e-discovery 2.0

The Chinese philosopher, Lao-tzu, once said “a journey of a thousand miles begins with a single step.”  This truism has been applied in a myriad of ways over the years, but it applies with equal measure to the process of taming the multifaceted challenge that is electronic discovery.  Simply put, conquering e-discovery is always a journey.  And for enterprises like The Home Depot, they know first hand that you can’t simply look at the end result and wish for the journey to be complete.  Instead, it’s paramount to embrace all the steps along the path and develop good habits that work both for the first and the last mile.

Many enterprises clearly understand the benefits of in-house discovery that include lower processing and review costs, earlier access to case facts, better control over the processes, etc.  But some struggle with how to begin their journey, for any number of reasons (lack of knowledgeable staff, failure to get executive buy-in, inability to build a compelling business case, etc.).  Fortunately, the folks at Home Depot have recently completed their journey and have offered to share secrets they leveraged throughout the process.

In a similar fashion to best selling author’s Stephen R. Covey’s “The 7 Habits of Highly Effective People” David Steel, Sr. Counsel and Barbara Squires, Paralegal at The Home Depot will host a web seminar to walk us through the some of the e-discovery habits that helped them successfully navigate their way through the process.  The web seminar is titled “5 Habits to Create a Highly Effective In-House E-Discovery Process” and it’s free to attend. Since we don’t want to steal their thunder, we won’t divulge their habits now, but suffice it to say that every company can learn from their experiences.  And, after the web seminar I’ll devote more blog time to further expansion of each habit.

Since it’s our raison d’être to help companies complete their e-discovery journey, we’re excited to have The Home Depot on to share stories from their journey, all in the hope that others, just embarking on their own expedition, can be just as successful.

August just wouldn’t be August without lazy days at the beach spent playing in the sand, frolicking in the surf, and immersing yourself in the LTN executive summary of the latest Socha-Gelbmann Electronic Discovery report (in this case, the hot-off-the-presses 2010 edition).

Even with the lure of the big waves beckoning you out into the water, if you follow electronic discovery you likely have a hard time pulling yourself away from the report, and this year is no exception. In fact, this year’s report is especially insightful, as George and Tom seem to have done a particularly impressive job of getting the pulse of not just what’s going on in the law firm and service provider parts of the market, but the enterprise as well.

This is a big change from just a couple of years ago. Go back and review the executive summary from 2008, and you’ll notice a very different feel to the findings. In 2008, much of the talk was around the dynamics of the service provider market, with relatively little discussion of trends related to the e-discovery process and technological innovation in the space. In 2008, it felt like e-discovery was something you had other people do for you: the word “consumer” appeared 12 times in the executive summary. In 2010, two short years later? Just five times. Why? The language may be telling. “Cost” appeared seven times in the 2008 report. In the 2010 report? 16… more than twice as often.

What seems to have happened is that the recession has been something of a refining fire for the electronic discovery market. In order to reduce costs and manage risks, enterprises are behaving much less like consumers and more like real customers with skin (and money) in the game. Not surprisingly, they’ve gotten extremely aggressive about bringing  innovative cost-containing measures to bear on the process. Socha and Gelbmann highlight three:

• More targeted preservation and collection of ESI
• More focused review and analysis of the data
• More effective use of technology to speed up the efforts, improve quality, and reduce costs

This is great news for innovative software companies in the e-discovery space — and their customers. What one would expect to occur in a maturing market is that it would move from a period of rapid innovation to a lower-innovation, consolidation phase. However, that’s not the case here. While there is consolidation occurring,  what’s remarkable about e-discovery right now isn’t really all the acquisition press releases in your twitter feed (mainly from vendors saddled with prior-generation point solutions who are trying to acquire their way toward a complete offering). Rather, it’s how leading enterprises are increasingly seeking, and finding, cutting-edge solutions to solve cost, efficiency, and risk management problems associated with e-discovery that simply weren’t available prior to the meltdown.

As in-house legal and IT e-discovery spending starts to gain steam, look for enterprises purchasing in-house solutions to demand many of the innovations that have been developed over the last couple of years (most of which are highlighted by the Socha-Gelbmann survey):

• Targeted collection: Products better able to strategically target the collection of ESI, rather than attempting to boil the ocean, are more suited to the mindset and approach of cost-conscious enterprises
• Iterative discovery: Products that are able to provide “to the left” functionality while still providing enterprise-class, intuitive processing, analysis, review, and production functionality
• Support for small and big cases: In discussing “small is the new big”, Socha and Gelbmann highlight how “the aggregate of small cases dwarfs the combined large cases.” Successful products must simultaneously handle high numbers of smaller cases while still scaling to the largest matters
• Integrated analytics: Products must bring to bear powerful analytics across all stages of the e-discovery process, focused not just on document review, but also looking at aggregates of data from many different angles and allowing you to see the big picture across the entire case for effective information and cost management

Is the EDD space maturing? Yes, as Socha and Gelbmann rightfully point out. But it’s doing so in surprising, innovative ways that, when it’s all over, may well prove to be a silver lining to the cloud of challenges the industry has faced over the last two years.

