e-discovery 2.0

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.

On April 1^st, we had some fun by revealing the magical properties of “Clearwell for the iPad.” In truth though, we were only half joking because, at the time, we actually had an application for the iPhone and the iPad in development.

As Clearwell’s user base grew, and we became a mission-critical application to so many people, we learned that our users want access to the product from anywhere, not just when at their desks. In particular, for Clearwell administrators, it’s a lot more convenient logging into cases or checking the status of processing on an iPhone than it is being tied to a computer. So we created this companion application for the iPhone and iPad so they could do just that, as well as view job details, email logs, and generally manage their Clearwell appliances while on the go.

The driving force behind this new application, which we call “iClearwell”, is one of our developers, Gim, who drove its development. Gim also created a video to explain exactly what iClearwell does, which you can see below (yes, it really is his voice – and his pulsating finger).

iClearwell is available for free at Apple’s App Store. I have it on my iPad, and it rocks!

Recently, I attended a conference in Washington DC with a large number of government agencies, including (I must confess) many Clearwell customers like the Department of Health and Human Services, the Department of Homeland Security, and the Veterans Administration. It will probably come as no surprise that, during our conversations, it became abundantly clear that they had substantial electronic discovery technology needs. Many were still reviewing PST files manually in Outlook; others were TIFFing millions of pages of documents prior to directly loading into a traditional review application for eyes-on review. That’s right, nary a trace of early case assessment, transparent search, or culling to be found.

Sadly, no news there. What was fascinating for us was the reaction to the latest release of the Clearwell E-Discovery Platform, Version 5.5. Version 5.5 contains significant new functionality, including dramatically increased performance and scalability along with a number of substantial processing, analysis, review, and production enhancements. But, in addition to these features, we have rolled out a set of e-discovery best practices templates designed to make it vastly easier for organizations to implement a formal e-discovery methodology that builds on the integrated nature of our platform. And it was the prospect of such a methodology, even more than the technology, that people were buzzing about at the summit.

Why? With all of the activity going on in the e-discovery space around product and technology innovation, there was some strong feedback that process and methodology may have gotten lost in the shuffle. And, if you think about it, it’s process and methodology that are likely to be most carefully assessed when the courts are considering the reasonableness (or lack thereof) of e-discovery for a case.

The importance of putting process and methodology front and center (along with a commitment to making the necessary organizational changes to make it happen) is not exactly a new concept. Ralph Losey has been talking about it for years over on his groundbreaking and irreverent e-discovery team blog, and it’s a frequent topic of keynote speakers on the e-discovery lecture circuit. However, like eating your vegetables or exercising, putting in place the right e-discovery process in an organization is something that people realize the benefit of, but still ignore.

This cannot continue, as the stakes are escalating. Take the recent case of Mt. Hawley Ins. Co. v. Felman Prod., Inc. Dean will dive into this case in much greater detail in an upcoming post, but it is very relevant to the methodology versus technology discussion in that it highlights how a methodology problem can cause a fateful technology problem to be overlooked. In this case, a lack of sufficient quality control processes caused the plaintiff to inadvertently produce a number of privileged emails. The court found the inadvertent production was not “solely attributable” to a problem with a Concordance index, and that the plaintiff “failed to perform critical quality control sampling” to determine whether the production was appropriate. Privilege was waived.

What’s the solution? We believe that we’re on to something with Clearwell 5.5, in that we can, uniquely among e-discovery products, marry together methodology and technology in a single platform that allows for the entire e-discovery process to be documented and defended, end-to-end. We have particularly focused on the most critical part of the process which seems to come up over and over again in sanction and privilege waiver decisions, which is the way that an organization moves from an initial pool of documents to a set of defensibly-culled, potentially responsive documents, on through to tagging and production. Our unique workflow capabilities allow the entire process to be documented and instantly recalled with the click of a mouse, letting you see each decision that was made during the course of the case in a step-by-step fashion, and then to structure additional quality control audits on top of those decisions to ensure that every “i” is dotted and every “t” crossed.

It’s a good thing for everyone involved in litigation that e-discovery technology is maturing rapidly to the point where it can start to help solve these sorts of process problems rather than being the cause of them (as was the unfortunately case in Mt. Hawley). This is a major focus for us at Clearwell and you’ll see a lot more exciting news from us on this front over the next few months, so stay tuned!

