e-discovery 2.0

Yesterday, Clearwell announced a new module for identification and collection, which is available with Version 6 of its e-discovery platform. This sits alongside the existing modules for processing/analysis and review/production, extending Clearwell’s capabilities upstream to a part of the e-discovery process typically done by IT. The new module has already been purchased by GlaxoSmithKline, Nisource, and several other enterprises and government agencies, and the initial response has been incredibly positive. I wanted to say a few words about what led Clearwell to add the Identification and Collection Module, and how it’s different from other solutions.

Over the past few years, I have seen a transformation of the e-discovery software market. Previously, there were no specific people within corporations or government agencies dedicated to e discovery, and no formal budget was allocated to it. As a result, purchase decisions were typically made at the departmental level by legal or information security people who could “find the money” by borrowing from other projects. In stark contrast to that, today most major corporations have people specifically responsible for electronic discovery, and many of them have company-wide initiatives to lower costs by bringing e-discovery in-house. Companies are issuing more and more formal RFPs; performing proof-of-concepts as part of the evaluation process; and creating committees of both legal and IT to make purchase decisions.

Some vendors have sought to play up a “gap” between legal and IT teams when it comes to e-discovery. They manufacture survey information claiming that collaboration and communication between legal and IT is decreasing. Our experience has been exactly the opposite. At corporations like Coca Cola, Home Depot, and hundreds of others, we find close, collaborative relationships between legal teams and the IT professionals dedicated to help them. There’s now a new career path, sometimes called “legal IT” or “e-discovery manager”, for technically savvy IT folks who understand legal’s requirements. I was happy to see at LegalTech this year that legal professionals would often come by our booth with a colleague and say to us, “I brought my IT guy with me because I want him to see this”.

It is precisely because legal and IT are working so closely together that they want a single product to manage all their e-discovery activity. That’s what led us to add the Identification and Collection Module.

Why is offering a single product for everything from identification through production such a big deal? Clearwell’s approach offers two main advantages over alternative solutions. First, like earlier versions of Clearwell, the Identification and Collection Module is very easy to use – so much so that, with IT’s permission, legal could even manage the collection process itself. For example, existing products like Guidance Encase require users to write scripts to create filters for targeted collections; with Clearwell, everything is point-and-click through a simple web UI. That makes identification and collection accessible to non-technical users.

Second, because identification, collection, processing, early case assessment, review and production can now all be done using a single product, Clearwell is able to provide end-to-end reporting through the entire e-discovery life-cycle. For example, Autonomy’s disparate e-discovery products (Introspect, Aungate, etc.) require multiple log-ins, all have different UIs, and different data models. With Clearwell, all of these are the same, giving you complete control over your data – at significantly lower total cost of ownership.

You can sign up for a product demonstration or even evaluate the product for free. Take a look – and leave a comment to let us know what you think.

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It’s been a little over a month since the news first broke that Guidance Software was the frog in an electronic discovery kettle whose water had just reached the boiling point, with the arbitrator in an employment case demanding, “I want this game-playing stopped.” We thought that, with a little time between the initial story and now, it would be worth taking a step back and looking at possible lessons learned — not so much for Guidance specifically, but for enterprises who find themselves in similar situations, as well as the electronic discovery community that serves them.

First, a quick summary. Based on published accounts, it seems like a classic discovery situation (that’s just plain old discovery, without the “e”): a party is sued and fails to produce a document that, lo and behold, surfaces via some other source, throwing the integrity of the sued party into question. After all, if one potentially incriminating document wasn’t discovered, then who knows what else could be out there?

Guidance contended that it did everything that was required of it, and that it didn’t have (or couldn’t find, despite good faith efforts) the emails in question. But, of course, that didn’t stop the litigation support community (via forums such as the Litigation Support List) from pouncing on the perceived hypocrisy.

After all, how could a leading, publically-traded electronic discovery company get caught up in such a mess? How could their cutting-edge electronic discovery technology not have saved them? Or their (hopefully) best-in-class internal electronic discovery processes? If the electronic discovery companies don’t have their acts together, what about all the other poor souls who lack their knowledge and expertise?

That last question is a scary one, particularly given today’s environment, and it’s why the situation has stirred up so much chatter out in the electronic discovery blogosphere. Almost without exception, commenters have jumped to one of two conclusions. Either (a) Guidance has not followed proper e-discovery best practices, or (b) Guidance has willfully chosen to hide relevant documents that it could have produced, because they would be detrimental to its case.

