e-discovery 2.0

2012 is the Year of the Dragon – which is fitting, since no other Chinese Zodiac sign represents the promise, challenge, and evolution of predictive coding technology more than the Dragon.  The few who have embraced predictive coding technology exemplify symbolic traits of the Dragon that include being unafraid of challenges and willing to take risks.  In the legal profession, taking risks typically isn’t in a lawyer’s DNA, which might explain why predictive coding technology has seen lackluster adoption among lawyers despite the hype.  This blog explores the promise of predictive coding technology, why predictive coding has not been widely adopted in eDiscovery, and explains why 2012 is likely to be remembered as the year of predictive coding.

What is predictive coding?

Predictive coding refers to machine learning technology that can be used to automatically predict how documents should be classified based on limited human input.  In litigation, predictive coding technology can be used to rank and then “code” or “tag” electronic documents based on criteria such as “relevance” and “privilege” so organizations can reduce the amount of time and money spent on traditional page by page attorney document review during discovery.

Generally, the technology works by prioritizing the most important documents for review by ranking them.  In addition to helping attorneys find important documents faster, this prioritization and ranking of documents can even eliminate the need to review documents with the lowest rankings in certain situations. Additionally, since computers don’t get tired or day dream, many believe computers can even predict document relevance better than their human counterparts.

Why hasn’t predictive coding gone mainstream yet?

Given the promise of faster and less expensive document review, combined with higher accuracy rates, many are perplexed as to why predictive coding technology hasn’t been widely adopted in eDiscovery.  The answer really boils down to one simple concept – a lack of transparency.

Difficult to Use

First, early predictive coding tools attempt to apply a complicated new technological approach to a document review process that has traditionally been very simple.  Instead of relying on attorneys to read each and every document to determine relevance, the success of today’s predictive coding technology typically depends on review decisions input into a computer by one or more experienced senior attorneys.  The process commonly involves a complex series of steps that include sampling, testing, reviewing, and measuring results in order to fine tune an algorithm that will eventually be used to predict the relevancy of the remaining documents.

The problem with early predictive coding technologies is that the majority of these complex steps are done in a ‘black box’.  In other words, the methodology and results are not always clear, which increases the risk of human error and makes the integrity of the electronic discovery process difficult to defend.  For example, the methodology for selecting a statistically relevant sample is not always intuitive to the end user.  This fundamental problem could result in improper sampling techniques that could taint the accuracy of the entire process.  Similarly, the process must often be repeated several times in order to improve accuracy rates.  Even if accuracy is improved, it may be difficult or impossible to explain how accuracy thresholds were determined or to explain why coding decisions were applied to some documents and not others.

Accuracy Concerns

Early predictive coding tools also tend to lack transparency in the way the technology evaluates the language contained in each document.  Instead of evaluating both the text and metadata fields within a document, some technologies actually ignore document metadata.  This omission means a privileged email sent by a client to her attorney, Larry Lawyer, might be overlooked by the computer if the name “Larry Lawyer” is only part of the “recipient” metadata field of the document and isn’t part of the document text.  The obvious risk is that this situation could lead to privilege waiver if it is inadvertently produced to the opposing party.

Another practical concern is that some technologies do not allow reviewers to make a distinction between relevant and non-relevant language contained within individual documents.  For example, early predictive coding technologies are not intelligent enough to know that only the second paragraph on page 95 of a 100-page document contains relevant language.  The inability to discern what language  led to the determination that the document is relevant could skew results when the computer tries to identify other documents with the same characteristics.  This lack of precision increases the likelihood that the computer will retrieve an over-inclusive number of irrelevant documents.  This problem is generally referred to as ‘excessive recall,’ and it is important because this lack of precision increases the number of documents requiring manual review which directly impacts eDiscovery cost.

Waiver & Defensibility

Perhaps the biggest concern with early predictive coding technology is the risk of waiver and concerns about defensibility.  Notably, there have been no known judicial decisions that specifically address the defensibility of these new technology tools even though some in the judiciary, including U.S. Magistrate Judge Andrew Peck, have opined that this kind of technology should be used in certain cases.

The problem is that today’s predictive coding tools are difficult to use, complicated for the average attorney, and the way they work simply isn’t transparent.  All these limitations increase the risk of human error.  Introducing human error increases the risk of overlooking important documents or unwittingly producing privileged documents.  Similarly, it is difficult to defend a technological process that isn’t always clear in an era where many lawyers are still uncomfortable with keyword searches.  In short, using black box technology that is difficult to use and understand is perceived as risky, and many attorneys have taken a wait-and-see approach because they are unwilling to be the guinea pig.

Why is 2012 likely to be the year of predictive coding?

