone who has seen both approaches in action, I think that “review faster” is helpful, but if you want to massively reduce your e-discovery costs, then the big win is “review less” – even with sampling to mitigate concerns about elusion.