Let’s explore each of those conclusions in a little more detail.

First, is there any direct evidence that Guidance did not follow electronic discovery best practices? The answer there is murky. Certainly, from Guidance’s perspective, the answer is a resounding “no”. They continue to claim that the emails that were produced from another source did not exist on the various laptops, desktops, and servers that were part of the initial discovery request, and it is certainly possible that that is true. Perhaps Guidance had a 1-year retention policy for emails, and the emails in question were outside of that policy. Perhaps the individuals involved had legitimately deleted the emails in question prior to receiving a litigation hold notice, without thinking that they would ever be relevant to a legal matter. Certainly an independent observer has grounds for incredulity here, but it does not necessarily follow that Guidance did not follow electronic discovery best practices for a company of their size and resources. Certainly, from the reports, they did not exactly act in a way that earned much confidence from or favor with the arbitrator. However, that’s a completely different issue, and one which may be a legitimate tactical decision by Guidance (to avoid, for example, the high cost of recovering the corrupt backup tapes).

Second, what if Guidance willfully chose to hide relevant documents? At this point, there is no evidence that this is the case. And, you would think that of all of the companies out there, Guidance would be keenly aware of the extremely high level of risk associated with this strategy. A company well-versed in computer forensics understands keenly that the odds of any potentially negative emails not being out there, somewhere, in cyberspace are incredibly small. Thus there is little incentive to intentionally hide documents. If, however, a company did make such a perilous and unethical decision, it has nothing to do with a lack of e-discovery best practices or technology: it simply has to do with a lack of ethics.

So, has the coverage of the Guidance situation been nothing more than an electronic discovery witch hunt? Far from it… even if both of the “conventional wisdom” conclusions are in fact wrong.

Why? Because even if Guidance has its electronic discovery house in order and is acting with complete integrity, if there’s one thing that anyone in the electronic discovery business should have taken away from the last 5 years of court rulings, it’s that perception and transparency in electronic discovery is everything. Electronic discovery is technically complex and fraught with challenges, and companies – particularly those who are perceived as having vast expertise in the space, whether as vendors (i.e. Guidance) or institutions (i.e. pick your favorite TARP recipient) – have to act in such a way as to appear spotless before the court of law and the court of public opinion.

Assuming you already have your electronic discovery house in relative order (a baseline, fundamental requirement for doing business today), perhaps the most important take-away from Guidance is how carefully you need to consider how minor electronic discovery slip-ups, whether real or perceived, can bite, big time. The legal and media environment is primed to pounce on any hint of a cover-up or conspiracy, and enterprises must go the extra mile (or two, or three…) to ensure that their e-discovery efforts are, and will be perceived, as upright, ethical, and above reproach – or be ready and willing to pay the price in sanctions or loss of public confidence.

To the casual observer, it is surprising that a small private company (AccessData) could even think of acquiring a larger, public one (Guidance Software). But that’s exactly what AccessData publicly proposed to Guidance’s shareholders on November 6, after Guidance’s board had rejected its offer of $4.50 per share.

Leaving aside the personalities involved, and the history of bitter rivalry between these two companies, it’s easy to see why Guidance’s board rejected the offer. First, it’s only a 19% premium over Guidance’s share price on October 6, the date that the offer was made. Second, given 23 million shares outstanding, AccessData is offering a total price of just over $100 million for a company with $90 million in revenue and about $25 million in cash. Compare that to other e-discovery acquisitions, such as FTI’s $88 million purchase of Attenex or Iron Mountain’s $158 million deal for Stratify, each of which only had about 30% of Guidance’s revenue, and you cannot help feeling that the price is very low. Third, there’s the question of where AccessData will come up with the money. It’s hard to believe they happen to have $100 million in cash lying around and, with the recent market meltdown, debt is much less of an option than it used to be.

Still, this is not necessarily bad news for Guidance Software. Since its IPO in October 2006, the stock has fallen from a high of $17 per share to a low of $2 per share. The public markets are very unforgiving to small software companies. Guidance has recently made some bold moves, announcing usage-based pricing for its e-discovery product and several notable customer wins, but nothing has moved the stock. So an acquisition offer may be just the ticket to boost the share price, especially if it encourages other, more attractive acquirers to throw their hats into the ring.

Stay tuned, this might get interesting.