To me, litigation holds in electronic discovery are like Federal sentencing.  Most Federal criminal cases end in a plea agreement, so very few are ever tried in front of a jury, but sentencing must occur in 100% of the cases.  Preservation is very similar – although you are likely to collect and produce in only a subset of cases, you must preserve in 100% of the cases.  So, just as sentencing law is extremely important to the Federal criminal bar, preservation is one of the most important phases of e-discovery to corporate or litigation counsel.  Naturally, I am surprised when I talk to corporate law departments that do not have a documented, repeatable process for legal holds that also includes standard procedures for IT.  Simply emailing a hold notice to a custodian and recording the hold on a spreadsheet is not enough given Judge Shira Sheindlin’s recent opinion in Pension Committee v. Banc of America Securities.

So, what is a defensible litigation hold strategy, and how do you get it done?  It is important to remember that the ultimate goal is preservation of any and all evidence that may be relevant to the matter at hand.  There are no hard and fast rules or checklists – only opinions from the bench of what is not enough.  The keys to defensibility are consistency, standardization, documentation, and diligence.  The place to start is with standardized policies and procedures as well as a person (or a portion of a resource) designated within the enterprise as the single point of contact for all issues related to preservation of evidence (read: project management).  Technology can help, but a great preservation strategy can be developed without an expensive or vast technology investment.  So, how do you get this done?  Here are four steps you should take now:

I. Define the Process (You cannot execute a plan that does not exist):

The first step to creating a great litigation hold strategy is defining a process or set of procedures that can be followed repeatedly.  This process could include setting up tiers for ESI sources, with tier one sources always being preserved (these might include frequently requested sources like email, file servers, and perhaps computers of key custodians), tier two sources being preserved on a case by case basis (including sources that are more industry-specific to the enterprise and therefore not always relevant in routine employment litigation or contract disputes), and finally tier three sources which include everything else.  By tiering ESI sources, the enterprise can focus on developing detailed preservation protocols for the tier one and tier two sources while developing a less detailed protocol for tier three sources which would include simply naming IT subject matter experts who would be consulted in the event that those sources were ever subject to preservation requirements.  This approach would allow the enterprise to prioritize data mapping and cataloging efforts on the tier one and tier two sources first.  Data mapping can be an enormous undertaking, so the enterprise might do well to know as much as it can about the email system rather than spending critical time focusing on ESI that may never be subject to any preservation requirement.

II. Dedicate Resources Appropriately and Engage Them Early:

Personnel are a key concern for preservation.  Allowing too many people to initiate and manage litigation holds could lead to confusion for IT and will certainly yield different results across multiple matters.  A single person or team should be appointed to manage litigation holds for the enterprise, and that person or team should develop a sound relationship with IT, paying particular attention to the subject matter experts who manage tier one data sources.  By forging the relationship early, communication and expectations will align before mistakes are made or spoliation occurs.  Of course, consistency is a key component of defensibility, and this cannot be achieved with a reactive, undocumented approach.  IT must understand the scope and consequences of spoliation, and they must be alerted early enough to halt routine destruction of ESI from the company’s systems.  Most corporate law departments have policies in place for “opening files” when new matters occur; it would be relatively easy to include a step in this procedure for engaging the appropriate personnel to begin preserving ESI at this early stage.  Leaving it up to individual attorneys or paralegals could cause preservation procedures to get implemented at various stages in the litigation, exposing the corporation to unpredictable and varying degrees of liability.

III. Audit, Log, and then Audit the Log:

Auditing the process is also critical to defensibility.  When ESI is moved, the process must be documented (even retaining shipping receipts for ESI that must be transported), and all conversions or alterations of the ESI must be documented (preferably with a procedure for commonly-encountered issues and then in a log as performed).  Log every step along the preservation path – including correspondence with custodians, when litigation hold reminders are sent, and any action performed on the preserved ESI (throughout the duration of the litigation).

IV. Talk to Your Custodians!

Interviews with custodians can go a long way toward achieving the diligence element of defensibility.  Acknowledgment by the custodian that they understand the preservation requirement being placed upon them and that they agree to preserve ESI is critical.  Often, custodians can also provide information about additional custodians who should be contacted or ESI sources that may not have been considered.  These and other matter-specific questions should be asked of the key custodians at a minimum.  This information may also prove useful when developing keywords for early case assessment or meet and confer preparation.

As you may have noticed, I have not mentioned any technology yet.  That is because a sound preservation strategy begins with sound policy, not simply purchasing a technology solution that purports to solve all of your problems.  Invest time in analyzing your litigation history, open matters, ESI sources, and personnel.  From there, processes can be developed, and where there are processes, there are then opportunities for automation and optimization through technology.  Simply defining the process is not enough – it must be repeatable and implemented consistently.  One of the best ways to ensure that a process is repeated is to automate it, removing the potentially error-prone manual work  where it is not required.

