e-discovery 2.0

One of the clear eDiscovery trends that has taken root during the past year is defensible deletion. Indeed, there are any number of news stories reporting that more organizations are taking steps to eliminate electronically stored information (ESI) that has little to any business value. This is further confirmed by industry surveys whose empirical data suggests that a tipping point has been reached on the issue of defensible deletion. For example, in a recent survey conducted by the eDJ Group, over 96% of the respondents recognized that “defensible deletion of information is necessary in order to manage growing volumes of digital information.” The report accompanying the eDJ Group survey succinctly summarized the new-found urgency surrounding defensible deletion: “Deletion isn’t just a nice corporate “housekeeping” idea; it is now a necessity…”

Nevertheless, many organizations remain on the defensible deletion sidelines. While they see the potential value in getting rid of useless ESI, they are often hesitant to do so for a variety of reasons. As described in a recent Inside Counsel webinar, those reasons include any or some combination of the following:

1. The Lack of an Organized Process
2. Ineffective Technology
3. Budget Constraints
4. Fear of Repercussions Stemming from Data Destruction

While these reasons are understandable given the challenges associated with developing a defensible deletion strategy, they can be addressed with an effective information governance plan.

This fact was recently spotlighted by United States Magistrate Judge Paul Grewal, Anne Kershaw, Founder and Principal of A.Kershaw, PC // Attorneys & Consultants, and Eric Lieber, the Director of Legal Technology at Toyota Motor Sales, at the Legal Tech conference in New York. What is most evident and important from the various video excerpts of their discussion is the panelists’ general agreement that the judiciary has recognized that companies may destroy ESI in many instances without adverse consequences. That the judiciary is leaving the door open for organizations to defensibly delete ESI in a reasonable fashion belies the myth that all data must be kept forever. This is consistent with other industry voices, which have observed that the risk of eDiscovery sanctions is dropping. And as the panelists confirmed, this risk could decrease even further if the proposed amendments to Federal Rule of Civil Procedure 37(e) are implemented.

With the threat of sanctions reduced, there are now fewer obstacles outside the organization to get in the way of developing an effective information governance plan. Such a plan, which includes an organized process with sufficient budget to engage necessary personnel and acquire effective technologies, is not mission impossible. Instead, companies whose personnel work cooperatively to find a solution that decreases the massive amounts of stored ESI will likely echo the sentiments of John “Hannibal” Smith from the 1980s television series the A-Team: “I love it when a plan comes together!”

Much of the writing in the eDiscovery community focuses on the consequences of a party failing to adequately accomplish one of the nine boxes of the Electronic Discovery Reference Model. Breaking news posts frequently report on how spoliation and sanctions are typically issued for failure to suspend auto-deletion or to properly circulate a written litigation hold notices. This begs the question, aside from becoming perfectly adept in all nine boxes of the EDRM, how else can an organization protect themselves from discovery wars and sanctions?

One way is explore the possibilities Alternative Dispute Resolution (ADR) has to offer. While there is no substitute for the proper implementation of information governance processes, technology, and the people who manage them; there are alternative and creative ways to minimize exposure. This is not to say that ESI is less discoverable in ADR, but it is to say with the proper agreements in place, the way ESI is handled in the event of a dispute can be addressed proactively.  That is because although parties are free to use the Federal Rules of Civil Procedure in ADR proceedings, they are not constricted by them. In other words, ADR proceedings can provide parties with the flexibility to negotiate and tailor their own discovery rules to address the specific matter and issues at hand.

Arbitration is a practical and preferred way to resolve disputes because it is quick, relatively inexpensive and commonly binding. With enough foresight, parties can preemptively limit the scope of discovery in their agreements to ensure the just and speedy resolution of a matter. Practitioners who are well versed in electronic discovery will be the best positioned to counsel clients in the formation of their agreements upfront, obviating protracted discovery. While a similar type of agreement can be reached and protection can be achieved with the Meet and Confer Conference in civil litigation, ADR offers a more private forum giving the parties more contractual power and less unwanted surprises.

For example, JAMS includes this phrase in one of their model recommendations:

JAMS recognizes that there is significant potential for dealing with time and other limitations on discovery in the arbitration clauses of commercial contracts. An advantage of such drafting is that it is much easier for parties to agree on such limitations before a dispute has arisen. A drawback, however, is the difficulty of rationally providing for how best to arbitrate a dispute that has not yet surfaced. Thus, the use of such clauses may be most productive in circumstances in which parties have a good idea from the outset as to the nature and scope of disputes that might thereafter arise.

Thus, arbitration is an attractive option for symmetrical litigation where the merits of the case are high stakes and neither party wants to delve into a discovery war. A fair amount of early case assessment would be necessary as well, so parties have a full appreciation about what they are agreeing to include or not include in the way of ESI.  Absent a provision to use specific rules (American Arbitration Association or Federal Arbitration Act), the agreement between parties is the determining factor as to how extensive the scope of discovery will be.

In Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985), the U.S. Supreme Court has explained that the “liberal federal policy favoring arbitration agreements’…is at bottom a policy guaranteeing the enforcement of private contractual agreements. As such, assuming an equal bargaining position or, at least an informed judgment, courts will enforce stipulations regarding discovery, given the policy of enforcing arbitration agreements by their terms.” Please also see an excellent explanation of Discovery in Arbitration by Joseph L. Forstadt for more information.

Cooperation amongst litigants in discovery has long been a principle of the revered Sedona Conference. ADR practitioners facing complex discovery questions are looking to Sedona’s Cooperation Proclamation for guidance with an eye toward negotiation by educating themselves on ways to further minimize distractions and costs in discovery.  An example of one such event is at The Center for Negotiation and Dispute Resolution at UC Hastings, where they are conducting a mock Meet and Confer on May 16, 2013. The event highlights the need for all practitioners, whether it be the 26 (f) conference for litigation or the preliminary hearing in the case of arbitration, to assess electronic discovery issues with the same weight they do claims and damages early on in the dispute.

It is also very important that arbitrators, especially given the power they have over a matter, to understand the consequences of their rulings. Discovery is typically under the sole control of the arbitrator in a dispute, and only in very select circumstances can relief be granted by the court. An arbitrator that knows nothing about eDiscovery could miss something material and affect the entire outcome adversely. For parties that have identified and addressed these issues proactively, there is more protection and certainty in arbitration. Typically, the primary focus of an arbitrator is enforcing the contract between parties, not to be an eDiscovery expert.

It is also important to caution against revoking rights to discovery by entering into mutual agreements to unreasonably limit discovery.  This approach is somewhat reminiscent of the days when lawyers would agree not to conduct discovery, because neither knew how. Now, while efficiency and cost savings are a priority, we must guard against a potential similar paradigm emerging as we may know too much about how to shield relevant ESI.

As we look to the future, especially for serial litigants, one can imagine a perfect world in arbitration for predictive coding. In the Federal courts, we have seen over the past two years or so an emergence of the use of predictive coding technologies. However, even when the parties agree, which they don’t always, they still struggle with achieving a meeting of the minds on the protocol. These disputes have at times overshadowed the advantage of using predictive coding because discovery disputes and attorney’s fees have overtaken any savings. In ADR there is a real opportunity for similarly situated parties to agree via contract, upfront on tools, methodologies and scope. Once these contracts are in place, both parties are bound to the same rules and a just and speedy resolution of a matter can take place.

References to the “Sedona Bubble” are overheard more and more commonly at conferences dealing with cutting edge topics like the use of predictive coding technology in eDiscovery. The “Sedona Bubble” refers to a small number of lawyers and judges (most of whom are members of The Sedona Conference) that are fully engaged in discussions about issues that influence the evolution of modern discovery practice. Let’s face it. The fact that only a small percentage of judges and lawyers drive important eDiscovery policy decisions is more than just a belief, it is reality.

This reality stems largely from the fact that litigators are a busy lot. So busy in fact, that they are often forced to operate reactively instead of proactively because putting out unexpected fires comes with the territory in litigation practice. As a result, the Sedona Bubble has a tremendous impact on cutting edge eDiscovery issues that include topics spanning everything from cross-border litigation and cloud computing, to social media and bring your own device to work (BYOD) issues. Recognizing the heavy time demands facing most litigators is what compelled me to provide more insight into the Sedona Bubble. That is why I am sharing my top three observations about the current state of predictive coding – one of the hottest eDiscovery topics on the planet.

#1 – Plenty of confusion about TAR still exists

Technology-assisted review (TAR) is a term that often means different things to different people. Adding further confusion to the discussion is the fact that the acronym TAR is commonly used interchangeably with other terms like computer-assisted review (CAR) and predictive coding. Many believe confusion about TAR is largely the result of misinformation spread by eDiscovery providers eager to capitalize on current marketplace momentum. Regardless of the reason, many in the industry remain confused about the key differences between predictive coding and other kinds of TAR tools.

What is important to remember is that most people are referring to predictive coding technology when they use any of the aforementioned terms. Predictive coding is a type of supervised machine learning technology that relies on human input to “train” a computer to classify documents. That does not mean attorneys are abdicating their responsibility to review and classify documents during discovery. t means that attorneys can review a fraction of the documents at a fraction of the cost by training the computer system.

In recent months, more litigators and judges are beginning to understand that there are many kinds of TAR tools to choose from in the litigator’s toolbelt.™ Predictive coding is one of the tools that falls underneath the broader TAR umbrella and is arguably the most important tool in the toolbelt™ if used properly. All the tools can be helpful, however, TAR tools such as keyword searching, concept searching, clustering, email threading, and de-duplication are not supervised machine learning tools and therefore are not predictive coding tools. The rule of thumb for those being courted by predictive coding is caveat emptor.  Make sure the providers clarify what they mean when they use terms like TAR, CAR, or predictive coding.