The word transparency may seem like a vague term, but it is the critical element missing from today’s predictive coding technology offerings.  2012 is likely to be the year of predictive coding because improvements in transparency will shine a light into the black box of predictive coding technology that hasn’t existed until now.  In simple terms, increasing transparency will simplify the user experience and improve accuracy which will reduce longstanding concerns about defensibility and privilege waiver.

Ease of Use

First, transparent predictive coding technology will help minimize the risk of human error by incorporating an intuitive user interface into a complicated solution.  New interfaces will include easy-to-use workflow management consoles to guide the reviewer through a step-by-step process for selecting, reviewing, and testing data samples in a way that minimizes guesswork and confusion.  By automating the sampling and testing process, the risk of human error can be minimized which decreases the risk of waiver or discovery sanctions that could result if documents are improperly coded.  Similarly, automated reporting capabilities make it easier for producing parties to evaluate and understand how key decisions were made throughout the process, thereby making it easier for them to defend the reasonableness of their approach.

Intuitive reports also help the producing party measure and evaluate confidence levels throughout the testing process until appropriate confidence levels are achieved.  Since confidence levels can actually be measured as a percentage, attorneys and judges are in a position to negotiate and debate the desired level of confidence for a production set rather than relying exclusively on the representations or decisions of a single party.  This added transparency allows the type of cooperation between parties called for in the Sedona Cooperation Proclamation and gives judges an objective tool for evaluating each party’s behavior.

Accuracy & Efficiency

2012 is also likely to be the year of transparent predictive coding technology because technical limitations that have impacted the accuracy and efficiency of earlier tools will be addressed.  For example, new technology will analyze both document text and metadata to avoid the risk that responsive or privileged documents are overlooked.  Similarly, smart tagging features will enable reviewers to highlight specific language in documents to determine a document’s relevance or non-relevance so that coding predictions will be more accurate and fewer non-relevant documents will be recalled for review.

Conclusion - Transparency Provides Defensibility

The bottom line is that predictive coding technology has not enjoyed widespread adoption in the eDiscovery process due to concerns about simplicity and accuracy that breed larger concerns about defensibility.  Defending the use of black box technology that is difficult to use and understand is a risk that many attorneys simply are not willing to take, and these concerns have deterred widespread adoption of early predictive coding technology tools.  In 2012, next generation transparent predictive coding technology will usher in a new era of computer-assisted document review that is easy to use, more accurate, and easier to defend. Given these exciting technological advancements, I predict that 2012 will not only be the year of the dragon, it will also be the year of predictive coding.

On November 28, 2011, The White House issued a Presidential Memorandum that outlines what is expected of the 480 federal agencies of the government’s three branches in the next 240 days.  Up until now, Washington, D.C. has been the Wild West with regard to information governance as each agency has often unilaterally adopted its own arbitrary policies and systems.  Moreover, some agencies have recently purchased differing technologies.  Unfortunately,  with the President’s ultimate goal of uniformity, this centralization will be difficult to accomplish with a range of disparate technological approaches.

Particular pain points for the government traditionally include retention, search, collection, review and production of vast amounts of data and records.  Specifically, these pain points include examples of: FOIA requests gone awry, the issuance of legal holds across different agencies leading to spoliation, and the ever present problem of decentralization.

Why is the government different?

Old Practices. First, in some instances the government is technologically behind (its corporate counterparts) and is failing to meet the judiciary’s expectation that organizations effectively store, manage and discover their information.  This failing is self-evident via  the directive coming from the President mandating that these agencies start to get a plan to attack this problem.  Though different than other corporate entities, the government is nevertheless held to the same standards of eDiscovery under the Federal Rules of Civil Procedure (FRCP).  In practice, the government has been given more leniency until recently, and while equal expectations have not always been the case, the gap between the private and public sectors in no longer possible to ignore.

FOIA.  The government’s arduous obligation to produce information under the Freedom of Information Act (FOIA) has no corresponding analog for private organizations, who are responding to more traditional civil discovery requests.  Because the government is so large with many disparate IT systems, it is cumbersome to work efficiently through the information governance process across agencies and many times still difficult inside one individual agency with multiple divisions.  Executing this production process is even more difficult if not impossible to do manually without properly deployed technology.  Additionally, many of the investigatory agencies that issue requests to the private sector need more efficient ways to manage and review data they are requesting.  To compound problems, within the US government there are two opposing interests are at play; both screaming for a resolution, and that solution needs to be centralized.  On the one hand, the government needs to retain more than a corporation may need to in order to satisfy a FOIA request.

Titan Pulled at Both Ends. On the other hand, without classification of the records that are to be kept, technology to organize this vast amount of data and some amount of expiry, every agency will essentially become their own massive repository.  The “retain everything mentality” coupled with the inefficient search and retrieval of data and records is where they stand today.  Corporations are experiencing this on a smaller scale today and many are collectively further along than the government in this process, without the FOIA complications.

What are agencies doing to address these mandates?

