e-discovery 2.0

As a long-time reader of The Economist, I was excited to find that this week’s edition writes at length about the exponential growth in electronically stored information (ESI), and how people are using technology to manage it.  I believe this is one of the most significant “mega-trends” impacting our economy, and I was thrilled to see it recognized by a mainstream publication. But when I read the 14-page special report, I was disappointed to find that its analysis of the legal and regulatory implications of “the data deluge” is really weak.

The survey does a good job of teeing up the issue:

The world contains an unimaginably vast amount of digital information which is getting ever vaster ever more rapidly. This makes it possible to do many things that previously could not be done: spot business trends, prevent diseases, combat crime and so on. Managed well, the data can be used to unlock new sources of economic value, provide fresh insights into science and hold governments to account.

It goes on to talk about how companies like Walmart, which has 2.5 petabytes of point-of-sale transaction data, is using business intelligence software to analyze the 1 million transactions it does every hour. By doing so, Walmart is able to improve the efficiency of its supply chain and the effectiveness of its marketing. The article also describes how companies like Amazon and Google use web analytics software on click stream data to improve their services.

What’s missing is an equally intelligent analysis of the legal and regulatory implications of all this data. The move from paper to ESI (email and files) has created a user-generated, written record of everything that happens in a company. That’s incredibly helpful when, after the fact, questions or disputes arise. Rather than relying on incomplete recollections, courts and regulators can now consult a written record – one where every document is time-stamped and very often attached to a person’s name via email. That enables judges and regulators to get better information which, in turn, leads to better decisions. It’s hard to quantify the value of that, but there’s no doubt it’s substantial.

There is, however, a catch. Because the volume of ESI is so great, it’s really expensive to gather, sift through, and then produce information. Add the requirement that the process needs to be defensible (i.e., easily explained in court), and the whole thing gets really expensive really fast. Hence the need for electronic discovery software: it’s the only cost-effective way for companies to manage their ESI from a legal and regulatory perspective.

That’s why I believe e-discovery software will be as big a category as web analytics software or business intelligence software – it’s a different side to the same coin. Or, more specifically, a different dimension to managing digital information stores which, as The Economist points out, are growing tenfold every five years.

Update: Nick Patience at The 451 Group has also posted on this topic, at almost exactly the same time as me.

Yesterday, I explained what I think Iron Mountain’s acquisition of Mimosa says about valuations in the archiving / e-discovery industry. Today, I will address the other questions that people commonly ask about the deal – why did Iron Mountain (Stratify) do it, and what does it mean for the electronic discovery industry?

In their letter to customers announcing the deal, Ramana Venkata (President of Iron Mountain Digital) and TM Ravi (CEO of Mimosa) point to two main benefits from combining the companies. On the archiving side, Iron Mountain can now offer Mimosa as an on-premise solution in addition to its existing hosted service. If it can integrate the two, then it can offer “location-independent” archiving which “will help you transparently and seamlessly move data between the on-premises data center and the cloud.” One additional benefit to Iron Mountain, which is not mentioned in the letter, is that it could even leverage Mimosa’s technology for its hosted offering, and replace Mimecast who it currently pays to provide this service.

On the e-discovery front, Iron Mountain now has a suite of 2 products and 1 service: Mimosa NearPoint for collection and preservation; the Stratify eVantage appliance for ECA (Early Case Assessment); and, Stratify Legal Discovery Services for review and production. This makes Iron Mountain a competitor to Autonomy, Clearwell, EMC/Kazeon, and everyone else listed in Gartner’s recent MarketScope covering e-discovery software companies. I’m sure the hope is that there’s synergy between the different products so that, for example, Mimosa’s experience in on-premise software will help Iron Mountain drive adoption of its new Stratify eVantage appliance behind the firewall.

Will the combination work? As Barry Murphy (a former Mimosa employee) points out in his excellent post on this topic, a lot depends on execution. But there are at least 2 reasons to be doubtful. First, the competition is far ahead, and will be hard to catch. As Barry, points out: “Iron Mountain will have a tough road ahead to compete with the likes of Autonomy, which bought successful archiving company Zantaz and has now had almost two years of development time for its hybrid on-premise/SaaS archiving offering.” The same is true on the e-discovery side, where companies like Clearwell have hundreds of corporate customers for on-premise ECA and review.

