e-discovery 2.0

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

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

In their latest survey, entitled “E-Discovery Market Trends: A View from the Legal Department,” Enterprise Strategy Group (ESG) analysts Brian Babineau and Katey Wood analyze a number of interesting statistics and provide a range of insightful conclusions.  By surveying general counsel from large, mid-market (500-999 employees) and enterprise-class organizations in North America they were able to dive into a range of eDiscovery topics, including pain points, operational expenses and prioritizations on a go-forward basis.  Some are more intuitive than others, but in either case the results serve as good calibration metrics for those who endeavor to understand the corporate eDiscovery state of the nation.

“Most corporations are not tracking e-discovery spending…” In what may be the most notable finding of this ESG report, 60% of survey respondents claim that they did not track annual eDiscovery spending in 2010.  The authors correctly note that the eDiscovery process, “which can be highly unpredictable due to its project-by-project nature to begin with, has historically been outsourced to service providers charging at variable rates and often billed back to companies via their law firms.”  Despite the significant challenges of tracking eDiscovery spending, it’s nevertheless irresponsible for organizations to keep their heads in the sand regarding such a significant operational expense.

As the old saw goes, “you can’t manage what you can’t measure,” so it’s almost inconceivable to think that so many organizations aren’t tracking such a significant expense category.  For organizations who want to create a repeatable business process, as opposed to the fire-drill chaos that is typically associated with eDiscovery, it’s vitally important to accurately capture core eDiscovery metrics.  For starters, it’s useful to understand basic collection parameters, such as of the typical numbers of key custodians, average data volumes per custodian, data expansion rates, de-duplication statistics, etc.  Once these metrics are in place, it then becomes possible to manage the process and reduce costs.

Katey went on to expound in an exclusive quote for EDD 2.0:

“E-discovery can be managed as a strategic business process with an understanding of costs, performance and outcomes. When there’s no basis for reporting or comparison, it’s pin the tail on the donkey.  Corporate litigants won’t ever know they’re getting their money’s worth if they don’t even know what they’re spending.”

“E-Discovery accuracy/efficiency isn’t being measured, in large part.” Similar to the failure to measure eDiscovery costs, a full two thirds of GCs (67%) aren’t tracking the “efficiency and/or accuracy of e-discovery document review.” Until corporate counsel can link expectations of competency/efficiency with oversight and performance metrics, outside law firms will likely avoid having their feet held to the fire.  This passive stance makes transparency and process improvement difficult at best.  Additionally, this model of having expectations for efficiency, with low or no accountability, doesn’t bode well for the quick adoption of enabling technologies like predictive coding, since the driver has to inherently be the need/desire for increased efficiency (which axiomatically equals lower law firm review bills).

“Corporate information governance and litigation readiness (especially defensible deletion) are a priority, but not yet a reality.” From an internal prioritization perspective, more than two thirds (69%) of respondents identified their desire to expire/delete data more consistently, “thereby limiting unnecessary data retention for future litigation requests.”  Savvy enterprises correctly recognized the “multi-prong threat of unregulated data retention: the large amounts of irrelevant data ultimately produced for legal review, the greater difficulty of hanging onto potentially litigious documents past their required retention periods.”

This finding is very encouraging, and it ties into the upward momentum the industry is seeing regarding information governance generally – particularly linking the reactive (right) side of the EDRM with the logically connected and proactive (left) side of the EDRM.  As a good first step it’s critical to see organizations now associating good information governance hygiene with lower costs and better eDiscovery response times.  The ESG finding also triangulates with results from the recent Information Retention and eDiscovery Survey, which found that companies having good information governance hygiene were often able to respond much faster and more successfully to an eDiscovery/investigation requests, often suffering fewer negative consequences.

The only downside to the positive information governance trend, as reported by the survey, was that,

“while there are great benefits to defensible deletion, internal initiatives for implementing it too often are stymied by difficulty in obtaining cross functional consensus and authorization, particularly as it touches so many other critical processes like regulatory compliance and legal hold.”

“Legal hold processes are still very manual.” Another similar question revealed that many companies are attempting to get their information governance house in order, but are still in the very early stages.  When asked about their  current legal hold notification and tracking process, a whopping 69% of organizations said that they are using a “manual process performed by internal staff using e-mail and spreadsheets, etc.”  And, another 6% said they either had no formal process or tracking mechanism.

Given the risks attendant to flaws in the preservation process this area is ripe for improvement.  The good news is that 54% of survey respondents are intending to improve their legal hold process, with 25% planning improvement within the next 12 months.  This is a healthy acknowledgement that there is risk, and with a modicum of investment (time, personnel, procedures, and technology) the legal hold area can be brought up to current best practices.