#2 – Momentum is building

In 2013, more and more attorneys and judges are dipping their toes into predictive coding waters – waters that were largely perceived as too frigid to enter only last year. One explanation for the increased usage of predictive coding technologies is the corresponding increase in judicial guidance. In the beginning of 2012, there were no known cases addressing the use of predictive coding technology. Since then, at least six different judges have addressed the use of predictive coding technology. (Moore v. Publicis Group; Kleen Products v. Packaging Corporation of America; Global Aerospace v. Landow Aviation; In re: Actos Product Liability Litigation; EOHRB v. HOA Holdings; Gabriel Technologies v. Qualcomm). Taken as whole, the court decisions are either supportive of the technology or remain neutral on the issue. In fact, an order in a new case named In Re Biomet was reported only a few days ago and continues the general trend toward judicial awareness and support of the technology.

In addition to the growing number of judicial opinions, conference attendees are sharing experiences related to the use of these technologies far more than was the case at conferences in 2012. This data point suggests that usage far exceeds the number of reported predictive coding cases. Further evidence of this momentum, and possibly even greater momentum to come, are discussions about adding comments to the proposed FRCP amendments that would encourage the use of predictive coding technology. Newly proposed amendments to the Federal Rules of Civil Procedure are expected to be published for comment in August, and predictive coding will almost certainly be part of the discussion.

#3 – Skeptics remain

Despite a significant uptick in predictive coding usage since early 2012, the technology is not without skeptics. Those less bullish cite concerns about the multitude of new predictive coding offerings that have recently come onto the market. Most realize that all predictive coding technologies are not created equally and the vast majority of tools on the market lack transparency. A key concern on this front is the lack of visibility into the underlying statistical methodology that many tools and their providers apply. Since statistics are the backbone of a viable predictive coding process, a lack of transparency into statistical methodologies by most providers has left some to perceive all predictive coding tools as “black boxes.” In reality, different tools provide different levels of transparency, but a general lack of transparency in the industry has perpetuated a “throw the baby out with the bathwater” mentality in some circles. Rumblings about the applicability of Daubert and/or Rule 702 in vetting these tools and the methodologies they rely upon are likely to gain steam.

The issue of transparency is also a common area of debate in the context of an issue known as the “discard pile.” The discard pile generally refers to documents classified as non-responsive that are used to train the predictive coding solution. The protocol established in Da Silva Moore and other cases requires the producing party to reveal the discard pile to the propounding party as part of the predictive coding training process. Proponents argue that this additional level of cooperation invites scrutiny by both parties that will help insure that training documents are properly classified. The rationale in support of this approach is that predictive coding tools are garbage-in garbage-out devices so improperly classifying training documents will lead to erroneous downstream results. The pushback by producing parties varies, but one common theme is predominant and can be summarized as follows: “I will share my non-responsive documents to the other side when they are pried from my cold, dead fingers.”

Conclusion

Although some barriers to widespread predictive coding adoption remain, it is clear that the future of predictive coding is now. Eventually best practices for using these technologies will rise to the surface and the tools themselves will improve. For example, most tools today require complex statistical calculations to be made manually. That means hiring consultants and/or statisticians to crunch the numbers in order to ensure a defensible process which increases costs. The tools themselves can also be costly because most providers charge a premium to use predictive coding solutions. However, price pressure is already afoot and some providers offer their predictive coding technology at no additional cost. In short, despite some early challenges, most of those within the Sedona Bubble believe predictive coding is here to stay.   

One of the great questions that the legal profession and the eDiscovery cognoscenti are grappling with is how to best address the unreasonable costs and burdens associated with the discovery process. This is not a new phenomenon. While accentuated by the information explosion, the courts and rules makers have been struggling for years with a solution to this perpetual dilemma.

Proportionality As The Solution

Over the past three decades, the answer to this persistent problem has generally focused on emphasizing proportionality standards. Proportionality – requiring that the benefits of discovery be commensurate with the corresponding burdens – has the potential to be a game-changing concept. If proportionality standards are followed by counsel, clients and the courts, there is a strong possibility that discovery costs and burdens could be made more reasonable. That is perhaps why various courts (at the circuit, district and state levels) throughout the U.S. have implemented rules to highlight proportionality as the touchstone of discovery practice.

These issues were recently spotlighted by United States Magistrate Judge Frank Maas, Lockheed Martin Associate General Counsel Shawn Cheadle and Milberg partner Ariana Tadler at the LegalTech conference in New York City. What is most evident and important from the various video excerpts of their discussion is the panelists’ general agreement that proportionality standards – if followed – can keep a lawsuit from veering off the eDiscovery cliff. These experts, who represent vastly different and conflicting constituencies, emphasized how proportionality and the related concepts of reasonableness and cooperation can lead to quicker and ostensibly cheaper results in litigation.  As Judge Maas makes clear, however, that will only happen with a “change in paradigm and a change in thinking on both sides” of a lawsuit.

