“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.

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.

Recently, Symantec issued the findings of its second annual Information Retention and eDiscovery Survey, which examined how enterprises are coping with the tsunami of electronically stored information.  Having lost some popularity, email came in third place (58%) to files/documents (67%) and database/application data (61%) when respondents were asked what type of documents were most commonly part of an eDiscovery request.  The new kid on the block for data sources is social media, reported by 41% of those surveyed.  Social media is in essence no different than any other data type in the eDiscovery process, it’s just the newest.  Said another way; social media is the new email.

Of course, it’s no longer news to proclaim that communications from social networking sites are discoverable.  What is newsworthy is the question of how to effectively store, manage and discover these communications which come in such varying forms, making the logistics of doing so for social media different than for traditional mediums.  Like email, social media is used by everyone (ubiquitous), is viral (fast), has mixed uses (professional and personal) and there is a lot of it (high volume).  Unlike email, social media comes in many different forms (Facebook, LinkedIn, Twitter, etc.), is not controlled within an organization’s firewalls (custody, possession and control issues), and has more complex requirements within the information governance lifecycle (technology is needed to ingest social media into an archive).

The two main areas to examine in relation to social media use and an organization’s policies are: 1) the legal issues that apply specifically to the organization, and 2) the logistical and technical requirements for preservation and collection.  Essentially, what is the organization’s policy surrounding social media use, and how can the information be accessed if need be? Luckily, technology exists that is nimble enough to be able to ingest social media and archive it in accordance with an organization’s policy, should one exist.  Organizations that have recognized social media as the newest kid on the block have, ideally: developed a social media policy, purchased (or deployed) collection and retention technology, and instituted training for their employees.  They have also integrated social media into their information governance strategy and document retention policy. Remember, not all organizations will have to archive social media, but all should address social media with a policy and training.

Other organizations have not accepted social media as part of the evolutionary process of eDiscovery.  They proceed at their own peril – as did the organizations that did not control their email some ten years ago!

These organizations will be in crisis when they need to collect social media for litigation and will most likely have a large lesson in damage control, as well as an equally large bill.  They will be uneducated, ill-prepared and overwhelmed about how to discover social media.  Without a policy, they will have to over collect by default, which will drive up the costs for collection and possibly for downstream review.  Given that the aforementioned survey found nearly half of the respondents did not have an information retention policy in place, and of this group, only 30% were discussing how to do so, it is likely that many of these organizations do not yet have a social media policy either.

With this background in mind, organizations should evaluate which laws and regulations apply to their organization, develop a policy and train their employees on that policy.  Plus ça change, plus c’est la même chose.

For more information about how IT and Legal can manage the impact of social media on their organization and to learn how archiving social media can be accomplished, please join this webcast from Symantec.

Such a finding is echoed by a recent case issued from the District of Indiana.  In Haraburda v. Arcelor Mittal U.S.A., Inc. (D. Ind. June 28, 2011), the court tied a litigant’s preservation duty to its document retention efforts.  In order to discharge its duty to reactively preserve evidence, the court reasoned that enterprises must proactively create “a ‘comprehensive’ document retention policy that will ensure that relevant documents are retained.”  Failing to implement a retention policy often results in a loss of key information.  And this, opined the court, may result in sanctions.

Such a finding is not limited to an isolated case.  Court decisions from across the United States in 2011 have found the same connection; better data retention practices yield more successful document preservation results.  For example, in the E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. April 27, 2011), the plaintiff manufacturer defeated a sanctions motion due to its effective information retention procedures.   The manufacturer implemented a document retention policy that typically kept emails from former employee accounts for 60 days, after which the emails were overwritten and deleted.   Among the emails deleted pursuant to that policy were several that the defendant argued were relevant to its counter-claims.  The DuPont court declined to impose sanctions, however, since the emails in question were overwritten before the duty to preserve was triggered.  Instead, the court lauded the manufacturer’s preservation efforts, finding that it “took positive steps reasonably calculated to ensure that information . . . was preserved for litigation.”  Because the manufacturer faithfully observed its established retention policy, it reduced a stockpile of email, made relevant documents unavailable for discovery and was still protected from court sanctions.