Every car dealer knows he should focus customers on the monthly payment, not the total cost of the car. Every credit card solicitation (or sub-prime mortgage, for that matter) starts with the offer of 0% interest, not the actual interest rate or fees the customer will pay after the first 6 months. The reason is simple: once you lease the car or put a balance on the credit card, it’s very hard to switch away when – as often happens – you find yourself paying much more than you should later on.

I was reminded of these examples when reading about Kroll Ontrack’s offer of “free ECA” and Stratify’s recent press release announcing “free early stage filtering” for electronic discovery. Taking each in turn:

Kroll Ontrack Advanceview

Based on feedback from several customers in Washington DC, New York, and the Mid-West, Kroll Ontrack often provides Advanceview at no charge. That means customers can get “custodian de-duplication” and “1 keyword and date filter pass” for free, although Kroll still charges $200-250/hour for doing the work. The resulting data set is then processed and loaded into its review platform for $1,500-$1,800 per gigabyte.

Is this a good deal? For the vast majority of customers, the answer is “no” for three reasons.

First, customers typically end up paying more than they would using alternative products. For example, in the chart below, we compare the cost of using Kroll Ontrack to that of Clearwell for a 100 gigabyte project. In both cases, we assume customers are doing de-duplication, filtering, keyword searching, first pass review, and load file creation. As with any comparison of this sort, you have to make some simplifying assumptions. For example, we excluded data hosting fees and professional services fees from the analysis.

Whether customers are better off with Kroll depends entirely on how much data is culled out for free before customers incur the high, back-end charges. Given that all Kroll is doing for free is custodian de-duplication and running one set of keywords and date filters, the typical cull rate is likely be anywhere from 20% to 50% — nowhere near the 80% cull rate required for Kroll to be more cost effective than Clearwell.

The second reason why this is not a good deal is that it gives customers no certainty about costs. Culling rates from de-duplication and blind keyword searches are unpredictable and vary widely, meaning that some projects will cost more than expected while others will cost less. But every project has budget that’s determined up front and, as any litigation support manager will tell you, you get much less credit for being under budget than you get pain for going over budget. That’s why cost certainty is one of the leading requests from anyone involved in electronic discovery.

Finally, excluding data based on a single round of keyword searches and date filters is not in line with The Sedona Conference best practices. Rather, Sedona recommends that customers iterate their keywords and culling strategies to hone them appropriately.

Iron Mountain Stratify OnPoint

It is not yet possible to do the same detailed analysis on Stratify’s OnPoint which offers “free early stage filtering”, because it’s impossible to tell exactly what that means. In its artfully-worded press release and data sheet, Stratify promises to provide “free processing and loading of unlimited data for early stage filtering”. Does that include de-duplication? Does that include any keyword searching? My guess is “no”, in which case all they are really doing for free is offering to load data into their review platform so that they can then charge you – not a very compelling offer. But if anyone does know the answer to these questions, or if Stratify would like to clarify exactly what’s being offered for free, then please let me know and I’ll post an update.

Once data is in Stratify’s system, it charges a “one-time fee starting at $500 per gigabyte” for “reviewable data”. But it does not say if that’s the only fee. What about monthly hosting charges? Fees for additional reviewers? Again, it’s not yet clear what the downstream cost of review really is using Stratify, so it’s impossible to know whether this is a good deal.

If there’s one lesson from all of this, it’s “buyer beware”. Just as when you buy a car, sign up for a credit card, or click on that offer to get more corn on Farmville, you need to look beyond the “free offer” and understand what it’s really going to cost you.

After more than ten years of IT experience and over a year of experience as an attorney working exclusively with e-discovery, I am delighted to join the E-Discovery 2.0 team.  I am a member of the South Carolina Bar Association and the American Bar Association.  In this and future posts, I will try to bring a practical perspective or view from the trenches to this blog – a look at how to deal with some of the day-to-day problems facing e-discovery practitioners today.  I will begin with a discussion about how to approach the decision to move e-discovery in-house, and although the desire to build a solution “in a day” is tempting (and sometimes precipitated by necessity), a solution that will stand the test of time and provide the greatest ROI requires a bit more planning and care.