Failing The Proportionality Test

Unfortunately, far too many litigants often still neglect to follow basic proportionality standards. This troubling trend is confirmed by various court opinions that are seemingly issued every month in which discovery costs and burdens are increased due to litigants’ failures to engage in proportional discovery. The failure to engage in proportional discovery follows a familiar pattern. Overly broad discovery requests are typically met with general objections and evasive responses that unreasonably limit the scope of responsive information. Such requests and responses generally run contrary to the spirit of proportionality.

The “bible” on proportionality law, Mancia v. Mayflower Textile Services Co., provides that discovery requests and their corresponding responses must be reasonable and proportional. To achieve such an objective, the Mancia court urged counsel and clients to “stop and think” about their discovery conduct as mandated by Federal Rule 26(g):

The clear lesson from this example is the negative impact that discovery conduct can have on a case. Instead of engaging in a proportional approach in which the parties cooperatively hammer out (with court assistance, if necessary) the parameters and limitations of discovery, parties frequently adopt a unilateral, “take no prisoners” strategy. Such an approach generally affects the cost and pace of litigation. Instead of addressing the merits of a dispute through dispositive motion practice, the parties and the court are often thrown into distracting and costly collateral eDiscovery litigation. And as the LegalTech panelists made clear, the resulting situation benefits nobody.

Falling Off The Cliff?

The current discovery paradigm is particularly troubling given that many sophisticated litigants who are incentivized to engage in proportional discovery may not be doing so. If that is the case, how can courts realistically expect other less educated parties to do otherwise?

To deter such discovery conduct, courts may need to embark on a proportionality education campaign. However, any such efforts will likely need to include a promise to address noncompliance with sanctions under Federal Rule 26(g). As the courts have made clear, many counsel and clients will likely engage in proportional discovery only under the threat of some real consequence.

To better address these issues, the federal Civil Advisory Committee is now considering multiple amendments to the Federal Rules of Civil Procedure that would better emphasize proportionality standards. In a recent post, we discussed one such proposal, which would change Rule 37(e) to ensure that courts consider the role of proportionality in connection with parties’ preservation efforts. Another would modify Federal Rule 26(b)(1) to spotlight the limitations of proportionality on the permissible scope of discovery. Though still far from final, these proposed rule amendments could ultimately advance the objective of reducing the costs and burdens of discovery. Such efforts may very well be necessary if we are to keep the discovery process from falling off the cliff.

At eDiscovery 2.0, we have consistently followed the reports that Gibson Dunn has released on the state of eDiscovery. This is for good reason given its reputation as an excellent source of information on the trends affecting individual organizations and the industry as a whole.

The recently released 2012 annual report is no different, except that the overall tone is more positive. Instead of spotlighting the continuing problem of sanctions, the report showcases predictive coding and rules reform as the key eDiscovery trends leading into 2013. Describing these trends as being potential game-changers, the report also notes that “many questions remain” and warns that the impact of these trends may affect organizations in unanticipated and perhaps troubling ways.

Predictive Coding

In its report, Gibson Dunn happily indicates that unlike previous years, predictive coding technology appears to be ready for prime time. With several decisions from 2012 expressly or tacitly approving the use of predictive coding, the report speculates that many organizations and their counsel could become adopters of the technology. As the technology becomes more widespread and additional court decisions provide judicial imprimatur to the technology, the prospects increase that predictive coding could “drastically alter the way in which documents are reviewed for production.”

Nevertheless, challenges remain before this gradually increasing trend becomes a fully blown industry norm. While the promise of predictive coding is in its potential for rapid and cost effective document review, the report questions whether the technology will live up to that hype. Indeed, Gibson Dunn asks whether predictive coding is like any other review tool: “is it merely the latest review technology that, while useful, neither obtains widespread adoption nor revolutionizes the landscape?” Such questions are particularly legitimate given the substantial costs associated with most of the reported predictive coding cases. Indeed, the recent case of Gabriel Technologies v. Qualcomm exemplifies this predictive coding cost paradox.

Rules Changes

Another positive industry development that is fraught with questions concerns potential changes to the Federal Rules of Civil Procedure. As the report indicates, the federal Civil Rules Advisory Committee has made significant progress on a proposed draft amendment to Rule 37(e). Designed to broaden the existing protection against sanctions, the proposal would theoretically safeguard an organization’s pre-litigation destruction of information from sanctions in most circumstances. The lone exceptions would include destruction that was “willful or in bad faith and caused substantial prejudice in the litigation” or that “irreparably deprived a party of any meaningful opportunity to present a claim or defense.” While such a rule undoubtedly could reduce the costs and risks associated with ESI preservation, ambiguities in the draft language, together with statements in the draft advisory committee note, could ultimately water down the proposal’s intended protections.

Another encouraging rule change being considered by rules-makers includes an effort to better emphasize proportionality limitations on the Rule 26(b)(1) permissible scope of discovery. While characterized by the report as an “underused” though “increasingly important” doctrine, a proportionality amendment to Rule 26(b)(1) could do much to bring the problematic costs and delays of eDiscovery under control.