The second reason to doubt why the combined company will be any more successful than either were before the acquisition is that Mimosa and Iron Mountain Digital serve very different markets. Most of Mimosa’s customers are small to medium sized companies; most of Iron Mountain Digital (ie., Stratify)’s revenue comes from law firms. So it’s not obvious that by combining them you create a company well-suited to serving large corporations, which is the sweet spot for e-discovery and archiving.

It will be interesting to watch events unfold.

Next week, as most of you know, is the Superbowl of legal technology events.  And, so if this is a newsflash, you’ve probably found this blog by searching for the European Cockpit Association (“ECA”).  If on the other hand you have an unnatural affinity for the other ECA – early case assessment — then you’ve probably been planning to head to this year’s LegalTech show immediately after the last one ended.

For fear of gratuitous self promotion, I will be moderating several panels with e-discovery pundits on the first day. Akin to the upcoming Superbowl, these “Supersessions” will be chockablock with EDD luminaries and it’ll be all I can do to get a word in edgewise.  Below is the schedule. Feel free to pre-register since we expect a packed house.

1:00 – 2:00 pm: The E-Discovery Expert Panel.  This session will discuss best practices in e-discovery. Panelists include:

• Jay Brudz, senior counsel, legal technology at GE;
• Ron Best, director of legal information systems at Munger, Tolles and Olson, LLP, and
• Brian Hill, senior analyst at Forrester Research, Inc.

2:15 – 3:15 pm: Strategies for Transparency and Cooperation in E-Discovery. This session will discuss how to move toward a more cooperative resolution of legal disputes.  Speakers include:

• Sean Gallagher, partner at Hogan & Hartson, LLP and
• Lauren Schwartzreich, associate at Outten and Golden, LLP

3:30 – 4:30 pm: Ask the E-Discovery Doctors. The “doctors” will take questions from the audience and provide their prescriptions for a wide-range of e-discovery topics.

• Craig Ball, attorney and president, Craig D. Ball, P.C.
• Ralph Losey, attorney and co-chair of E-Discovery Practice Group, Akerman Senterfitt,
• George Socha, attorney and president, Socha Consulting, LLC

While it’s probably not fair to pick a favorite session, my sense is that the last one will be the most anarchical, chaotic, and stimulating, assuming that the speakers don’t take the faux Doctor thing too far (yes, they will be in scrubs).

Please come by to get your recommended daily dose of e-discovery insights.

There are many barriers preventing the creation of a new product category, especially in the legal industry. The biggest is inertia, since most people prefer to leverage the tools they have, both on grounds of cost (why spend money on something new?) and familiarity (who wants to spend time learning a new workflow?). A second barrier is risk-aversion, since the consequences of errors in the legal world can be severe for all concerned. A third is insensitivity to cost, since service providers simply pass on expenses to their corporate clients. When safety and risk mitigation rank above efficiency on the hierarchy of needs, there’s not much incentive to try new technology.

Yet, despite all these barriers, in the past few years “early case assessment” (ECA) has emerged as a product category. In a typical workflow, ECA products are used after collection and before review, to assess case facts and estimate the scope of electronic discovery. Whereas collection typically occurs within the corporation, and review is usually conducted by outside counsel, ECA bridges the two, and can occur either in-house or via an outsourced model. Either way, it leads to better case strategies, more effective discussions at the “Meet and Confer”, and fewer nasty surprises in downstream review.

How has this happened? Why has ECA been able to establish itself as a product category despite the barriers? There are two answers to that question, each of which is completely different.

One answer is that ECA possesses the unique combination of characteristics needed to create a new category. It capitalizes on macro trends, such as the growth in electronically stored information which makes it impossible to review every document, as occurred in a paper-based world. It’s disruptive, meaning it has completely new functionality, such as transparent search, that other products do not. And, it reduces the overall expense of litigation discovery, by giving savvy litigators the information they need to make better decisions earlier in the case. This cocktail of factors led to initial market traction from sophisticated corporations and law firms, which led to positive word-of-mouth and analyst coverage, which, in turn, educated the broader the market.

The second answer takes the opposite perspective: ECA may be a product category but, because of the barriers listed above, it’s a nascent one. No ECA is performed on the vast majority of data. Instead, the traditional workflow is still used in most cases, whereby service providers blindly run keywords, load the resulting dataset into a review platform, and hire a legion of contract attorneys to sift through it. This is changing over time, but new methodologies do not catch on overnight.

In my view, both answers are correct. Today, ECA is growing rapidly as a part of a workflow that emphasizes data minimization to lower costs. That’s spurred on by corporations who are acutely cost sensitive and increasingly taking control over the processing, analysis, and review phases of the e-discovery process. But inertia remains a huge factor, and ECA is still a small fraction of the total market.