In their plans, agencies must describe how they will improve or maintain their records management programs, particularly with regard to email, social media and other electronic communications.  They must also move away from such a paper-centric existence.  eDiscovery consultants and software companies are helping agencies through this process, essentially writing their plans to match the President’s directive.  The cloud conversation has been revisited, and agencies also have to explain how they will use cloud-based services and storage solutions, as well as identify gaps in existing laws or regulations that presently prevent improved management.  Small innovations are taking place.  In fact, just recently the DOJ added a new search feature on their website to make it easier for the public to find documents that have been posted by agencies on their websites.

The Office of Management and Budget (OMB), National Archives and Records Administration (NARA), and Justice Department will use those reports to come up with a government-wide records management framework that is more efficient, maintains accountability by documenting agency actions and promotes “appropriate” public access to records.  Hopefully, the framework they come up with will be centralized and workable on a realistic timeframe with resources sufficiently allocated to the initiative.

How much will this cost?

The President’s mandate is a great initiative and very necessary, but one cannot help but think about the costs in terms of money, time and resources when considering these crucial changes.  The most recent version of a financial services and general government appropriations bill in the Senate extends $378.8 million to NARA for this initiative.  President Obama appointed Steven VanRoekel as the United States CIO in August 2011 to succeed Vivek Kundra.  After VanRoekel’s speech at the Churchill Club in October of 2011, an audience member asked him what the most surprising aspect of his new job was.  VanRoekel said that it was managing the huge and sometimes unwieldy resources of his $80 billion budget.  It is going to take even more than this to do the job right, however.

Using conservative estimates, assume for an agency to implement archiving and eDiscovery capabilities as an initial investment would be $100 million.  That approximates $480 billion for all 480 agencies.  Assume a uniform information governance platform gets adopted by all agencies at a 50% discount due to the large contracts and also factoring in smaller sums for agencies with lesser needs.  The total now comes to $240 billion.  For context, that figure is 5% of what was spent by Federal Government ($4.76 trillion) on the biggest bailout in history in 2008. That leaves a need for $160 billion more to get the job done. VanRoekel also commented at the same meeting that he wants to break down massive multi-year information technology projects into smaller, more modular projects in the hopes of saving the government from getting mired in multi-million dollar failures.   His solution to this, he says, is modular and incremental deployment.

While Rome was not built in a day, this initiative is long overdue, yet feasible, as technology exists to address these challenges rather quickly.  After these 240 days are complete and a plan is drawn the real question is, how are we going to pay now for technology the government needed yesterday?  In a perfect world, the government would select a platform for archiving and eDiscovery, break the project into incremental milestones and roll out a uniform combination of solutions that are best of breed in their expertise.

The New Year has now dawned and with it, the certainty that 2012 will bring new developments to the world of eDiscovery.  Last month, we spotlighted some eDiscovery trends for 2012 that we feel certain will occur in the near term.  To understand how these trends will play out, it is instructive to review some of the top eDiscovery cases from 2011.  These decisions provide a roadmap of best practices that the courts promulgated last year.  They also spotlight the expectations that courts will likely have for organizations in 2012 and beyond.

Issuing a Timely and Comprehensive Litigation Hold

Case: E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. July 21, 2011)

Summary: The court issued a stiff rebuke against defendant Kolon Industries for failing to issue a timely and proper litigation hold.  That rebuke came in the form of an instruction to the jury that Kolon executives and employees destroyed key evidence after the company’s preservation duty was triggered.  The jury responded by returning a stunning $919 million verdict for DuPont.

The spoliation at issue occurred when several Kolon executives and employees deleted thousands emails and other records relevant to DuPont’s trade secret claims.  The court laid the blame for this destruction on the company’s attorneys and executives, reasoning they could have prevented the spoliation through an effective litigation hold process.  At issue were three hold notices circulated to the key players and data sources.  The notices were all deficient in some manner.  They were either too limited in their distribution, ineffective since they were prepared in English for Korean-speaking employees, or too late to prevent or otherwise ameliorate the spoliation.

The Lessons for 2012: The DuPont case underscores the importance of issuing a timely and comprehensive litigation hold notice.  As DuPont teaches, organizations should identify what key players and data sources may have relevant information.  A comprehensive notice should then be prepared to communicate the precise hold instructions in an intelligible fashion.  Finally, the hold should be circulated immediately to prevent data loss.

Organizations should also consider deploying the latest technologies to help effectuate this process.  This includes an eDiscovery platform that enables automated legal hold acknowledgements.  Such technology will allow custodians to be promptly and properly apprised of litigation and thereby retain information that might otherwise have been discarded.