The report also sounded a note of caution on the proportionality front. Referring to the Sedona Conference’s recently updated Commentary on Proportionality in Electronic Discovery, the report observes that technology will be a key aspect in any proportionality analysis. With that background, Gibson Dunn cautions against misusing the efficiencies of cutting edge eDiscovery technologies to increase the scope of production under the guise that such discovery will comport with proportionality principles:

Other Industry Trends

Gibson Dunn spotlighted several other key trends from 2012 in its 33-page report. Among them were developments in cross-border eDiscovery, the increasing importance of foreign data protection laws, congressional attempts to bolster domestic privacy regulations, the correlation between ESI preservation and courts sanctions, and discovery of information found on social networking sites. These and other industry trends confirm that “progress is being made in addressing e-discovery’s challenges[,] [t]he dense fog that often seems to surround e-discovery appears to have lifted somewhat, and the collective anxiety lowered a little.”

Despite such sanguine observations, risks remain for organizations and their lawyers. The report concludes by raising the specter of sanctions, which will likely continue to be an unpredictable hobgoblin unless meaningful rules reform takes place. Until that time, clients and counsel alike should be proactive in adopting industry best practices to better ensure compliance with existing rules and jurisprudence.

A federal judge for the Southern District of California rang in the month of February by ordering plaintiffs in a patent related case to pay a whopping $12 million in attorney fees. The award included more than $2.8 million in “computer assisted” review fees and to add insult to injury, the judge tacked on an additional $64,316.50 in Rule 11 sanctions against defendants’ local counsel. Plaintiffs filed a notice of appeal on February 13^th, but regardless of the final outcome, the case is chock-full of important lessons about patent litigation, eDiscovery and the use of predictive coding technology.

The Lawsuit

In Gabriel Technologies Corp. v. Qualcomm Inc., plaintiffs filed a lawsuit seeking over $1 billion in damages. Among its eleven causes of action were claims for patent infringement and misappropriation of trade secrets.  The Court eventually dismissed or granted summary judgment in defendants’ favor as to all of plaintiffs’ claims making defendants the prevailing party and prompting Defendants’ subsequent request for attorneys’ fees.

In response to defendants’ motion for attorney fees, U. S. District Judge Anthony J. Battaglia relied on plaintiffs’ repeated email references to “the utter lack of a case” and their inability to identify the alleged patent inventors to support his finding that their claims were brought in “subjective bad faith” and were “objectively baseless.” Given these findings, Judge Battaglia determined that an award of attorney fees was warranted.

The Attorney Fees Award

The judge then turned to the issue of whether or not defendants’ fee request for $13,465,331.01 was reasonable. He began by considering how defendants itemized their fees which were broken down as follows:

• $10,244,053 for its outside counsel Cooley LLP (“Cooley”);
• $391,928.91 for document review performed by Black Letter Discovery, Inc. (“Black Letter”); and
• $2,829,349.10 for a document review algorithm generated by outside vendor H5.

The court also considered defendants’ request that plaintiffs’ local counsel be held jointly and severally liable for the entire fee award based on the premise that local counsel is required to certify that all pleadings are legally tenable and “well-grounded in fact” under Federal Rule of Civil Procedure 11.

Following a brief analysis, Judge Battaglia found the overall request “reasonable,” but reduced the fee award by $1 million. In lieu of holding local counsel jointly liable, the court chose to sanction local counsel in the amount of $64,316.50 (identical to the amount of local counsel’s fees) for failing to “undertake a reasonable investigation into the merits of the case.”

Three Lessons Learned

The case is important on many fronts. First, the decision makes clear that filing baseless patent claims can lead to financial consequences more severe than many lawyers might expect. If reviewed and upheld on appeal, counsel in the Ninth Circuit accustomed to fending off unsubstantiated patent or misappropriation claims will be armed with an important new tool to ward off would-be patent trolls.

Second, Judge Battaglia’s decision to order Rule 11 sanctions should serve as a wake-up call for local counsel. The ruling reinforces the fact that merely rubber-stamping filings and passively monitoring cases is a risky proposition. Gabriel Technologies illustrates the importance of properly monitoring lead counsel and the consequences of not complying with the mandate of Rule 11 whether serving as lead or local counsel.

The final lesson relates to curbing the costs of eDiscovery and the importance of understanding tools like predictive coding technology. The court left the barn door wide open for plaintiffs to attack defendants’ predictive coding and other fees as “unreasonable,” but plaintiffs didn’t bite. In evaluating H5’s costs, the court determined that Cooley’s review fees were reasonable because Cooley used H5’s “computer-assisted” review services to apparently cull down 12 million documents to a more reasonable number of documents prior to manual review. Although one would expect this approach to be less expensive than paying attorneys to review all 12 million documents, $2,829,349.10 is still an extremely high price to pay for technology that is expected to help cut traditional document review costs by as much as 90 percent.