Following these steps should help jumpstart the development of a defensible preservation strategy, and once developed, you may be surprised to find that existing technology can help automate many of the procedures you have created.  Where existing technology investments fall short, venture into the market place informed and with the keys to defensibility in mind: consistency, standardization, documentation, and diligence.

Jason R. Baron was a keynote speaker at a recent electronic discovery summit and he mentioned an electronic data discovery topic that “ought to be blogged about.”  So, with that kind of softball I had to take a swing, particularly because it’s been a topic we (at e-discovery 2.0) have been discussing lately.

The genesis of this blog (per Jason) is the recent “skepticism” evidenced by the bench regarding the defensibility of custodian based collections.  ARMA has a good piece on this very topic, entitled “Is ‘Manual’ Collection of ESI Defensible?”  The core notion is that the tried and true practice of custodian based ESI collection is now under fire by courts, which appear to be looking at this practice with an increasing level of distrust.

“While it is common for companies to use automated data-collection software and hardware, some corporate litigants opt for more informal, “manual” collection methods (i.e., searches performed by individual records custodians) when responding to ESI requests. Companies may choose the manual collection of ESI to reduce costs, particularly if they have limited levels of litigation or lower risk levels posed by the litigation itself.”

While there’s no dispute that the “automated” collection methods available in litigation software referenced above have a number of features that make this approach more efficient, the question is whether a “manual” (i.e., custodian based) collection process is somehow less defensible.  If this is truly the case, then many midsized companies without the budget to purchase such e-discovery applications will inherently be found deficient – which is a daunting notion.

Take the recent case of Ford Motor Co. v. Edgewood Properties Inc., 257 F.R.D. 418 (D.N.J. 2009) where the dispute arose out of the demolition of a Ford assembly plant in New Jersey.  Ford and Edgewood entered into a contract whereby Ford agreed to provide 50,000 cubic yards of concrete to Edgewood in exchange for Edgewood removing it from the site.  When the concrete turned out to be contaminated, the dispute started in earnest.

The crux of Edgewood’s complaint was that it was unhappy with Ford’s production and somehow suspected that the dearth of documents was due to the electronic data collection process.  Edgewood sought to “’confirm the adequacy of Ford’s manual document collection process’ by using a third-party vendor to perform keyword searches on documents not in the existing repository of ESI, but instead, documents within the possession of certain Ford custodians.”

To reconcile the dispute the court looked to the Sedona Conference’s work in the area:

“In The Sedona Conference Best Practices Commentary on the Use of Search and Information Retrieval Methods in E-Discovery, Practice Point 1 states that “[i]n many settings involving electronically stored information, reliance solely on a manual search process for the purpose of finding responsive documents may be infeasible or unwarranted. In such cases, the use of automated search methods should be viewed as reasonable, valuable, and even necessary.”(emphasis added). Once again, the Court confronts this peculiar situation insofar as Edgewood has a point that the document collection method used by Ford is not necessarily contemplated under the Sedona Principles, but that agreement by the parties at the outset as to the mode of collection would have been the proper and efficacious course of action.  However, “[a]bsen[t] agreement, a [responding] party has the presumption, under Sedona Principle 6, that it is in the best position to choose an appropriate method of searching and culling data.”

Accordingly, the court found that the lack of agreement coupled with Ford being in the best position to make a call about the methodology, was a deciding factor in generally upholding Ford’s manual collection process.

“It would be improvident at this juncture to grant Edgewood the relief it seeks when it has not shown any indicia of bad faith on the part of Ford. To countenance such a holding would unreasonably put the shoe on the other foot and require a producing party to go to herculean and costly lengths (especially in a document-heavy case such as this) in the face of mere accusation to rebut a claim of withholding. This scenario is not contemplated by the Federal Rules.”

While Ford wasn’t penalized for its manual collection, this practice has come under fire in several other opinions.  In the highly controversial case of Phillip M. Adams & Assoc., LLC v. Dell, Inc., 621 F. Supp. 2d 1173 (D. Utah 2009) custodian based collection/preservation policies were similarly under fire.

“ASUS’ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs. ASUS alone bears responsibility for the absence of evidence it would be expected to possess. While Adams has not shown ASUS mounted a destructive effort aimed at evidence affecting Adams or at evidence of ASUS’ wrongful use of intellectual property, it is clear that ASUS’ lack of a retention policy and irresponsible data retention practices are responsible for the loss of significant data.”