Another Must-Read Case: Haraburda v. Arcelor Mittal U.S.A., Inc. (D. Ind. June 28, 2011)

Suspending Document Retention Policies

Case: Viramontes v. U.S. Bancorp (N.D. Ill. Jan. 27, 2011)

Summary: The defendant bank defeated a sanctions motion because it modified aspects of its email retention policy once it was aware litigation was reasonably foreseeable.  The bank implemented a retention policy that kept emails for 90 days, after which the emails were overwritten and destroyed.  The bank also promulgated a course of action whereby the retention policy would be promptly suspended on the occurrence of litigation or other triggering event.  This way, the bank could establish the reasonableness of its policy in litigation.  Because the bank followed that procedure in good faith, it was protected from court sanctions under the Federal Rules of Civil Procedure 37(e) “safe harbor.”

The Lesson for 2012: As Viramontes shows, an organization can be prepared for eDiscovery disputes by timely suspending aspects of its document retention policies.  By modifying retention policies when so required, an organization can develop a defensible retention procedure and be protected from court sanctions under Rule 37(e).

Coupling those procedures with archiving software will only enhance an organization’s eDiscovery preparations.  Effective archiving software will have a litigation hold mechanism, which enables an organization to suspend automated retention rules.  This will better ensure that data subject to a preservation duty is actually retained.

Another Must-Read Case: Micron Technology, Inc. v. Rambus Inc., 645 F.3d 1311 (Fed. Cir. 2011)

Managing the Document Collection Process

Case: Northington v. H & M International (N.D.Ill. Jan. 12, 2011)

Summary: The court issued an adverse inference jury instruction against a company that destroyed relevant emails and other data.  The spoliation occurred in large part because legal and IT were not involved in the collection process.  For example, counsel was not actively engaged in the critical steps of preservation, identification or collection of electronically stored information (ESI).  Nor was IT brought into the picture until 15 months after the preservation duty was triggered. By that time, rank and file employees – some of whom were accused by the plaintiff of harassment – stepped into this vacuum and conducted the collection process without meaningful oversight.  Predictably, key documents were never found and the court had little choice but to promise to inform the jury that the company destroyed evidence.

The Lesson for 2012: An organization does not have to suffer the same fate as the company in the Northington case.  It can take charge of its data during litigation through cooperative governance between legal and IT.  After issuing a timely and effective litigation hold, legal should typically involve IT in the collection process.  Legal should rely on IT to help identify all data sources – servers, systems and custodians – that likely contain relevant information.  IT will also be instrumental in preserving and collecting that data for subsequent review and analysis by legal.  By working together in a top-down fashion, organizations can better ensure that their eDiscovery process is defensible and not fatally flawed.

Another Must-Read Case: Green v. Blitz U.S.A., Inc. (E.D. Tex. Mar. 1, 2011)

Using Proportionality to Dictate the Scope of Permissible Discovery

Case: DCG Systems v. Checkpoint Technologies (N.D. Ca. Nov. 2, 2011)

The court adopted the new Model Order on E-Discovery in Patent Cases recently promulgated by the U.S. Court of Appeals for the Federal Circuit.  The model order incorporates principles of proportionality to reduce the production of email in patent litigation.  In adopting the order, the court explained that email productions should be scaled back since email is infrequently introduced as evidence at trial.  As a result, email production requests will be restricted to five search terms and may only span a defined set of five custodians.  Furthermore, email discovery in DCG Systems will wait until after the parties complete discovery on the “core documentation” concerning the patent, the accused product and prior art.

The Lesson for 2012: Courts seem to be slowly moving toward a system that incorporates proportionality as the touchstone for eDiscovery.  This is occurring beyond the field of patent litigation, as evidenced by other recent cases.  Even the State of Utah has gotten in on the act, revising its version of Rule 26 to require that all discovery meet the standards of proportionality.  While there are undoubtedly deviations from this trend (e.g., Pippins v. KPMG (S.D.N.Y. Oct. 7, 2011)), the clear lesson is that discovery should comply with the cost cutting mandate of Federal Rule 1.

Another Must-Read Case: Omni Laboratories Inc. v. Eden Energy Ltd [2011] EWHC 2169 (TCC) (29 July 2011)

Leveraging eDiscovery Technologies for Search and Review

Case: Oracle America v. Google (N.D. Ca. Oct. 20, 2011)

The court ordered Google to produce an email that it previously withheld on attorney client privilege grounds.  While the email’s focus on business negotiations vitiated Google’s claim of privilege, that claim was also undermined by Google’s production of eight earlier drafts of the email.  The drafts were produced because they did not contain addressees or the heading “attorney client privilege,” which the sender later inserted into the final email draft.  Because those details were absent from the earlier drafts, Google’s “electronic scanning mechanisms did not catch those drafts before production.”