Plaintiffs were well-positioned to argue that predictive coding technology should be far less expensive because the technology allows a fraction of documents to be reviewed at a fraction of the cost compared to traditional manual review. These savings are possible because a computer is used to evaluate how human reviewers categorize a small subset of documents in order to construct and apply an algorithm that ranks the remaining documents by degree of responsiveness automatically. There are many tools on the market that vary drastically in quality and price, but a price tag approaching $3 million is extravagant and should certainly raise a few eyebrows in today’s predictive coding market. Whether or not plaintiffs missed an opportunity to challenge the reasonableness of defendants’ document review approach may never be known. Stay tuned to see if these and other arguments surface on appeal.

You have heard this one before. Changes to the Federal Rules are in the works that could alleviate the eDiscovery burdens of organizations. Greeting this news with skepticism would probably be justified. After all, many feel that the last set of amendments failed to meet the hype of streamlining the discovery process to make litigation costs more reasonable. Others, while not declaring the revised Rules a failure, nonetheless believe that the amendments have been doomed by the lack of adherence among counsel and the courts. Regardless of the differing perspectives, there seems to be agreement on both sides that the Rules have spawned more collateral disputes than ever before about the preservation and collection of ESI.

What is different this time is that the latest set of proposed amendments could offer a genuine opportunity for organizations to slash the costs of document preservation and collection. Chief among these changes would be a revised Rule 37(e). The current iteration of this rule is designed to protect companies from court sanctions when the programmed operation of their computer systems automatically destroys ESI. Nevertheless, the rule has largely proved ineffective as a national standard because it did not apply to pre-litigation information destruction activities. As a result, courts often bypassed the rule’s protections to punish companies who negligently, though not nefariously, destroyed documents before a lawsuit was filed.

The current proposal to amend Rule 37(e) (see page 127) would substantially broaden the existing protection against sanctions. The proposal would shield an organization’s pre-litigation destruction of information from sanctions except where that destruction was “willful or in bad faith and caused substantial prejudice in the litigation” or “irreparably deprived a party of any meaningful opportunity to present a claim or defense.”

In making a determination on this issue, courts would be forced to examine the enterprise’s information retention protocols through more than just the lens of litigation. Instead, they would have to consider the nature and motives behind a company’s decision-making process. Such factors include:

•  The extent to which the party was on notice that litigation was likely
• The reasonableness and proportionality of the party’s efforts to preserve the information
• The nature and scope of any request received to preserve information
• Whether the party sought timely judicial guidance regarding any preservation disputes

By seeking to punish only nefarious conduct and by ensuring that the analysis includes a broad range of considerations, organizations could finally have a fighting chance to reduce the costs and risks of preservation.

Despite the promise this proposal holds, there is concern among some of the eDiscovery cognoscenti that provisions in the draft proposal to amend Rule 37(e) could water down its intended protections. Robert Owen, a partner at Sutherland Asbill & Brennan LLP and a leading eDiscovery thought leader, has recently authored an insightful articlethat spotlights some of these issues. Among other things, Owen points out that the “irreparably deprived” provision could end up diluting the “bad faith” standard. This could ultimately provide activist jurists with an opportunity to re-introduce a negligence standard through the backdoor, which would be a troubling development for clients, counsel and the courts.

These issues and others confirm the difficulty of establishing national standards to address the factual complexities of many eDiscovery issues. They also point to the difficult path that the Civil Rules Advisory Committee still must travel before a draft of Rule 37(e) can be finalized for public comment. Even assuming that stage can be reached after the next rules committee meeting in April 2013, additional changes could still be forthcoming to address the concerns of other constituencies. Stay tuned; the debate over revisions to Rule 37(e) and its impact on organizations’ defensible deletion efforts is far from over.

The following is my Q&A with Laura Zubulake, Author of Zubulake’s e-Discovery: The Untold Story of my Quest for Justice.

Q: Given your case began in 2003, and the state of information governance today, do you believe that adoption to has been too slow? Do you think organizations in 2013, ten years later, have come far enough in managing their information?

A: From a technology standpoint, the advancements have been significant. The IT industry has come a long way with regard to the tools available to conduct eDiscovery. Alternatively, surveys indicate a significant percentage of organizations do not prioritize information management and have not established eDiscovery policies and procedures. This is disappointing. The fact that organizations apparently do not understand the value of proactively managing information only puts them at a competitive disadvantage and at increased risk.

 Q: Gartner predicts that the market will be $2.9 billion by 2017. Given this prediction, don’t you think eDiscovery is basically going to be absorbed as a business process and not something so distinct as to require outside 3rd party help? 

A: First, as a former financial executive those predictions, if realized, are reasonably attractive. Any business that can generate double-digit revenue growth until 2017, in this economy and interest rate environment, is worthy of note (assuming costs are controlled). Second, here I would like to distinguish between information governance and eDiscovery. I view eDiscovery as a subset of a broader information governance effort. My case while renowned for eDiscovery, at its essence, was about information. I insisted on searching for electronic documents because I understood the value and purpose of information. I could not make strategic decisions without, what I refer to as, “full” information. The Zubulake opinions were a result of my desire for information, not the other way around. I believe corporations will increasingly recognize the need to proactively manage information for business, cost, legal, and risk purposes. As such, I think information governance will become more of a business process, just like any management, operational, product, and finance process.