Adams was in fact cited by Judge Scheindlin in her latest opus – Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of America Sec. LLC, No. 05 Civ. 9016, 2010 U.S. Dist. Lexis 4546, at *1 (S.D.N.Y. Jan. 15, 2010), where she found fault with the Plaintiff’s reliance on manual collections:

“This instruction does not meet the standard for a litigation hold. It does not direct employees to preserve all relevant records–both paper and electronic-nor does it create a mechanism for collecting the preserved records so that they can be searched by someone other than the employee.  Rather, the directive places total reliance on the employee to search and select what that employee believed to be responsive records without any supervision from Counsel.

From the foregoing, it’s probably too early to call the skepticism over manual collection a trend per se.  Certainly, lobbing a preservation notice over the proverbial wall to custodians without the requisite level of supervision is a recipe for disaster.  Education (about the matter and the required tasks), compliance (with the preservation instructions) and ongoing monitoring (to ensure that compliance continues over time) are all critical responsibilities that must be thoughtfully undertaken by counsel for a defensible ediscovery process.

The question then becomes, is the problem here really about the “manual” collection efforts by the custodians or more simply the fact that they aren’t supervised with the requisite degree of care?  If this is the case, which I’d opine that it is, then “properly executed” manual collections should be fine (i.e., defensible).

But, as Ford indicates, if your company is going to rely upon a manual collection modus operandi, then it may be advisable to let the opposition in on the use of this tactic.  This approach may be mandated by local rule or it may just be the type of transparent cooperation that’s all the rage these days.

Part I of this series on managing e-discovery costs discussed a number of approaches for reducing e-discovery costs.  One of the approaches is to perform early case assessments.  Pioneered by Dupont and others, the objective of this approach is to learn a substantial percentage of the key case facts within a short period of time so that the litigation team can make better decisions quicker.  There are a number of good sources for information on what is early case assessment (ECA) and how to conduct ECAs including John DeGroote’s articles on the Settlement Perspectives blog, Eric L. Barnum’s “An Introduction to Early Case Assessment” and Dean Gonsowski’s Early Case Assessment article on this blog.  The point that these articles make is that early case assessment is a different approach to litigation that can significantly reduce the overall cost of litigation and electronic discovery.

As Mr. DeGroote highlights, the two main benefits of ECA are: better settlements and better case management.  First, ECA enables the litigation team to make a better decision as to whether to settle or not by giving the team an enhanced understanding of the costs and benefits of settling.  Early case assessment also provides the team with valuable information for negotiating the best possible settlement with the other side.  Second, even if the case is not settled, ECA can reduce costs through improved case management.  For example, e-discovery costs can be better managed by targeting discovery efforts to reduce the data reviewed and by improved planning and budgeting.  Overall, Dupont estimates that, by performing early case assessment on 18 of their cases, they reduced their costs by over a third.

Given the clear benefits of early case assessments, one would expect that early case assessments would be the norm.  However, as Mr. Gonsowski points out, this doesn’t appear to be the case.  Mr. Gonsowski points out that one of the reasons for this “may lie in a common litigation mindset:  i.e., the desire to avoid costs for as long as possible.”  This makes sense and I would venture to suggest some additional reasons.  First, ECA can be hard to do, especially when it comes to the e-discovery piece of ECA.  Traditional lead-times for performing collection, processing and loading electronic documents into a review platform are measured in weeks or months.  And because ECA works best when analysis is performed iteratively (e.g. start with a small, targeted set of documents, analyze them, use that analysis to target additional information, and repeat) and often ideally on-site, this long cycle time can shackle the efficient execution of an early case assessment strategy.  Second, ECA can be too expensive, again using traditional approaches.  If a company spends too much money on an early case assessment, they might be less inclined to settle because of how much they have spent already.

Recent advances in electronic discovery software, however, are addressing these issues and making it easier to perform early case assessments.  This newer software, which can often be installed on-site as well as in a hosted fashion, can be used to review data within hours of it being collected and often provides content analysis technology that speeds up analysis to help attorneys find the critical information faster.  The lower cycle time allows for prioritized and iterative analysis largely removing technology constraints from the adoption of early case assessment methodology.  This newer ECA software is also less expensive because it is more automated and easy-to-use than traditional technology.

