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Fulbright’s 2011 Litigation Trends Report Predicts a Constant Litigation Pace and a Swell of Regulatory Investigations

Monday, November 7th, 2011

Fulbright & Jaworski has conducted their Litigation Trends survey for nearly the past decade and the results are always interesting since they tend to capture the mindset of inside counsel and litigators as they anticipate the upcoming year.  In their 8th Annual Litigation Trends Survey, Fulbright noted that 92% of U.S. respondents predict that litigation will either increase or stay the same in the upcoming year.  This trend bodes well for players in the litigation services and eDiscovery sectors, and confirms the counter cyclical nature of the industry.  Breaking down the perceived increases across industry verticals, the Survey noted that the biggest anticipated jumps were in the technology, financial services, healthcare and insurance sectors.  Meanwhile energy (the leading sector from the prior year) was one of the few that predicted a decrease.

Going behind the scenes, there were a number of factors that caused respondents to predict litigation increases.  First and foremost, respondents indicated that “stricter regulation was the number one reason” for the increases, particularly with insurance, financial services, health care and retail sectors.  These concerns around regulatory compliance have been increasingly keeping GCs and corporate boards awake as the governance climate continues to heat up.  This regulation driver showed a demonstrable increase with 46% of all respondents having retained outside counsel to assist with regulatory proceedings, up from 37% in the prior year.  The Survey noted that U.S. companies facing a regulatory investigation were most likely to be under pressure from the DOJ (27%), State Attorney General (24%), OSHA (18%), the EPA (16%) and U.S. Attorney (13%).  Also on the regulatory front, U.S. respondents have increasingly begun to recognize the potential jurisdictional reach of the U.K. Bribery Act, with 25% of U.S. companies stating that they have already conducted a review of existing procedures in preparation for implementation.

In addition to managing risk, most in-house counsel are keenly concerned with controlling litigation costs.  The good news here is that associated costs are predicted to be generally flat.  Yet, eDiscovery remained the largest category targeted for increased spending, with 18% of respondents making this their top priority.  Interestingly, though, large enterprises seem to have been doing a good job of getting eDiscovery expenses under control (likely by taking expensive elements of the EDRM in-house), with these expenses declining among the largest companies, from 42% last year to 24% this year.

The Survey noted that the use of cloud computing has gained speed, with 34% of all public companies using the cloud.  And yet, only 40% of those companies using cloud computing have had “to preserve and/or collect data from the cloud in connection with actual or threatened litigation, disputes or investigations.”  This number appears curiously light, and it should definitely rise during the upcoming year as the plaintiff’s bar gets more savvy about this relatively new source of responsive electronically stored information (ESI).

On the narrower eDiscovery front, the Survey honed in on newer issues like cooperation.  Here, the Survey noted that this Sedona-sponsored concept still hasn’t completely taken hold, with nearly 40% of all respondents claiming that “their company has not made the effort to be more transparent or cooperative” due to a litigation strategy of “defending on all fronts.”  This area appears particularly muddled, with one third saying their previous attempts haven’t been reciprocated and another quarter feeling that their company was already transparent.

All in all,  the 2011 Fulbright Litigation Trends Survey notes trends that appear to be largely in line with the primary drivers of (1) managing risk and (2) lowering litigation costs.  On the risk side, compliance with an increasingly complex regulatory environment is offsetting any potential lull in the litigation environment.  And, on the cost side, eDiscovery continues to be a hot button issue, particularly with the relatively new challenges associated with ESI distributed on social media, cloud computing and mobile sources.

How Will The Financial Crisis Impact E-Discovery?

Sunday, October 26th, 2008

A couple of weeks back, I attended a now-infamous meeting at Sequoia Capital, which has since been widely covered in the press and the blogosphere. For those unfamiliar with Sequoia, it is the world’s leading venture capital firm, with a string of early-stage investments in companies such as Apple, Cisco, and Google as well as, more recently, AdMob, Clearwell, and Loopt. The presentation says it more colorfully, but Sequoia’s point is simple: “We are at the beginning of a global economic slowdown that could last for years, and the cost of capital has sky-rocketed. In light of that, everyone needs to re-evaluate their growth plans and, if necessary, reduce expenses immediately.”