The ESG survey is a welcome temperature gauge into the state of corporate legal departments.  It notes, in conclusion, “with the staggering growth, diversity and dispersion of data, the pain e-discovery is currently causing large and serial litigants are only a symptom of the larger problem of unwieldy and under-developed information management affecting all businesses.”  With data insights from the ESG survey, it’s becoming clear that foundational information governance elements (like deploying auditable legal hold procedures, tracking eDiscovery spending, updating data maps, etc.) are desperately needed by the many organizations that want to turn eDiscovery into a repeatable business process.  The good news is that many of these organization have improvements in mind for the next 12 months, and the challenge will be to make sure these proactive projects maintain the same level of organizational urgency that it often present for more reactive tasks.

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

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

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

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

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

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

Such a finding is echoed by a recent case issued from the District of Indiana.  In Haraburda v. Arcelor Mittal U.S.A., Inc. (D. Ind. June 28, 2011), the court tied a litigant’s preservation duty to its document retention efforts.  In order to discharge its duty to reactively preserve evidence, the court reasoned that enterprises must proactively create “a ‘comprehensive’ document retention policy that will ensure that relevant documents are retained.”  Failing to implement a retention policy often results in a loss of key information.  And this, opined the court, may result in sanctions.

Such a finding is not limited to an isolated case.  Court decisions from across the United States in 2011 have found the same connection; better data retention practices yield more successful document preservation results.  For example, in the E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. April 27, 2011), the plaintiff manufacturer defeated a sanctions motion due to its effective information retention procedures.   The manufacturer implemented a document retention policy that typically kept emails from former employee accounts for 60 days, after which the emails were overwritten and deleted.   Among the emails deleted pursuant to that policy were several that the defendant argued were relevant to its counter-claims.  The DuPont court declined to impose sanctions, however, since the emails in question were overwritten before the duty to preserve was triggered.  Instead, the court lauded the manufacturer’s preservation efforts, finding that it “took positive steps reasonably calculated to ensure that information . . . was preserved for litigation.”  Because the manufacturer faithfully observed its established retention policy, it reduced a stockpile of email, made relevant documents unavailable for discovery and was still protected from court sanctions.

Similarly, in Viramontes v. U.S. Bancorp (N.D.Ill. Jan. 27, 2011), the defendant bank relied on its data retention protocols to stave off a sanctions motion after deleting several years of email.  Because those emails were destroyed pursuant to a neutral retention policy before a preservation duty attached, the bank was protected from sanctions under the Federal Rule of Civil Procedure 37(e) safe harbor for the destruction of electronic information.

The converse, of course, is also true.  Those organizations that failed to implement effective retention policies have fared poorly in discovery because they have not preserved relevant ESI.  Take the defendant, for instance, in Northington v. H & M International (N.D.Ill. Jan. 12, 2011).  The court issued an adverse inference jury instruction against that company because it spoliated significant emails and other data.  The genesis of this spoliation was the company’s failure to establish a formal document retention policy.  Instead of having a thoughtful, top-down approach, “data retention . . . was evidently handled on an ad hoc, case-by-case basis.”  The company’s failure to develop a pre-litigation information retention policy eventually led to the loss of key information and the court’s sanctions award.

These recent cases and others confirm the correlation between retention and preservation.  Simply put, proactive retention leads to better preservation in eDiscovery.  Anything less could be disastrous in litigation.

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

Some may react incredulously to these results. For instance, noted eDiscovery expert Ralph Losey continues to stress the paramount importance of email: “In the world of employment litigation it is all about email and attachments and other informal communications. That is not to say databases aren’t also sometimes important. They can be, especially in class actions. But, the focus of eDiscovery remains squarely on email.”   While it’s hard to argue with Ralph, the real takeaway should be less about the relative descent of email’s importance, and more about the ascendency of other data types (including social media), which now have an unquestioned seat at the table.

The primary ramification is that organizations need to prepare for eDiscovery and governmental inquires by casting a wider ESI net, including social media, cloud data, instant messaging and structured data systems.  Forward-thinking companies should map out where all ESI resides company-wide so that these important sources do not go unrecognized.  Once these sources of potentially responsive ESI are accounted for, the right eDiscovery tools need to be deployed so that these disparate types of ESI can be defensibly collected and processed for review in a singular, efficient and auditable environment.

The survey also found that companies which employ best practices such as implementing information retention plans, automating the enforcement of legal holds and leveraging archiving tools instead of relying on backups, fare dramatically better when it comes to responding to eDiscovery requests. Companies in the survey with good information governance hygiene were:

• 81% more likely to have a formal retention plan in place
• 63% more likely to automate legal holds
• 50% more likely to use a formal archiving tool

These top-tier companies in the survey were able to respond much faster and more successfully to an eDiscovery request, often suffering fewer negative consequences:

• 78% less likely to be sanctioned
• 47% less likely to lead to a compromised legal position
• 45% less likely to disclose too much information

This last bullet (disclosing too much information) has a number of negative ramifications beyond just giving the opposition more ammo than is strictly necessary.  Since much of the eDiscovery process is volume-based, particularly the eyes-on review component, every extra gigabyte of produced information costs the organization in both seen and unseen ways.  Some have estimated that it costs between $3-5 a document for manual attorney review – and at 50,000 pages to a gigabyte, these data-related expenses can really add up quickly.