With regard to eDiscovery, I think there will continue to be a market for outside third-party assistance. eDiscovery requires specific skills and technologies. Companies lacking financial resources and expertise, and requiring assistance to address the volume of data will likely deem it economical to outsource eDiscovery efforts. As with any industry, eDiscovery will evolve.  The sector has grown quickly. There will be consolidation. Eventually, the fittest will survive.

Q: What do you think about the proposed changes to the FRCP regarding preservation? 

A: As a former plaintiff (non-attorney), eDiscovery was (to me) about preservation. Very simply, documents could not be collected, reviewed, and produced if they had not been preserved. Any effort to clarify preservation rules would benefit all parties—uncertainty created challenges. Of course, there needs to be a balance between overwhelming corporations with legal requirements and costs versus protecting a party’s rights to evidence. Apparently, the current proposals do not specifically pertain to preservation. They concern the scope of discovery and proportionality and thus indirectly address the issue of preservation. While this would be helpful, it is not ideal. Scope is, in part, a function of relevance – a frequently debated concept. What was relevant to me might not have been relevant to others. Regarding proportionality, my concern is perspective.  Too often I find discussions about proportionality, stem from the defendant’s perspective. Rarely, do I hear the viewpoint of the plaintiff represented. Although not all plaintiffs are individuals, often the plaintiff is the relatively under-resourced party. Deciding whether the burden of proposed discovery outweighs its likely benefits is not a science. As I wrote in my book:

Imagine if the Court were to have agreed with [the Defendant’s] argument and determined the burden of expense of the proposed discovery in my case outweighed its likely benefit. Not only would the Zubulake opinions not have come to fruition, but also I would have been denied my opportunity to prove my claims. 

Q: Lastly, what other trends are you see in in the area of eDiscovery and what predictions do you have for the market in 2013? 

A: eDiscovery Morphs. Organizations will realize that eDiscovery should be part of a broader information governance effort. Information governance will become a division within a corporation with separate accountable management from which operations, legal, IT, and HR professionals can source and utilize information to achieve goals. Financial markets will increasingly reward companies (with higher multiples) who proactively manage information.

Reorganization. Organizations will recognize while information is their most valuable asset it is fearless— crossing functions, divisions, borders and not caring if it overwhelms an entity with volume, costs, and risks. Organizational structures will need to adapt and accommodate the ubiquitous nature of information. A systems thinking framework (understanding how processes influence one another within a whole) will increasingly replace a business silo structure. Information and communication managed proactively and globally, will improve efficiency, enhance profitability, reduces costs, increase compliance, and mitigate risks.

Search. Algorithms become an accepted search tool. Although keyword, concept, cluster, etc. searches will still play a role. For years, law enforcement, government, and Wall Street have used algorithms—the concept is not new and not without peril (significant market corrections were the result of algorithms gone wrong). Parties confronted with volumes of data and limited resources will have no choice but to agree to computer assistance. However, negative perceptions and concerns about algorithms will only change when there is a case where the parties initiate and voluntarily agree to their use.

Education. Within information governance efforts, organizations will increasingly establish training for employees. Employees need to be educated about the origination, maintenance, use, disposal, risks, rules, and regulations associated with ESI. A goal should be to lessen the growth of data and encourage smart and efficient communications. Education is a cost-control and risk-mitigating effort.

BYOD Reconsidered. Thinking a BYOD to work policy is cost-effective will be questioned and should be evaluated on a risk-adjusted basis. When companies analyze the costs (cash outlay) of providing employees with devices versus the unquantifiable costs associated with the lack of control, disorganization, and increased risks – it will become clear BYOD has the potential to be very expensive.

Government Focus. I had the privilege of addressing the Dept. of Justice’s Civil E-Discovery training program. It was evident to me that eDiscovery is one of the department’s focuses. With recent headlines concerning emails uncovering evidence (e.g. Fast and Furious), government entities (state and federal) will increasingly adopt rules, procedures, and training to address ESI. This brings me back to your first question—have organizations come far enough in managing their information? Government efforts to focus on eDiscovery will incentivize more corporations to (finally) address eDiscovery and information governance challenges.

Stay tuned for more breaking news coverage with industry luminaries.

In a recent Inside Counsel article, we explored the eDiscovery climate in China and some of the most important differences between the Chinese and U.S. legal systems. There is an increased interest in China and the legal considerations surrounding doing business with Chinese organizations, which we also covered on this Inside Counsel webcast.

 Five highlights from this series include:

1.  Conflicting Corporate Cultures- In general, business in China is done in a way that relies heavily on relationships. This can easily cause a conflict of interest for organizations and put them at risk for violations under the FCPA and UK Bribery Act. The concept that “relationships are gold” or Guanxi is crucial to conducting successful business in China. However, a fine line exists for organizations, necessitating a need for strong local counsel and guidance. Moreover, Chinese businesses don’t share the same definitions the Western world does for concepts like: information governance, legal hold or privacy.