The Lesson for 2012: Organizations need to leverage next generation, robust technology to support the document production process in discovery.  Tools such as email analytical software, which can isolate drafts and offer to remove them from production, are needed to address complex production issues.  Other technological capabilities, such as Near Duplicate Identification, can also help identify draft materials and marry them up with finals that have been marked as privileged.  Last but not least, technology assisted review has the potential of enabling one lawyer to efficiently complete the work that previously took thousands of hours.  Finding the budget and doing the research to obtain the right tools for the enterprise should be a priority for organizations in 2012.

Another Must-Read Case: J-M Manufacturing v. McDermott, Will & Emery (CA Super. Jun. 2, 2011)

Conclusion

There were any number of other significant cases from 2011 that could have made this list.  We invite you to share your favorites in the comments section or contact us directly with your feedback.

For more on the cases discussed above, watch this video:

As 2011 comes quickly to a close we’ve attempted, as in years past, to do our best Carnac impersonation and divine the future of eDiscovery.  Some of these predictions may happen more quickly than others, but it’s our sense that all will come to pass in the near future – it’s just a matter of timing.

1. Technology Assisted Review (TAR) Gains Speed.  The area of Technology Assisted Review is very exciting since there are a host of emerging technologies that can help make the review process more efficient, ranging from email threading, concept search, clustering, predictive coding and the like.  There are two fundamental challenges however.  First, the technology doesn’t work in a vacuum, meaning that the workflows need to be properly designed and the users need to make accurate decisions because those judgment calls often are then magnified by the application.  Next, the defensibility of the given approach needs to be well vetted.  While it’s likely not necessary (or practical) to expect a judge to mandate the use of a specific technological approach, it is important for the applied technologies to be reasonable, transparent and auditable since the worst possible outcome would be to have a technology challenged and then find the producing party unable to adequately explain their methodology.
2. The Custodian-Based Collection Model Comes Under Stress. Ever since the days of Zubulake, litigants have focused on “key players” as a proxy for finding relevant information during the eDiscovery process.  Early on, this model worked particularly well in an email-centric environment.  But, as discovery from cloud sources, collaborative worksites (like SharePoint) and other unstructured data repositories continues to become increasingly mainstream, the custodian-oriented collection model will become rapidly outmoded because it will fail to take into account topically-oriented searches.  This trend will be further amplified by the bench’s increasing distrust of manual, custodian-based data collection practices and the presence of better automated search methods, which are particularly valuable for certain types of litigation (e.g., patent disputes, product liability cases).
3. The FRCP Amendment Debate Will Rage On – Unfortunately Without Much Near Term Progress. While it is clear that the eDiscovery preservation duty has become a more complex and risk laden process, it’s not clear that this “pain” is causally related to the FRCP.  In the notes from the Dallas mini-conference, a pending Sedona survey was quoted referencing the fact that preservation challenges were increasing dramatically.  Yet, there isn’t a consensus viewpoint regarding which changes, if any, would help improve the murky problem.  In the near term this means that organizations with significant preservation pains will need to better utilize the rules that are on the books and deploy enabling technologies where possible.
4. Data Hoarding Increasingly Goes Out of Fashion. The war cry of many IT professionals that “storage is cheap” is starting to fall on deaf ears.  Organizations are realizing that the cost of storing information is just the tip of the iceberg when it comes to the litigation risk of having terabytes (and conceivably petabytes) of unstructured, uncategorized and unmanaged electronically stored information (ESI).  This tsunami of information will increasingly become an information liability for organizations that have never deleted a byte of information.  In 2012, more corporations will see the need to clean out their digital houses and will realize that such cleansing (where permitted) is a best practice moving forward.  This applies with equal force to the US government, which has recently mandated such an effort at President Obama’s behest.
5. Information Governance Becomes a Viable Reality.  For several years there’s been an effort to combine the reactive (far right) side of the EDRM with the logically connected proactive (far left) side of the EDRM.  But now, a number of surveys have linked good information governance hygiene with better response times to eDiscovery requests and governmental inquires, as well as a corresponding lower chance of being sanctioned and the ability to turn over less responsive information.  In 2012, enterprises will realize that the litigation use case is just one way to leverage archival and eDiscovery tools, further accelerating adoption.
6. Backup Tapes Will Be Increasingly Seen as a Liability.  Using backup tapes for disaster recovery/business continuity purposes remains a viable business strategy, although backing up to tape will become less prevalent as cloud backup increases.  However, if tapes are kept around longer than necessary (days versus months) then they become a ticking time bomb when a litigation or inquiry event crops up.
7. International eDiscovery/eDisclosure Processes Will Continue to Mature. It’s easy to think of the US as dominating the eDiscovery landscape. While this is gospel for us here in the States, international markets are developing quickly and in many ways are ahead of the US, particularly with regulatory compliance-driven use cases, like the UK Bribery Act 2010.  This fact, coupled with the menagerie of international privacy laws, means we’ll be less Balkanized in our eDiscovery efforts moving forward since we do really need to be thinking and practicing globally.
8. Email Becomes “So 2009” As Social Media Gains Traction. While email has been the eDiscovery darling for the past decade, it’s getting a little long in the tooth.  In the next year, new types of ESI (social media, structured data, loose files, cloud context, mobile device messages, etc.) will cause headaches for a number of enterprises that have been overly email-centric.  Already in 2011, organizations are finding that other sources of ESI like documents/files and structured data are rivaling email in importance for eDiscovery requests, and this trend shows no signs of abating, particularly for regulated industries. This heterogeneous mix of ESI will certainly result in challenges for many companies, with some unlucky ones getting sanctioned because they ignored these emerging data types.
9. Cost Shifting Will Become More Prevalent – Impacting the “American Rule.” For ages, the American Rule held that producing parties had to pay for their production costs, with a few narrow exceptions.  Next year we’ll see even more courts award winning parties their eDiscovery costs under 28 U.S.C. §1920(4) and Rule 54(d)(1) FRCP. Courts are now beginning to consider the services of an eDiscovery vendor as “the 21st Century equivalent of making copies.”
10. Risk Assessment Becomes a Critical Component of eDiscovery. Managing risk is a foundational underpinning for litigators generally, but its role in eDiscovery has been a bit obscure.  Now, with the tremendous statistical insights that are made possible by enabling software technologies, it will become increasingly important for counsel to manage risk by deciding what types of error/precision rates are possible.  This risk analysis is particularly critical for conducting any variety of technology assisted review process since precision, recall and f-measure statistics all require a delicate balance of risk and reward.