On the other side of the coin, there were those companies with bad information governance hygiene.  While this isn’t terribly surprising, it is shocking to see how many entities fail to connect the dots between information governance and risk reduction.  Despite the numerous risks, the survey found nearly half of the respondents did not have an information retention plan in place, and of this group, only 30% were discussing how to do so.  Most shockingly, 14% appear to be ostriches with their heads in the sand and have no plans to implement any retention plan whatsoever.  When asked why folks weren’t taking action, respondents indicated lack of need (41%), too costly (38%), nobody has been chartered with that responsibility (27%), don’t have time (26%) and lack of expertise (21%) as top reasons.  While I get the cost issue, particularly in these tough economic times, it’s bewildering to think that so many companies feel immune from the requirements of having even a basic retention plan.

As the saying goes, “You don’t need to be a weatherman to tell which way the wind blows.”  And, the winds of change are upon us.  Treating eDiscovery as a repeatable business process isn’t a Herculean task, but it is one that cannot be accomplished without good information governance hygiene and the profound recognition that email isn’t the only game in town.

For more information regarding good records management hygiene, check out this informative video blog and Contoural article.

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.

One of the more surprising aspects of the recession (at least to me) is the immediate and dramatic impact it has had on litigation support service providers. On one side of the coin, you have large players like SPi, which in 2007 was Attenex’s largest reseller, exiting the business altogether, and several other service providers in obvious difficulty. On the other side, I see a handful of service providers gaining share and attracting new investors. In the past month alone, I have spoken to a handful of investor groups who are either investing or looking to invest in litigation support service providers.

From what I can tell, there seem to be 3 factors that are causing problems for the industry:

1. The credit crunch:

Many service providers rely on “lines of credit” to fund day-to-day operations, meaning they pay their bills by taking debt secured against receivables and other assets. But in the last few months, that’s become much harder to do. Nowadays, banks do not want to give lines of credit to anyone, even if you pay them a higher interest rate. All the banks care about is reducing risk and strengthening their own balance sheets. So it has become harder for service providers to finance their businesses in this way.

2. Paper business is shrinking:

Many service providers started life as copy/scanning operations before expanding to include electronic information, and some still rely on the paper business as a steady source of cash. I have been told by several people in the business that demand for paper-services has fallen dramatically in the past few months. Their stories reminded me of what’s happening in the newspaper business: everyone knows that newspaper and magazine subscriptions are decreasing over time, but it’s happening much faster than anyone thought it would. As a result, it seems that service providers are getting less cash from the paper business than they expected – right at the time when banks are least interested in letting them borrow more to make up the difference.

3. Electronic data discovery is growing more competitive:

In the early days of electronic discovery, companies had little choice but to send out their data to the handful of service providers who had the processing, review and hosting facilities to manage it. Today, data volumes are much larger, making it a bigger market, but there are also lot more options: companies can use software to manage electronic discovery in-house; they can send it to a law firm, many of whom now have internal litigation support teams; or they can choose between larger numbers of service providers offering a much wider array of services.

Given these challenges, how is it that some service providers are able to grow and gain share, while others stumble? From my discussions with many firms – some doing well, others not – I see several common steps that the strongest players are taking to adapt to today’s harsher economic climate. These steps include:

• Strengthen the balance sheet, by raising money from equity investors and/or restructuring debt obligations. This provides more operating flexibility and reduces the risk of tripping over bank covenants.

• Sell or shutter the paper business. Just like making CDs is a distraction to the music business, paper is takes time and energy away from electronic discovery. Shutting down paper operations frees bandwidth and resources to concentrate on the growth part of the business.

• Innovate in service offerings. It is not enough to offer processing, review and hosting like everyone else. The best service providers have become trusted advisors by bringing their clients compelling new services, like for example early case analysis.

• Focus, focus, focus. In a big, competitive industry like litigation support, service providers have to find their niche. This can be a specific geography or an industry. But for the larger, national players it is typically a handful of key services which they get everyone (sales, marketing, project management, etc.) lined up behind selling and delivering.

Compared to many sectors of the economy (e.g., retail, travel, luxury goods), the litigation support services industry is well-positioned to grow through the downturn. But there’s no doubt things have changed, and many of the strategies appropriate in 2007 no longer apply in 2009.