An early case assessment case study of Holme, Roberts & Owen’s (HRO) experience performing an early case assessment, is a good example of what is now possible with new software solutions.  HRO was representing a client who was facing a time-critical false advertising lawsuit. With expedited discovery ordered and a motion for a preliminary injunction pending, the attorneys at HRO had less than two weeks to gather and analyze the underlying documentation and determine case strategy. Leveraging new e-discovery software, HRO was able to perform the early case assessment in days and at cost much lower than traditional means.  The ECA ultimately enabled HRO to conclude the matter on a favorable basis for their client saving significant costs that would have been incurred if they had been required to continue the litigation.

As the HRO case study shows, early case assessments have become a powerful method for reducing not only e-discovery costs but also overall litigation costs.  Any corporation looking to lower their e-discovery and litigation costs would do well to consider adopting early case assessment methodology where practical.  How do you expect the frequency of practicing ECA to change over the next year?  Please take a moment to fill out our poll.

Unfortunately, though, early case assessments are also not a silver bullet solution to the e-discovery cost problem because some cases are going to require full discovery and will go to trial no matter what.  To address these costs, other methods are required.

In the post, E-Discovery 911: Reducing E-Discovery Costs in a Recession, we analyzed the question: which electronic discovery activities are the most costly today and thus have the greatest room for cost reductions? An analysis of a typical, hypothetical case demonstrated that the bulk of e-discovery costs reside in the processing and review stages. In this post, we want to look at the different ways of reducing e-discovery costs and which are likely to be the most effective, especially given processing and review costs are the largest sources of expense.

Corporations have the following options for reducing e-discovery costs. Some of these approaches are aimed at changing the overall way e-discovery is performed. And some of these are aimed at improving the results of a particular step within a typical e-discovery process. None of the options are mutually exclusive.

• Retain less data through information management: one of the methods that corporations can undertake to reduce e-discovery costs even before e-discovery has begun is to adopt a data or document retention policy. Such a policy can, for example, stipulate that the corporation deletes all documents not required for specific business, legal or compliance reasons after a fixed period of time, such as 90 days. As a result, a properly implemented document retention policy has the potential to significantly reduce the amount of data that is identified and collected during electronic discovery.

• Better assess your case and your discovery issues: another approach to reducing the overall costs of litigation including discovery is to perform an early case assessment. Pioneered by Dupont and others, the objective of this approach is to understand all the key case facts within a short period of time so that the litigation team can make better decisions quicker. Because costs always rise over time, quicker resolution of litigation reduces costs. While early case assessment was originally an overall approach to litigation, there is now an equivalent in electronic discovery. The goal is to identify all the potentially discoverable data, but only collect, process, and analyze a prioritized portion of this data in order to inform an understanding of the case AND calculate an estimate of the ultimate potential e-discovery costs.

• Bring e-discovery in-house: another holistic method for reducing electronic discovery costs is to manage all or a portion of the e-discovery process in some or all matters inside the Enterprise as opposed to outsourcing it to law firms or litigation service providers. While bringing e-discovery in-house has other benefits, such as improved security and control, the principal benefit is to convert variable service costs, typically priced on a per Gigabyte basis, into fixed software costs thus producing a return on the investment to manage e-discovery in-house.

• Preserve and collect less data: in addition to holistic approaches, e-discovery costs can be reduced at each step in the e-discovery process. One way to reduce e-discovery costs would be to preserve and collect less data. Reducing the amount of preserved and collected data not only reduces the cost of each of these steps but also reduces the cost of each downstream step. There are pros and cons to this approach which I will discuss in a later post.

• Process less data: more data is frequently preserved and collected than needs to be processed for analysis and review. This excess data can be filtered out prior to processing thus reducing processing and all other downstream costs. The techniques used to do this are often referred to as pre-filtering, pre-processing or early data analysis.

• Process differently and review native: historically, most electronic data was converted to an image format, such as TIFF, prior to review. This process is computationally intensive and expensive. In recent years, e-discovery practitioners have been processing and reviewing more documents in a native or near-native format and avoiding the cost of converting documents to an image format until later in the process.

• Review less data: data can also be reduced after processing and prior to review and production. Much has been written in the e-discovery community about this process, often called “cull-down,” and the different search and analysis techniques that can be used as part of this process, such as keyword search, concept search, de-duplication, and others. The fewer documents requiring processing and review, which as we have seen is a substantial portion of the overall costs, the lower the overall costs.

• Review data faster: in addition to reducing less data, the electronic discovery community has pioneered new methods of reviewing data faster including data clustering, near de-duplication, and other more automated review techniques. The faster documents are reviewed, the lower the attorney review costs.