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.

The legal battles during the discovery phase of the Oracle v. Google Java licensing and patent infringement complaint are now well documented. Just search for “Lindholm email” and you’ll find pages and pages of opinions and blog posts on the case. Why so much fuss over a piece of email? Well, as Judge Alsup aptly describes, this is the type of smoking gun email that has the potential to “turn the case on its head.”  More importantly, this inadvertent email never needed to happen, if the parties had better leveraged existing eDiscovery technologies.

The eDiscovery battle over admissibility of this email, as well as whether it can be a public record, is natural and to be expected, especially in such a high profile dispute. Google has already made five attempts to either claw back these documents or protect them under seal. Besides the question of whether privilege waiver is in fact granted simply by adding an “Attorney Work Product” annotation to email, which Judge Alsup has eloquently addressed in the filing here, there is another interesting question to be considered. In addition to the two email copies that had the above designation, there were nine other sequential drafts, created within a five minute period. These drafts were generated by the “auto save” capability of the email software, possibly as a way to prevent the author of the email from losing partial work. Don’t we all love that feature, since despite all the technological advances computers crash, networks fail, and software freezes, and in those times we’re thankful that our work was indeed automatically saved? However, if these are indeed present, are these drafts discoverable, especially if they have not been shared with anyone?

Although in this instance the intent of these drafts is made evident by the final email, which included the recipients, none of the nine drafts of the email have a TO:, CC: or BCC: address field filled in. So technically, the drafts in their “pre-final” form were never communicated to anyone else. If so, should they even be considered electronically stored information (ESI) that needs to be produced? Let’s say that these emails were never sent and merely existed as drafts, perhaps capturing a person’s train of thought. Are they discoverable?

Of course, determining whether such partial and non-evidentiary ESI exists among your millions and millions of documents to be examined for production becomes increasingly the purview of powerful search and analysis software. In this instance, Google and their legal team would have been well-served by email analytical software that can isolate drafts and offer them for removal from production. Also, using a capability such as Near Duplicate Identification would have identified these drafts as similar to the final ones that were marked as privileged. After all, if the legal team had known of their existence prior to production, they would not have been surprised by the opposing team producing them as key documents.

I invite your comments, especially on the notion that partially completed drafts are admissible as evidence.

It is axiomatic that the law helps those who help themselves.  Perhaps nowhere is that truism more applicable than in the context of electronic discovery.  The organization that implements an effective information governance strategy – including developing reasonable data retention policies – will likely avoid court sanctions and reduce its legal costs.  This was confirmed in a recent industry survey, which found that organizations “help themselves” when they develop information retention policies.  According to the survey, better retention practices drive dramatically better outcomes in litigation, particularly in the context of retention and preservation.

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.

Symantec today 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 (ESI) that we see expanding by the minute.  Perhaps counter intuitively, the survey of legal and IT personnel at 2,000 enterprises found that email is no longer the primary source of ESI companies produced in response to eDiscovery requests.  In fact, email came in third place (58%) to files/documents (67%) and database/application data (61%).  Marking a departure from the landscape as recently as a few years ago, the survey reveals that email does not axiomatically equal eDiscovery any longer.

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.

A famous quote from intellectual George Santayana provides an appropriate backdrop for organizations to better understand why they should deploy technology to strengthen their litigation response effort.  As Santayana explained in The Life of Reason: Reason in Common Sense, “[t]hose who cannot remember the past are condemned to repeat it.”