 2.   FCPA and the UK Bribery Act- Both of these regulations are very troublesome for those doing business in China, yet necessary for regulating white-collar crime. In order to do business in China one must walk a fine line developing close relationships, without going too far and participating in bribery or other illegal acts. There are increased levels of prosecution under both of these statutes as businesses globalize.

3.  Drastically Different Legal Systems- The Chinese legal system is very different than those of common law jurisdictions. China’s legal system is based on civil law and there is no requirement for formal pre-litigation discovery. For this reason, litigants may find it very difficult to successfully procure discovery from Chinese parties. Chinese companies have been historically slow to cooperate with U.S. regulatory bodies and many discovery requests in civil litigation can take up to a year for a response. A copy of our eDiscovery passport on China can be found here, along with other important countries.

4.  State Secrets- In addition to the differences between common and civil law jurisdictions, China has strict laws protecting state secrets. Anything deemed a state secret would not be discoverable, and an attempt to remove state secrets from China could result in criminal prosecution. The definition of a state secret under People’s Republic of China law includes a wide range of information and is more ambiguous than Western definitions about national security (for example, the Chinese definitions are less defined than those in the U.S. Patriot Act). Politically sensitive data is susceptible to the government’s scrutiny and protection, regardless of whether it is possessed by PRC citizens or officials working for foreign corporations- there is no distinction or exception for civil discovery.

5.  Globalization- Finally, it is no secret that the world has become one huge marketplace. The rapid proliferation of information creation as well as the clashing of disparate legal systems creates real discovery challenges. However, there are also abundant opportunities for lawyers that become specialized in the Asia Pacific region today. Lawyers that are particularly adept in eDiscovery and Asia will flourish for years to come.

For more, read here…

The acknowledged power of Continental Europe is Germany. Its steady economy and stable politics offer foreign companies an inviting prospect for investment. And yet, as organizations explore and begin developing business opportunities in Germany, they often become entangled in a web of unfamiliar legal issues. These issues, particularly eDiscovery and data protection laws, can be a costly and time consuming trap for unsuspecting companies. To avoid becoming ensnared by legal minutiae, attorney fees and lost opportunities, companies should consider gaining at least a basic understanding regarding the German eDiscovery and data protection landscape.

Discovery in Germany

By way of introduction, it should be noted that Germany, like most European countries, is a civil code country whose legal traditions are distinct from the common law notions that characterize the United States. According to its legal precepts, civil litigation in Germany is conducted in a vastly different fashion than in the U.S. For example, “discovery,” as it is known in the United States, does not exist in Germany. Interrogatories, categorical document requests and requests for admissions are simply unavailable as discovery devices. Instead, Germany only allows a limited exchange of documents, with the parties typically only disclosing information that supports their claims.

The U.S. Court of Appeals for the Seventh Circuit recently commented on this key distinction when it observed in Heraeus Kulzer v. Biomet that “the German legal system . . . does not authorize discovery in the sense of Rule 26 of the Federal Rules of Civil Procedure.” The court went on to explain that “[a] party to a German lawsuit cannot demand categories of documents from his opponent. All he can demand are documents that he is able to identify specifically—individually, not by category.”

Another key distinction to discovery in Germany is the lack of rules or case law requiring the preservation of ESI or paper documents. This stands in sharp contrast to American jurisprudence, which typically requires organizations to preserve information as soon as they “reasonably anticipate” litigation.

Data Protection in Germany

Another critical, distinguishing characteristic of Germany’s legal traditions are its notions of data protection and individual privacy. Unlike the mostly laissez-faire approach in the U.S. to data protection, Germany has adopted a comprehensive framework to secure personal information from unreasonable government and corporate intrusions. To guard against such intrusions, Germany has strict requirements that govern any “processing” of personal information. In addition, corporate data processing in Germany must satisfy company Works Councils, which represent the interests of employees and protect their privacy rights. Those protections extend to domestic litigation and international data transfers, to which Works Councils and company Data Protection Officers may object.

Another important aspect to German data protection laws are the restrictions they place on transferring personal information across international borders. Companies with offices in Germany must ensure that the country where such data will be transferred has enacted laws that meet EU data protection standards. Transfers of personal data to countries that do not meet those standards are generally forbidden, with substantial fines imposed for non-compliance.

This backdrop of complexity suggests that companies exploring business opportunities in Germany should obtain a better understanding of its discovery and data protection laws. There are various resources that provide straightforward answers to these issues at no cost to the end-user. For example, global legal expert James Daley recently recorded two podcasts that discuss the challenges associated with German discovery and data privacy laws. Think tanks such as The Sedona Conference have also made available materials that provide significant detail on these issues, including its “International Overview of Discovery, Data Privacy, and Disclosure Requirements.”

By obtaining a greater awareness of the legal workings inside Germany, organizations can more capably develop a cooperative, proactive process for how they will address data preservation and production for cross-border litigation. By so doing, organizations can be better prepared to address potential eDiscovery and data protection snares that are inextricably intertwined with globalization.