E-Discovery can sometimes be thought of as an ailment that requires a quick remedy in the form of software or services.  We continue to be reminded, however, that e-discovery is much more than a fleeting malady; it is an ongoing business problem that must be treated with the same diligence and meticulous execution as regulatory compliance or data security.

So where should the prudent practitioner begin?

Every good IT project manager I have ever worked with always had the same mantra when it came to solving a problem with technology – make sure the business problem has been well defined and establish detailed requirements before venturing into the marketplace.  So, why are so many companies sending out form RFPs containing canned text expecting to find a miracle “end-to-end” e-discovery solution in a relatively short period of time?  The answer, I believe, lies both in the abundance and availability of generic information about e-discovery and the fact that most companies looking to bring e-discovery in-house are already feeling the pain of rising costs and demands on existing staff.  They are, in short, trying to conquer their e-discovery problem in a day.  To truly conquer the problem, it should be attacked from the areas causing the greatest pain and expense first, and those areas should be thoroughly examined using proven project management techniques.

If e-discovery is indeed a significant business process, then companies must address that problem using the same proven methods that they have been using for years to solve other business problems.  For example, every company today, believe it or not, has an e-discovery solution in place.  If the company was sued tomorrow, and there was a significant e-discovery component to the matter, the company would likely react in a certain way based on a number of factors – hire outside consultants, work with a litigation support provider, rely on their outside counsel to coordinate e-discovery, etc.  So why not predict that reaction, analyze it, and determine where the greatest expense and pain lies in that process?  From that data, the company can decide which portions of the e-discovery workflow, if any, should be brought in-house, and it can seek out best-of-breed solutions rather than settling on the first end-to-end vendor that comes knocking.  The next step is to rely on those time-honored project management edicts – define the business problem and establish concrete requirements.  Then the company will be armed with the most powerful weapon in the marketplace – the power to distinguish.

The burning question, then, is how does the company decide which portions of the e-discovery workflow to bring in-house?  The answer is relatively simple: you follow the money (right out of the front door in many cases).  Where is the company spending most of its e-discovery budget, and are those portions of the workflow good candidates to bring in-house?  Typically, processing data and review are the most expensive phases of any e-discovery project.  The logic here is simple: if you send 100GB of ESI to outside counsel to review, it will be more expensive and time-consuming than sending only 20GB.  Thus, processing, analysis, and first-pass review are great candidates to be brought in-house from an ROI perspective, and bringing these phases in-house could facilitate a form of early case assessment given the right solution.

Now, suppose a company decides to bring processing, analysis, and first-pass review in-house, also leveraging their chosen technology solution for early case assessment.  Now what?  The process can simply be repeated.  Given the solution implemented, what happens if we get sued tomorrow?  What other portions of the e-discovery workflow will need to be outsourced and how will we do that?  What will that cost?  Is there a better way?  The company can continue this process until it determines that either all portions of its e-discovery workflow have been successfully brought in house or the ROI of bringing additional portions of the workflow in house does not justify additional projects at that time.  This analysis should then be repeated on a regular basis to ensure the current solution is still meeting the needs of the organization and that market or industry shifts have not created additional opportunities for cost savings.

Although an effective and defensible in-house e-discovery solution likely cannot be built in a day, a carefully crafted plan of attack and a thorough understanding of the organization’s particular needs can strategically position it for long term success.

Part IV of this series on reducing e-discovery costs described how bringing e-discovery in-house can reduce costs.  One of the major decision points when in-sourcing e-discovery is to decide which parts of the e-discovery process should be in-sourced.  In making this decision, each company should look at the nature of their e-discovery process today, which parts of the e-discovery workflow they currently perform in-house, if any at all, and which are currently outsourced.  They should then look at which outsourced parts would produce the best return on investment (ROI) if in-sourced.

When most companies look at their current litigation software process, they often find that they are already in-sourcing the first stages of e-discovery: identification, preservation and collection.  While there are some companies that will occasionally outsource these steps, especially when there is a need to perform forensic collections, most sizable companies are already doing most of these steps themselves, though often advised by outside counsel.  For example, most companies will identify the custodians and sources of electronically stored information (ESI) in conjunction with outside counsel.  Litigation hold notices will be sent internally and data will be collected by the company’s IT, legal IT and/or internal forensic/investigations team.  It is typically at this point that e-discovery moves outside the company as the data is transferred to a litigation support service provider and/or law firm who perform processing, analysis, review, and production.