From a historical perspective, this is to be expected. Five years ago, virtually no one did ECA; five years from now, everyone will do it, just as they all do collection and review. The only open questions are how quickly we move from one state to the other, and who will benefit from the change.

Since I’ve finished off the last of the Halloween candy and tossed out the moldy, squirrel ravaged pumpkins, it occurred to me that now might be a good time to think about what 2010 will hold for the electronic discovery industry.  My 2009 list seems to have been fairly prescient and many of those notions still hold true since the legal industry (as we know) doesn’t move at the most blistering pace.

Again, doing my best Nostradamus impersonation, here are my top ten trends for 2010:

1. Early case assessment (ECA) moves from a “nice to have” to a “must have” requirement for any matter involving electronically stored information (ESI).  In 2009, we saw ECA move into the mainstream as a methodology to quickly understand case facts, assess risk and lower both review and data processing costs.  But, in 2010, with the advancement of the tools and the increased socialization within the bar and the litigation support community, ECA will graduate into a core methodology for savvy litigators regardless of matter type or size.
2. Appetites for broad information lifecycle management initiatives diminish as organizations realize these programs are far too complex to solve specific pain points, and they often take too much time (measured in years) to execute.  The economic reality is that these holistic, cross data, cross enterprise pipe dreams really can’t demonstrate the ROI that’s needed in today’s challenging economy.
3. Staffing roles continue to evolve with a newfound focus on project management. The role of an in-house e-discovery coordinator will emerge as more of a project management and analyst versus pure legal or IT. This shift will become increasingly necessary as e-discovery evolves from an ad-hoc fire drill to a standard business process that is repeatable, measurable, and defensible.
4. Data analytics and statistical methodologies gain traction to augment the type of subjective decision making approaches that have historically formed the backbone of the e-discovery search and review processes.  These objective methodologies have long been called on as best practices by the likes of the Sedona Working Group. In 2010, they now will start to move from theoretical to practical task as e-discovery tools increasingly move in-house and departments enhance defensibility and add elements such as sampling into the workflow.
5. Platform e-discovery solutions finally become a reality as customers finally graduate from painfully stitching point solutions together, thus requiring less physical document hand-offs (i.e., exports and imports) between applications, cutting costs and lowering the risk of data loss.
6. Associate-based review gradually goes extinct, as both clients and law firms tire of expensive, linear review processes.  More review work becomes either insourced or is managed with specialized contract attorneys, who are both cheaper and better trained for this type of work.
7. Similarly, FRE 502 and “clawback” agreements will be increasingly used to reduce the need for any manual, eyes-on review, although many litigators will resist this trend because of the fears of “un-ringing the bell” when privileged information is disclosed in any context.
8. While perhaps anathema, alternatives to the much lauded EDRM model will gain traction, as practitioners strive to find an even better, and perhaps more practical, project management framework, in many cases acknowledging the role that the EDRM has taken in forming *the* lingua franca of the e-discovery industry.
9. The push for cooperation in the e-discovery process, will make incremental progress despite reticence by old school litigators.  Increasingly, this type of cooperation, as strongly advocated by the Sedona Working Group, will be ironically forced by judges and local rules.
10. “Cloud” computing starts to really impact how e-discovery data preservation/collection is done, both in terms of social media and traditional ESI.  More and more companies block social media applications and file types in the workplace because of fears surrounding the inability to preserve and collect.

Recently, I attended the Sedona Conference’s annual meeting in Atlanta and, amongst other interesting topics, was the discussion of local rules developments and in particular the Seventh Circuit’s new Electronic Discovery Pilot Program (“Pilot Program”).  The Pilot Program was launched October 1, 2009 and seems to be a model for collaboration, since it was developed by eliciting input from a number of disparate groups:

“(a) continuing comments by business leaders and practicing attorneys, regarding the need for reform of the civil justice pretrial discovery process in the United States, (b) the release of the March 11, 2009 Final Report on the Joint Project of the American College of Trial Lawyers Task Force on Discovery (“Task Force”) and the Institute for the advancement of the American Legal System at the University of Denver (“IAALS”), and (c) The Sedona Conference® Cooperation Proclamation.”

The impetus of the Pilot Program was the “broken” nature of the electronic discovery process with the belief that better collaboration and cooperation would certain help remediate the situation.