While all of these approaches have the potential to reduce the costs of electronic discovery, some are going to be more effective than others. Each approach can be implemented using a multitude of techniques or practices and each of these techniques has their pros and cons. For example, some techniques may have a greater risk of raising defensibility issues from the court or opposing side than others. Other practices may be less expensive initially, but, over the course of a changing and iterative e-discovery, may prove to be more costly overall. In a series of future posts, we’ll review the different practices used as part of these approaches and analyze the pros and cons of each to understand which may be the most effective for your organization.

Over the past 4 years, I have had hundreds of conversations with corporate counsel and “legal IT”, meaning technical folks charged with supporting the legal team. More and more of them are looking to lower their costs by bringing e-discovery in-house. But as they work through that process, there’s one question that consistently comes up, even today – namely, “When [insert name of software company] says they “do” e-discovery, what exactly does that mean?”

There has been progress towards answering this question, thanks mainly to the analyst community. George Socha and Tom Gelbmann’s EDRM framework has been immensely helpful in breaking down electronic discovery into its component steps. Other analysts, like Debra Logan at Gartner, were quick to embrace the framework, prompting every software provider to follow suit. As a result, there is today a common language that everyone uses to describe the e-discovery process.

The Electronic Discovery Reference Model (EDRM) breaks down the e-discovery process into a series of steps. Companies looking to buy e-discovery software to lower costs typically map different software products to each of these steps, to make sure that they cover the entire process.

But having a universally-agreed framework is only half the answer. To eliminate customer confusion, there also needs to be agreement on how different software products fit into the framework. This is especially important since there is no single, end-to-end solution for e-discovery which covers all aspects of EDRM. So customers are forced to think about how different software solutions fit together. And that is where things begin to fall apart.

Many software vendors feel it is advantageous to claim that they do everything, even though they do not. Customers are rightly suspicious of those claims, and so press vendors to provide more detailed information – hence the question, “when you say you do e-discovery, what exactly does that mean?”

In light of that, how can litigation support teams, corporate counsel, or legal IT people figure out which e-discovery solution best meets their needs? From observing this decision-making process hundreds of times, I have found 3 simple steps are incredibly helpful.

Step 1: Read the analyst reports

Two reports in particular make for required reading. One is Gartner’s MarketScope Report, which is available for free at certain sites; the other is the 451Group’s recent e-discovery report, which is summarized in a publicly available presentation. The helpful thing about the 451 Group’s report is that it tells you which software companies do which parts of the EDRM process. You do have to buy the report to get the full picture (it’s well worth it!), but the publicly available presentation will give you a flavor for their analyis, and I have drawn from that presentation in the figure below:

Analyst firms like the 451 Group map software vendors to the EDRM framework according to what they actually do, which is often different from what software vendors claim they do.

The 451 Group’s analysis highlights several important points. First, it shows that there is no single end-to-end solution. Even the products of giants like EMC (SourceOne), HP (IAP), and IBM (CommonStore) only solve one piece of the puzzle, information management. Second, it shows that customers have choices at each stage of the EDRM process. For example, to solve the problem of identification, collection, and preservation of electronic information, customers can choose from solutions as diverse as Guidance EnCase (forensic collection), Index Engines (back-up tapes) and Mimosa NearPoint (email archive). Third, it provides an independent assessment of what vendors do, as opposed to what they may claim. For example, Kazeon claims analysis and review capabilities, whereas the report shows its product does identification, collection, and preservation; Recommind claims its Axcelerate eDiscovery and MindServer products do processing, whereas the report finds that they do not.

Step 2: Evaluate the products prior to purchase

Just as anyone would test-drive a car prior to purchase, it’s critical to test-drive e-discovery software. Any vendor should be willing to provide their software free of charge for an evaluation on-premise. The most effective evaluations are when the customer uses the product themselves, either on a live case or test data. This is far preferable to just sending the data to the vendor who then loads it into their system, as in that scenario there are too many opportunities for the vendor to hide their product’s shortcomings.

Step 3: Check references carefully

The trick with references is to insist on relevant references. It’s not good enough for the vendor to dredge up some random person who says nice things; or even a credible knowledgeable person who is using the product in a completely different way. For example, if a company is happy with Autonomy’s IDOL for enterprise search, that does not tell you much about what Autonomy might be like for e-discovery. What really counts are references from other customers who are using the product for the same application that you are.