When a company takes a look at how they can reduce their e-discovery costs, they are most often looking at two high-level options:

1. Whether they can streamline their existing internal identification, preservation and collection processes
2. Whether they should bring processing, analysis, review and/or production in-house

There are of course exceptions to this.  Some companies do outsource their collection for example, especially when collection might need to be done in remote offices.  But the majority of companies seem to fall in the above categories.  Distinguishing these two options is important because the ROI analysis and decision-making process related to streamlining an existing process is very different than the analysis and decision-making related to bringing a process in-house.

When performing an ROI analysis of these different options, one typically comes to two conclusions.  The first is that both are often ROI positive projects.  The second is that in-sourcing some aspects of processing, analysis and review is far and away the biggest “bang for the buck” project that most companies can undertake when it comes to reducing e-discovery costs.  The biggest reason for the second conclusion is that the majority of the costs incurred during e-discovery are processing and review costs.  In a previous post where we analyzed e-discovery costs, we found that processing and review typically represent over 90% of these costs.  As a result, in-sourcing some or all aspects of processing, analysis and review can save very significant amounts of external processing fees and attorney review costs.  In contrast, while there can be real savings to improving and automating identification, preservation and collection, the size of savings pales in comparison because these steps represent less than 10% of the total cost of e-discovery.

The best approach to reducing e-discovery costs, of course, would be to do both of these projects: improve identification, preservation and collection as well as in-source processing, analysis and review.  However, if you have to sequence these projects or pick only one (a popular requirement in this economy) then in-sourcing processing, analysis and review is the one to pick.

As the Mark Twain quote goes, there are “lies, damn lies and statistics.”  In this case, however, and regardless of the exact numbers, two recent surveys provide some very interesting directional trending.  The first is Fulbright & Jaworski’s 6^th Annual Litigation Trends Survey.  In addition to covering a range of general and vertically oriented topics, they also focus on electronic discovery specifically.  Not surprisingly, reducing e-discovery costs bubbles up to the top of the list as major initiatives for most respondents.  Interestingly though, remediation plans attacking this problem seem to fall into two different camps.  On the one hand, 24% of respondents plan on outsourcing certain e-discovery tasks further leveraging preferred partners.  Conversely, the method that leads the pack (at a whopping 47%) is the corporate initiative of taking components of e-discovery in-house.  Other methods were listed, but most didn’t appear to have critical mass, including: using clawback agreements more, enforcing document retention policies, and negotiating with the opposition over the scope of discovery.

Similarly, Clearwell Systems recently conducted a survey in partnership with analyst firm Enterprise Strategy Group titled Trends in Electronic Discovery – A Market Perspective, which attempted to pinpoint similar pain points and solutions. The questions focused more on 2010 planning and they found a general expectation of more litigation/regulatory inquiries where 53% of the respondents expect the number of lawsuits and regulatory inquiries to increase by at least 20% in 2010, with 13% of respondents planning for an increase of 50 percent or more.  Again, not surprisingly, many plan on attacking this increase in litigation (and the corresponding e-discovery costs) by bring parts of the process in house.  In fact, 48% indicated that they currently have an active project to bring segments of the e-discovery process in-house. And for those that aren’t currently in the building process, 87% of respondents plan to budget for technology that specifically supports the electronic discovery process in 2010.

Given the length of time required for planning, RFPs and e-discovery tool procurement, clearly time is of the essence for companies that want to take advantage of internal solutions in the 2010 time frame.  Failure to get off the dime means that an enterprise is more likely to get caught in the middle of deliberation, versus deployment.

Part I of this series on reducing e-discovery costs discussed a number of approaches for managing e-discovery costs.  The third approach suggested in the original article is to bring e-discovery in-house.  This means taking some e-discovery tasks that were previously conducted by external organizations, such as e-discovery service providers or outside law firms, and performing them using in-house enterprise e-discovery software, and/or people.

How does bringing e-discovery in-house reduce costs?  The way in-sourcing e-discovery reduces costs is fairly straightforward.  It simply is a way to take variable costs and convert them into fixed costs.  If the variable costs are incurred frequently enough, then the sum of the variable costs will at some point become higher than the fixed costs.  In this case, a company bringing e-discovery in-house reduces costs by investing in fixed cost in-house software and/or people and using these to reduce the amount of variable e-discovery legal and service provider fees.  Over time, the savings from these reduced fees outstrip the cost of the original investment.