“The goal of the Principles is to incentivize early and informal information exchange on commonly encountered issues relating to evidence preservation and discovery, paper and electronic, as required by Rule 26(f)(2). Too often these exchanges begin with unhelpful demands for the preservation of all data, which often are followed by exhaustive lists of types of storage devices. Such generic demands lead to generic objections that similarly fail to identify specific issues concerning evidence preservation and discovery that could productively be discussed and resolved early in the case by agreement or order of the court. As a result, the parties often fail to focus on identifying specific sources of evidence that are likely to be sought in discovery but that may be problematic or unduly burdensome or costly to preserve or produce.”

What I really like about the Pilot Program is that it strives to be both prescriptive and practical, which should hopefully avoid the type of ambiguity often exploited by obstreperous counsel.  For example, there is an entire section on early case assessment (ECA) principles, which require discussion of:

• Production issues
• Identification of electronically stored information (ESI)
• The scope of preservation
• The meet & confer process

There’s also the relatively novel requirement that counsel designate an e-discovery “liaison” to work with the parties to coordinate and flesh out germane e-discovery issues.  Regardless of whether the e-discovery liaison is an attorney, a third party consultant, or an employee of the party, the e-discovery liaison(s) must:

“(a) be prepared to participate in e-discovery dispute resolution;

(b) be knowledgeable about the party’s e-discovery efforts;

(c) be, or have reasonable access to those who are, familiar with the party’s electronic systems and capabilities in order to explain those systems and answer relevant questions; and

(d) be, or have reasonable access to those who are, knowledgeable about the technical aspects of e-discovery, including electronic document storage, organization, and format issues, and relevant information retrieval technology, including search methodology.”

Needless to say, this requirement alone should make marked improvements in the e-discovery dialogue, which unfortunately seems like it’s occurring (literally) among participants who both speak different languages and don’t realize it.

Finally, what makes the Pilot Program unique is that its Principles will be subjected to testing during the phases of the Pilot Program, which is scheduled to end on May 1, 2010 (for the first phase).

This project certainly seems like it’s on the right track and pending feedback from the bench and bar, it could serve as a model for local jurisdiction everywhere.

Earlier today, Clearwell announced Version 5.0 of its e-discovery platform. Unlike prior versions which focused on processing, early case analysis, and first-pass review, this release extends Clearwell’s capabilities in two directions: upstream, by adding pre-processing; and downstream, by adding document-by-document review and production. I wanted to say a few words about what motivated these changes, and why the new release greatly increases Clearwell’s value to enterprises, government agencies, law firms, and litigation support service providers.

Over the past year, the benefits of early case analysis and first pass review have driven hundreds of companies to adopt Clearwell. They have saved huge amounts of money and time, and often become evangelists for the product. But despite that, we continually hear that the overall e-discovery process remains expensive, unpredictable, and risky. When we investigated why, we found the problem lies less in the features of the products being used than in the number of products used.

Once data is collected, a typical e-discovery process today may involve as many 4 different tools: one for filtering by custodians or date range, another for de-duplication and keyword search, another for load file creation, and yet another for review and production. Each time data moves between these tools, and there’s a handoff from one to another, there’s the risk that document counts do not tie out, data does not convert correctly, or any of a hundred other things go wrong. This risk is magnified by the fact that e-discovery is highly iterative: custodians are often added or keywords changed as new information comes to light, forcing people to redo many steps of the process. As a result, timelines are unpredictable and it’s hard to stick to a budget, even with extensive project management which itself is not cheap.

Since the problem lies in the handoffs between different products, it’s impossible to solve this problem by making any one part of the process better. The only solution is to have a single product that can manage collected data from soup (filtering / pre-processing) to nuts (production). Prior to today’s announcement, that product did not exist: there was no single, integrated product that could do everything from process data to review and produce it. And that, in summary, is why Clearwell is releasing Version 5.0.

With Clearwell’s new product, there are no handoffs, no uncertainty about how long it will take to export out of one tool and into another. There’s no need to cobble together a string of different products or train lawyers on multiple different interfaces and workflows. As a result, the risks of cost overruns or missed deadlines are greatly reduced.

To our mind, this is just part of a natural evolutionary process that affects many markets, not just e-discovery. Who wants to carry a Palm Pilot, iPod, and a mobile phone when you can carry a single device like the iPhone? Who wants a cable receiver and a TiVo when you can get both in a single set-top box?  As markets mature, there develops a logical package of functionality that customers prefer to buy from a single, integrated provider.

You can sign up for a product demonstration at our website, or come see the product at ILTA next week (Booth 606). Take a look – and let us know what you think.