The “past” can be a powerful playbook in the game of eDiscovery.  Fortunately for organizations, the lessons of eDiscovery history abound.  Indeed, the decisions that courts issue every day across the United States and in other countries provide substantial guidance on what organizations should and should not do to properly prepare for the discovery phase of litigation.

One of the principal lessons that can be gleaned from American court cases in 2011 is that technology can help organizations address the demands of eDiscovery in litigation.  Technology has assumed such a significant role because it facilitates the oversight process that lawyers must engage in to ensure that pertinent documents are preserved for discovery.  This year alone, the failure to exercise that oversight has in many instances culminated in evidence destruction and sanctions.

That message was emphasized this summer by a Virginia based federal court in a hotly contested trade secret dispute.  In E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. July 21, 2011), the court determined that it would issue an adverse inference jury instruction against defendant Kolon Industries as a sanction for its evidence spoliation.  The spoliation at issue occurred when Kolon deleted emails and other records relevant to DuPont’s trade secret claims.  After being apprised of the lawsuit and then receiving multiple litigation hold notices, several Kolon executives and employees met together and identified emails and other documents that should be deleted.  The ensuing destruction was staggering.  Nearly 18,000 files and emails were deleted.  Furthermore, many of these materials went right to the heart of DuPont’s claim that key aspects of its Kevlar© formula were allegedly misappropriated to improve Kolon’s competing product line.

Surprisingly, however, the court did not finger the Kolon employees as the principal culprits for spoliation.  Instead, the court laid the blame on Kolon’s attorneys and executives, reasoning they could have prevented the destruction of information through better oversight.  The hold process was particularly flawed.  The notices were either too limited in their distribution, ineffective since they were prepared in English for Korean-speaking employees, or too late to prevent or otherwise alleviate the spoliation.  Given the logistical challenges of implementing a hold in this instance, perhaps only the automated functions of technology such as archiving software might have strengthened the oversight process and obviated the spoliation that took place.

The lack of attorney oversight also factored into another pertinent sanctions order this year, this time from a federal court in Chicago.  In Northington v. H & M International (N.D.Ill. Jan. 12, 2011), the court issued an adverse inference jury instruction against a company that destroyed relevant emails and other data.  The spoliation occurred in large part because the company neglected to establish a global litigation response effort.  For example, there was no process for issuing or ensuring compliance with a litigation hold.  Nor was counsel engaged in the critical steps of preservation, identification or collection of electronically stored information (ESI).  Into this vacuum stepped rank and file employees – some of whom were accused by the plaintiff of harassment – who were tasked with identifying and collecting discoverable emails from their workstations.  Predictably, key documents were never found and the court had little choice but to promise to inform the jury that the company destroyed evidence.

The problems associated with the lack of oversight in DuPont and Northington are compelling reasons why organizations should consider using technology tools as part of their overall litigation response strategy.  One of the most helpful tools in this regard is archiving software.  Indeed, having the right archiving solution in place might have preserved the spoliated records in these actions.

For example, archiving software can be programmed to prevent employees from deleting emails and other electronically stored information.  By ingesting data into a central repository and leaving copies of the materials on local computers, employees could have access to their archived records.  They would not, however, be able to delete those documents from the software archive.  In addition, a litigation hold could have been placed on archived data to prevent automated retention rules from overwriting information.  Either of these features might have prevented much of the spoliation – and the resulting sanctions – that occurred in both the DuPont and Northington cases.

The automated functions of archiving technology can benefit a company’s litigation response in other ways.  For example, such a tool may limit the amount of potentially relevant information available for follow-on litigation.  Absent a legal hold, retention rules that are programmed into the software will ensure that ESI is expired once it reaches the end of a designated period.  In DuPont, such a feature could arguably have eliminated entire categories of older documents before a duty to preserve those materials ever ripened.  This facet not only has the potential to reduce legal exposure, but also the attendant costs associated with reviewing those documents in litigation.

DuPont, Northington and other cases from the recent past delineate the steps companies can take to address the challenges of eDiscovery.  Organizations do not have to “repeat” past mistakes that victimized clients and counsel alike.  Instead, they can implement the right technology tools as part of a thoughtful, proactive approach to litigation.  By so doing, organizations will avoid Santayana’s judgment by “remembering” the lessons of eDiscovery history.

eDiscovery best practices, particularly practical ones, are hard to come by.  That’s why the Pilot Program of the 7th Circuit has been such a novel (and successful) undertaking.  As part of this program, judges, outside counsel and industry experts collaborated to practically deal with the many vexing eDiscovery challenges in the courtroom. By way of background, the 7th Circuit Electronic Discovery Pilot Program Committee was formed in May 2009 and was chartered to conduct a multi-year, multi-phase project to develop, implement, evaluate, and improve pretrial litigation procedures, which ideally would provide fairness and justice to all parties, while seeking to reduce the cost and burden of electronic discovery consistent with Rule 1 of the Federal Rules of Civil Procedure (FRCP).