Cost is, of course, not the only factor that must be considered when a corporation, or law firm, decides to bring e-discovery in-house.  There are additional benefits as well as additional challenges.  Some of the additional benefits include:

• Increased visibility into costs and schedule: you’ll have a better idea about the specific costs and duration of e-discovery and how they relate to the overall management of the matter.
• Increased control of process and data: better visibility and in-house tools and/or people give you greater control over the conduct of e-discovery, so there’s less finger-pointing.  In-sourcing also allows you to keep control of your data avoiding the risk of entrusting it to third parties.
• Greater efficiencies: over time, in-sourcing allows you to build up data, processes and experience that will reduce costs further over time.  Instead of potentially training new people or adapting new software to your company’s business and processes every case, you’ll build an expertise that will lead to greater efficiency.  It also be easier to retain your work product and reduce the times when, for example, a document is inadvertently re-collected, processed, analyzed, reviewed and produce when it already from produced for a different matter.

Some of the challenges of bringing e-discovery in-house include:

• Risk: Risk is often the biggest concern when a company considers in-sourcing.  Many corporations feel that in-sourcing could increase their liability and risk of sanctions because if something goes wrong, they are more responsible.  The reality, of course, is that if something goes wrong the corporation often bears much of the liability even if e-discovery is out-sourced.  There are also ways to mitigate risks, which is typically more related to people in-sourcing not software.
• Expertise: how do you find the right people and software to perform e-discovery in-house?  This can be challenge but there are now many good options.  The first is to hire expertise from service providers or law firms.  The second is in-source only the software and continue to use outside people.  This is an approach worth discussing in more detail.
• Overhead: many corporations are concerned that bringing in software will require a large investment in people and an increase in operational costs, potentially out-weighing the variable cost savings.  Fortunately, e-discovery software has improved such that the best software does not result in a significant increase in overhead, and the savings from reduced service costs more than offset any additional overhead.

In recent months, a large number of organizations have analyzed all of the benefits and challenges of bringing e-discovery in-house.  The results have been both unsurprising and somewhat surprising.  Unsurprisingly, what most of these companies have found is that bringing parts of the e-discovery process in-house makes a lot of sense if the company has a fairly consistent case load from litigation and/or internal investigations.  More surprisingly, many companies have also determined that bringing e-discovery software in-house can often pay for itself with just one large case.  The first finding suggests that, as one might suspect, most Fortune 500 companies and large government organizations, should be taking a look at bringing e-discovery in-house.  The second finding though suggests that it’s not just the Fortune 500 that should be taking a hard look at in-sourcing.  If bringing parts of e-discovery in-house can pay for itself on one large case, then many organizations, not just the Fortune 500 should be taking a hard look at e-discovery in-sourcing.  When they do, one of the big questions that each organization needs to answer is what part of the e-discovery process do I want to in-source?  That will be the subject of my next post.

On of August 14, 2009, the California Judicial Counsel amended their Rules of Court to augment discussion of electronic discovery issues during the meet and confer process.

Rule of Court 3.724 was amended to require discussion of “Any issues relating to the discovery of electronically stored information” no later than 30 calendar days before the date set for the initial case management conference.  The broad language (i.e., “any”) was augmented by eight specific categories that must be expressly discussed:

(A) Issues relating to the preservation of discoverable electronically stored information;

(B) The form or forms in which information will be produced;

(C) The time within which the information will be produced;

(D) The scope of discovery of the information;

(E) The method for asserting or preserving claims of privilege or attorney work product, including whether such claims may be asserted after production;

(F) The method for asserting or preserving the confidentiality, privacy, trade secrets, or proprietary status of information relating to a party or person not a party to the civil proceedings;

(G) How the cost of production of electronically stored information is to be allocated among the parties;

(H) Any other issues relating to the discovery of electronically stored information, including developing a proposed plan relating to the discovery of the information;

Many of these issues track FRCP language (including forms of production, preservation, privilege issues, etc.).  However, section G seems somewhat novel given the historical “American Rule” where the producing party is required to bear all necessary costs of production.

Curiously missing, in comparison with FRCP 26 B(2)(b), is the need to discuss the handling of “inaccessible” ESI, although this could easily be subsumed in the “any other issues” language of section H.  Also missing is a discussion about proposed searching and/culling protocols (aka “keyword negotiations”) which are often part of the core meet and confer topics in Federal court.

Nevertheless, the scope is broad enough to require *a* discussion of all likely relevant electronic discovery issues, which was often lacking historically.  Once that discussion starts, reasonably savvy counsel should be able to flesh out most of the significant issues.  And, given this broad language a judge would presumably give them a hard time for any material omissions.

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.