Similarly, in Viramontes v. U.S. Bancorp (N.D.Ill. Jan. 27, 2011), the defendant bank relied on its data retention protocols to stave off a sanctions motion after deleting several years of email.  Because those emails were destroyed pursuant to a neutral retention policy before a preservation duty attached, the bank was protected from sanctions under the Federal Rule of Civil Procedure 37(e) safe harbor for the destruction of electronic information.

The converse, of course, is also true.  Those organizations that failed to implement effective retention policies have fared poorly in discovery because they have not preserved relevant ESI.  Take the defendant, for instance, in Northington v. H & M International (N.D.Ill. Jan. 12, 2011).  The court issued an adverse inference jury instruction against that company because it spoliated significant emails and other data.  The genesis of this spoliation was the company’s failure to establish a formal document retention policy.  Instead of having a thoughtful, top-down approach, “data retention . . . was evidently handled on an ad hoc, case-by-case basis.”  The company’s failure to develop a pre-litigation information retention policy eventually led to the loss of key information and the court’s sanctions award.

These recent cases and others confirm the correlation between retention and preservation.  Simply put, proactive retention leads to better preservation in eDiscovery.  Anything less could be disastrous in litigation.

Some may react incredulously to these results. For instance, noted eDiscovery expert Ralph Losey continues to stress the paramount importance of email: “In the world of employment litigation it is all about email and attachments and other informal communications. That is not to say databases aren’t also sometimes important. They can be, especially in class actions. But, the focus of eDiscovery remains squarely on email.”   While it’s hard to argue with Ralph, the real takeaway should be less about the relative descent of email’s importance, and more about the ascendency of other data types (including social media), which now have an unquestioned seat at the table.

The primary ramification is that organizations need to prepare for eDiscovery and governmental inquires by casting a wider ESI net, including social media, cloud data, instant messaging and structured data systems.  Forward-thinking companies should map out where all ESI resides company-wide so that these important sources do not go unrecognized.  Once these sources of potentially responsive ESI are accounted for, the right eDiscovery tools need to be deployed so that these disparate types of ESI can be defensibly collected and processed for review in a singular, efficient and auditable environment.

The survey also found that companies which employ best practices such as implementing information retention plans, automating the enforcement of legal holds and leveraging archiving tools instead of relying on backups, fare dramatically better when it comes to responding to eDiscovery requests. Companies in the survey with good information governance hygiene were:

• 81% more likely to have a formal retention plan in place
• 63% more likely to automate legal holds
• 50% more likely to use a formal archiving tool

These top-tier companies in the survey were able to respond much faster and more successfully to an eDiscovery request, often suffering fewer negative consequences:

• 78% less likely to be sanctioned
• 47% less likely to lead to a compromised legal position
• 45% less likely to disclose too much information

This last bullet (disclosing too much information) has a number of negative ramifications beyond just giving the opposition more ammo than is strictly necessary.  Since much of the eDiscovery process is volume-based, particularly the eyes-on review component, every extra gigabyte of produced information costs the organization in both seen and unseen ways.  Some have estimated that it costs between $3-5 a document for manual attorney review – and at 50,000 pages to a gigabyte, these data-related expenses can really add up quickly.

On the other side of the coin, there were those companies with bad information governance hygiene.  While this isn’t terribly surprising, it is shocking to see how many entities fail to connect the dots between information governance and risk reduction.  Despite the numerous risks, the survey found nearly half of the respondents did not have an information retention plan in place, and of this group, only 30% were discussing how to do so.  Most shockingly, 14% appear to be ostriches with their heads in the sand and have no plans to implement any retention plan whatsoever.  When asked why folks weren’t taking action, respondents indicated lack of need (41%), too costly (38%), nobody has been chartered with that responsibility (27%), don’t have time (26%) and lack of expertise (21%) as top reasons.  While I get the cost issue, particularly in these tough economic times, it’s bewildering to think that so many companies feel immune from the requirements of having even a basic retention plan.

As the saying goes, “You don’t need to be a weatherman to tell which way the wind blows.”  And, the winds of change are upon us.  Treating eDiscovery as a repeatable business process isn’t a Herculean task, but it is one that cannot be accomplished without good information governance hygiene and the profound recognition that email isn’t the only game in town.

For more information regarding good records management hygiene, check out this informative video blog and Contoural article.