The Committee, comprised of the most talented experts in the 7th Circuit, as well as experts in relevant fields of technology, promulgated “Principles Relating to the Discovery of Electronically Stored Information” (“Principles”) and a Proposed Standing Order by which participating judges could implement the Principles in the Pilot Program’s test cases.  Practicing lawyers wrote the Principles under the guidance of federal judges in Chicago, with the end result being a consensus from experts in the field of eDiscovery rather than a prescriptive approach dictated by the courts.  The Committee now has 80 members, including members from all 7 federal districts in the 7th Circuit and around the country, and is chaired by Chief Judge Holderman and Magistrate Judge Nolan of the Northern District of Illinois. The Principles provide a checklist of important considerations for the initial meet and confer conference, as well as even-handed rules regarding preserving and producing electronically stored information (ESI) that provide more granularity to the Federal Rules of Civil Procedure.

The 7th Circuit has been well-received, and evangelists are jumping on board in other Circuits, including the 9th Circuit.  Art Gollwitzer, a member of the 7th Circuit eDiscovery Pilot Program Committee, practices patent law, was key in the formation of the Principles notably the Preservation Principle 2.04, and now heads the National Outreach Committee for the 7th Circuit Program.  In a recent case, Joao Control & Monitoring Systems of California, LLC v. ACTI Corp., et al., Case No. SA CV10-1909-DOC, in the Central District of California, Art was pleasantly surprised to see language that he helped write in a draft ESI order handed out by the court to the parties for their consideration at the initial status conference.  “I was very happy to see the exact language that our committee drafted after many hours of discussion in the summer of 2009 in the court’s proposed order,” Art explained.  “We worked hard to reduce the cost and burden of electronic discovery and to prevent ESI discovery from turning into a game of ‘gotcha’.”

The goal of the National Outreach Committee is to spread the word about the 7th Circuit’s ESI Program and its benefits.  “We envision spreading the word through articles, speeches, and ‘grass-roots’ or word-of-mouth efforts,” says Gollwitzer. To that end, liaisons in each Circuit or even each district can talk to judges and encourage colleagues to propose that courts adopt the Committee’s principles in Rule 26(f) orders on a case-by-case basis.  “We also can describe the program and its principles at local bar associations and Inns of Court,” he explains.  “Finally, we can volunteer for local rules committees or comment on ESI proposals for local rules.”

With each jurisdiction having its own local rules and each legal community having its own flavor, the exercise of bringing all stakeholders into the process to contribute to the Principles is unprecedented.  Whether each Circuit starts their own Pilot Programs, or initially adopts the 7th Circuit’s Principles and then modifies as necessary, remains to be seen.  Either way, results from the 7th Circuit have been positive thus far, generating supporters nationally.  The hope is that courts and practitioners will start with these Principles in order to avoid a patchwork of ESI rules across the country.

The general consensus of the participating judges in Phase I of the Pilot Program was that the Principles were having a positive effect both on counsel’s cooperation with opposing counsel, and on counsel’s knowledge of procedures to be followed when addressing electronic discovery issues. The judges felt that the involvement of eDiscovery liaisons required by Principle 2.02 contributed to a more efficient and cost effective discovery process. Many of the participating lawyers reported little impact on their cases, presumably mostly because of the limited 6-month duration of Phase I. Those lawyers who did see an effect from the application of the Principles in their cases overwhelmingly reported that the effect was positive in terms of promoting fairness, fostering more amicable dispute resolution, and facilitating their advocacy on behalf of their clients. The Committee intends to present its Final Report on the 2-year Phase II evaluation at the 7th Circuit Bar Association Meeting in May 2012.

While most attorneys are following the guidance of Principle 2.01 (a) and (c), Duty to Meet and Confer on Discovery and to Identify Disputes for Early Resolution, it is barely the majority.  And curiously, a significant minority of attorneys acknowledged they had not familiarized themselves with their client’s information systems or had early discussions with their opponents about ESI preservation issues even though they were applicable in the case.

What does this suggest? For one thing, the landscape is improving – but there is still a long way to go.  Why would even a single attorney with a case in the Pilot Program ignore relevant ESI issues? One of the major problems with the vagueness of the Federal Rules was a lack of clear-cut guidance. Now, even though there is a Standing Order in the case providing guidance and Principle 2.01 (d) outlining sanctions that could be imposed for failure to comply, some lawyers still do not.

Every Circuit should be forming a Committee and bringing practitioners, judges and experts together to weigh in on these important ESI issues.  Fortunately, there is a successful model available with hard data.  The 7th Circuit’s Principles and Standing Order are a good place to start.