All this can sound like a lot of work, but I have seen people go through the process in as little as a month, and be much happier for it. A little work up front can save a lot of time (and heart-ache!) later on.

Cheesy Successories posters aside (for an alternative take, go here), the need to work together is much more than just a cliché in today’s environment.

In its recent brief on the five major trends that will shape business technology in 2009, leading management consultancy McKinsey and Company noted one trend in particular which highlights the urgent need for an organization’s IT and legal groups to forge better, faster, and more efficient ways of collaborating on electronic discovery issues:

Regulators demand more from IT

Government scrutiny of business will intensify in many developed countries. Already, in the United States, the Office of the Comptroller of the Currency weighs in on the resiliency of banking systems, the Food and Drug Administration (FDA) requires that many pharmaceutical systems be “validated,” and Sarbanes-Oxley drives decisions about accounting systems in every industry. In the future, policy makers and regulators will probably demand that IT systems capture more and better data in order to gain greater insight into and control over how banks manage risk, pharma companies manage drugs, and industrial companies affect the environment. Government officials also will monitor many legal and business rules more closely to ensure compliance with mandates. Successful CIOs should enhance their relationships with internal legal and corporate-affairs teams and be prepared to engage productively with regulators. They will need to seek solutions that meet government mandates at manageable cost and with minimal disruption.

- McKinsey Quarterly, February 2009

The current economic environment is creating a “Double Whammy” within almost every enterprise that has ongoing or pending electronic discovery issues (and are there many organizations left out there that don’t?):

• As the McKinsey article notes, regulators will increasingly be demanding more from IT as government scrutiny of business intensifies. Just look at the just-launched recovery.gov site to see the level of transparency and accountability that the government is aiming for with regard to the stimulus package. The bailout will not directly affect every business, but there is a new sheriff in town who will likely set the tone across the entire business landscape.
• At the same time, there is relentless pressure on controlling costs. When times are tough, dollars that can be saved on the expense side are much more valuable that top-line revenue, since 100% of every dollar of cost savings goes directly to the bottom line.

The net-net: Enterprises will be forced to do more, with less.

How? With regard to electronic discovery, there is a lot of low-hanging fruit to be picked in the area of IT and legal cooperation:

• In-house legal teams should meet with IT (if they aren’t already) to help them better understand the nature of electronic discovery, particularly as it applies to the more “upstream” parts of the process (specifically, identification, preservation, and collection) which IT tends to be more responsible for. Through a better understanding of the nature of electronic discovery, IT can improve its ability find the right documents, avoiding over-collection and reducing downstream processing costs. In addition, new electronic discovery technologies are making it increasingly easy for legal to own more of the process, reducing the electronic discovery burden on IT.
• Conversely, IT should coordinate with in-house legal teams to provide advice and mentoring as legal seeks to bring e-discovery platforms in-house to assist with early case assessment, search, culling, and analysis. To many legal teams, bringing e-discovery in-house may seem like a daunting proposition, but enterprise software has been around for a long time, and learning from IT’s experiences can make the process far less intimidating.

Yes, regulators are going to be far more demanding in the future than they have been in the past. But some simple collaboration and coordination between IT and legal will go a long way toward lightening the regulatory burden, especially as it pertains to electronic discovery.

In today’s economy, controlling electronic discovery costs has taken on a new urgency.  Because the financials of many companies have deteriorated so quickly, there is great interest in finding methods to reduce any costs in the short-term.  As  a result, anyone in a company’s IT or legal department that comes up with a plan to substantially reduce their company’s electronic discovery costs in the short-term is likely to become a hero in their company.  So, what’s the best way to reduce electronic discovery costs quickly?

A natural first step is to decide where to focus.  Which electronic discovery activities are the most costly today?  Which have the greatest room for cost reductions?  The EDRM model serves as a good guide for answering such questions by breaking electronic discovery activities into Information Management, Identification, Collection, Preservation, Processing, Analysis, Review, Production and Presentation.  One thing I have noticed when interacting with enterprises is that the IT and legal departments tend to focus on different stages within electronic discovery based on their perspective.  IT managers naturally concentrate on the information management, identification, collection and preservation activities because these are the activities in which they are most involved.  Similarly, legal managers naturally look to preservation, processing, production and review.