That message sent a chill through Silicon Valley. In the days that followed the meeting, several start-up companies announced layoffs, closely followed by larger companies like eBay and Yahoo, all citing economic conditions in the wake of the financial crisis. So naturally, the meeting and its aftermath got me thinking about what impact our current economic malaise will have upon the e-discovery industry.

If history is any guide, economic downturns lead to more litigation, and more litigation leads to more e-discovery. That’s why e-discovery has often proven to be a counter-cyclical business, and that certainly appears to be the case again now. While traditional technology companies like SAP and Seagate missed their numbers last quarter, the top e-discovery software companies posted strong results. And many lawyers are expecting even better times ahead, if last week’s ACC show or the recent Fulbright & Jaworski 2008 Litigation Trends Survey are any indicator. In particular, the survey results were quite striking, with more than one-third of companies surveyed predicting more lawsuits, and a quarter forecasting more regulatory inquiries. This makes sense in light of the fact that what we are facing is no “normal” recession; rather, it’s a downturn triggered by the sudden and widespread collapse of the banking sector which has left many people wanting legal redress for their grievances.

But, more important than any short-term increase in litigation, I think the real significance of the current crisis is that it will spur a sustained, long-term increase in demand for e-discovery solutions. As revenue growth slows, companies will focus on reducing costs to maintain profit growth. That will prompt many of them to examine the vast amounts of money being spent on e-discovery and accelerate the pace at which they use technology to cut costs by bringing elements of e-discovery in-house. Law firms and litigation support service providers will similarly find their invoices attract greater scrutiny. Their old ways of taking terabytes of data and dumping it into a linear review platform without first removing irrelevant or unresponsive data, will look increasingly profligate.

To learn more about how best to prepare for the coming wave of litigation, and associated increase in e-discovery, I strongly recommend next week’s webinar with Ron Best from Munger, Tolles, and Olson (MTO). Ron is a real innovator in this area, with extensive experience dealing with multi-party, complex litigation. He is also full of practical advice about how best to reign in e-discovery costs and manage with limited resources – skills that will be increasingly important in the coming months.

No industry is an island and, to some extent, we all get impacted by the same economic forces. But the unique thing about the e-discovery industry is that the worst of times can often be the best of times. Consider it a silver lining to the very large cloud hanging over our economy.

Electronic Data Discovery at ACC

Thursday, October 23rd, 2008

I was in Seattle this week for the annual Association of Corporate Counsel conference.  And, from all external perspectives it seems like the dour economic climate hasn’t dampened the spirits of the legal and litigation support communities.  There were lavish parties, including an extravaganza thrown by Womble, Carlysle at the Space Needle, along with no shortage of the usual tchochkies, giveaways and over-the-top promotions – even though the general consensus from exhibitors was that actual attendance was down from last year.

Maybe the legal community is in denial.  Or perhaps, the sentiment instead is that tough economic times will result in more litigation and governmental regulation.  While this is certainly the optimistic viewpoint, the recent Fulbright & Jaworski Litigation Trends Survey at least provides some foundation for this rosy notion.

In Fulbright & Jaworski’s fifth annual survey, corporate counsel stated that they anticipate a litigation spike next year in both lawsuits and regulatory proceedings.  Among U.S. respondents to the most recent survey, 34 percent expect an increase in lawsuits involving their company and 25 percent anticipate more regulatory proceedings.

Speaking on behalf of the glass half full contingent, Stephen C. Dillard, who chairs Fullbright’s global litigation practice, believes that the survey results illustrate the shift from a long period of prosperity to the start of “a period of serious economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences.”

Whether this prediction comes to pass remains to be seen, but at least the participants at the ACC conference seem to drinking the same Kool-Aid.  Whether that sugary drink is actually good for you or not, will be the question.

Let me know what you think.  Do you think the financial crisis will force litigation to increase, decrease, or stay the same and why?