Given these different perspectives, it’s important to take an objective approach to calculating electronic discovery costs.  Doing so is not that easy.  Costs can vary significantly depending on each company, the nature of the case, nature of the data, which vendors/technologies that are used and a variety of other factors.  Costs also come in many different forms: direct hard dollar costs, such as spending on legal and electronic discovery fees delivered by third parties; indirect hard dollar costs, such as time spent by company employees; and soft dollar costs, such as increased risk that could lead to adverse judgments and sanctions.  Finally, electronic discovery costs are often buried across both legal operating budgets and IT budgets making it hard to separate these costs from the costs of other activities.

Undertaking an internal analysis to understand your company’s electronic discovery costs is a valuable activity if you want to better control these costs.  However, while costs do vary between companies, most companies will find that the same activities contribute the most direct hard dollar costs and that these are the costs that are easiest to control in the short-term.  To demonstrate this, let’s walk through a generic cost analysis of a typical case.  Fortunately, we don’t have to start from scratch in doing this.  Leonard Deutchman, an author of several excellent electronic discovery articles, has already done most of the work in a May 2007 article, “Get Ready for the Rules Changes, Part VIII“.  In this article, Mr. Deutchman walks the reader through a hypothetical litigation between an Investor and a Venture Capital firm.  He describes the typical electronic discovery activities and calculates the direct hard dollar costs for these activities including:

• Collection: Mr. Deutchman calculates that it costs $10k to collect 400GB from 8 hard drives and the data of 8 custodians on file and email servers using an outside vendor (doing it in-house can be less expensive).  Note that this excludes any collection from back-up tapes, which can be more costly.
• Culling & Processing: it costs $4k to reduce the 400GB to 90GB by removing non-relevant file types prior to processing.  Processing 90GB costs $90k at $1000/GB.  De-duplication and the application of search terms reduce the data to 25GB.
• Production: it costs $4k to produce the 4GB of data that is deemed responsive and not privileged to produce to the other side.

Mr. Deutchman doesn’t identify direct hard dollar costs for Information Management, Identification or Preservation.  These activities are typically not associated with direct hard dollar costs on a per matter basis.  Rather, they involve indirect hard dollar costs such as employee time and software licenses.  Mr. Deutchman also does not provide an estimate for the costs of review.  However, since review does contribute significant direct hard dollar costs for every matter, this gap needs to be filled in order to get a complete sense of the direct hard dollar costs.  The two big buckets of cost in review are: attorney review costs and review software costs.  In Mr. Deutchman’s hypothetical litigation one might imagine the following scenario for these costs:

• 25GB translates into 195,000 documents using the low end of the documents per GB email (9,000/GB) and documents per GB files (7,000/GB). Industry survey data that is available from EDRM.  This example assumes that 40% of the 25 GBs is email.
• The attorneys reviewing the data charge $75/hour and make 100 document decisions per hour.  This translates to approximately $146,000.
• The hosted review service costs $50/GB/month and, in this case, let’s assume we host it for 6 paid months.  This costs $7,500.

If we tabulate these costs and calculate the direct hard dollar cost shares for each stage, the clear take-away is that Processing and Review costs comprise the vast majority of direct hard dollar costs.  Collection and Production direct hard dollar costs are significantly smaller in comparison.

Now, it’s possible to come up with many arguments for why Mr. Deutchman or my estimates could be high including different assumptions for attorney hourly review costs, higher document decision rates, cheaper vendor pricing, etc.  Similarly, it’s possible to come up with many arguments for why the estimates could be low including the need to perform multiple review passes, slower document decision rates, more expensive vendor charges, etc.  In addition, each company will have their own unique circumstances that will change this picture.  However, this generic analysis strongly suggests that more customized analyses would come to the same conclusion: if you want to reduce electronic discovery costs quickly, then you need to focus on processing and review costs.  One can also imagine that even if you were to use some form of activity-based costing to allocate indirect hard dollar costs on a per matter basis, it would likely not change the importance of Processing and Review costs.

What does this mean for IT and legal managers in Corporations?  These kinds of analyses make it pretty clear that, even though they are more involved in the Information Management, Identification, and Collection phase of electronic discovery, IT managers need to focus more on helping the legal team optimize Processing and Review activities.  You are not going to get the biggest bang for your buck in the short-term by trying to reduce costs in Information Management, Identification, Preservation, and Collection.  Similarly, legal managers need to work more closely with IT in order to focus on how to reduce processing and review costs.

So, the obvious question coming out of such an analysis is what’s the best way to reduce Processing and Review costs?  We’ll discuss this issue in a future post.

In the meantime, tell me what you think by participating in our first e-discovery 2.0 poll.  See the sidebar here: Which Phase of Electronic Discovery Do You Think is the Most Costly?