e-discovery 2.0

The U.S. Court of Appeals for the Federal Circuit dealt Google a devastating blow Monday in connection with Oracle America’s patent and copyright infringement suit against Google involving features of Java and Android. The Federal Circuit affirmed the district court’s order that a key email was not entitled to protection under the attorney-client privilege.

Google had argued that the email was privileged under Upjohn Co. v. United States, asserting that the message reflected discussions about litigation strategy between a company engineer and in-house counsel. While acknowledging that Upjohn would protect such discussions, the court rejected that characterization of the email.  Instead, the court held that the email reflected a tactical discussion about “negotiation strategy” with Google management, not an “infringement or invalidity analysis” with Google counsel.

Getting beyond the core privilege issues, Google might have avoided this dispute had it withheld the eight earlier drafts of the email that it produced to Oracle. As we discussed in our previous post, organizations conducting privilege reviews should consider using robust, next generation eDiscovery technology such as email analytical software, that could have isolated the drafts and potentially removed them from production. Other technological capabilities, such as Near Duplicate Identification, could also have helped identify draft materials and marry them up with finals marked as privileged. As this case shows, in the fast moving era of eDiscovery, having the right technology is essential for maintaining a strategic advantage in litigation.

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.

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

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

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

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

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

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

A famous quote from intellectual George Santayana provides an appropriate backdrop for organizations to better understand why they should deploy technology to strengthen their litigation response effort.  As Santayana explained in The Life of Reason: Reason in Common Sense, “[t]hose who cannot remember the past are condemned to repeat it.”

The “past” can be a powerful playbook in the game of eDiscovery.  Fortunately for organizations, the lessons of eDiscovery history abound.  Indeed, the decisions that courts issue every day across the United States and in other countries provide substantial guidance on what organizations should and should not do to properly prepare for the discovery phase of litigation.

One of the principal lessons that can be gleaned from American court cases in 2011 is that technology can help organizations address the demands of eDiscovery in litigation.  Technology has assumed such a significant role because it facilitates the oversight process that lawyers must engage in to ensure that pertinent documents are preserved for discovery.  This year alone, the failure to exercise that oversight has in many instances culminated in evidence destruction and sanctions.

That message was emphasized this summer by a Virginia based federal court in a hotly contested trade secret dispute.  In E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. July 21, 2011), the court determined that it would issue an adverse inference jury instruction against defendant Kolon Industries as a sanction for its evidence spoliation.  The spoliation at issue occurred when Kolon deleted emails and other records relevant to DuPont’s trade secret claims.  After being apprised of the lawsuit and then receiving multiple litigation hold notices, several Kolon executives and employees met together and identified emails and other documents that should be deleted.  The ensuing destruction was staggering.  Nearly 18,000 files and emails were deleted.  Furthermore, many of these materials went right to the heart of DuPont’s claim that key aspects of its Kevlar© formula were allegedly misappropriated to improve Kolon’s competing product line.

Surprisingly, however, the court did not finger the Kolon employees as the principal culprits for spoliation.  Instead, the court laid the blame on Kolon’s attorneys and executives, reasoning they could have prevented the destruction of information through better oversight.  The hold process was particularly flawed.  The notices were either too limited in their distribution, ineffective since they were prepared in English for Korean-speaking employees, or too late to prevent or otherwise alleviate the spoliation.  Given the logistical challenges of implementing a hold in this instance, perhaps only the automated functions of technology such as archiving software might have strengthened the oversight process and obviated the spoliation that took place.

The lack of attorney oversight also factored into another pertinent sanctions order this year, this time from a federal court in Chicago.  In Northington v. H & M International (N.D.Ill. Jan. 12, 2011), the court issued an adverse inference jury instruction against a company that destroyed relevant emails and other data.  The spoliation occurred in large part because the company neglected to establish a global litigation response effort.  For example, there was no process for issuing or ensuring compliance with a litigation hold.  Nor was counsel engaged in the critical steps of preservation, identification or collection of electronically stored information (ESI).  Into this vacuum stepped rank and file employees – some of whom were accused by the plaintiff of harassment – who were tasked with identifying and collecting discoverable emails from their workstations.  Predictably, key documents were never found and the court had little choice but to promise to inform the jury that the company destroyed evidence.

The problems associated with the lack of oversight in DuPont and Northington are compelling reasons why organizations should consider using technology tools as part of their overall litigation response strategy.  One of the most helpful tools in this regard is archiving software.  Indeed, having the right archiving solution in place might have preserved the spoliated records in these actions.

For example, archiving software can be programmed to prevent employees from deleting emails and other electronically stored information.  By ingesting data into a central repository and leaving copies of the materials on local computers, employees could have access to their archived records.  They would not, however, be able to delete those documents from the software archive.  In addition, a litigation hold could have been placed on archived data to prevent automated retention rules from overwriting information.  Either of these features might have prevented much of the spoliation – and the resulting sanctions – that occurred in both the DuPont and Northington cases.

The automated functions of archiving technology can benefit a company’s litigation response in other ways.  For example, such a tool may limit the amount of potentially relevant information available for follow-on litigation.  Absent a legal hold, retention rules that are programmed into the software will ensure that ESI is expired once it reaches the end of a designated period.  In DuPont, such a feature could arguably have eliminated entire categories of older documents before a duty to preserve those materials ever ripened.  This facet not only has the potential to reduce legal exposure, but also the attendant costs associated with reviewing those documents in litigation.

DuPont, Northington and other cases from the recent past delineate the steps companies can take to address the challenges of eDiscovery.  Organizations do not have to “repeat” past mistakes that victimized clients and counsel alike.  Instead, they can implement the right technology tools as part of a thoughtful, proactive approach to litigation.  By so doing, organizations will avoid Santayana’s judgment by “remembering” the lessons of eDiscovery history.

In my last post I announced that discussions are taking place that could change the way preservation and sanctions issues are handled within the federal court system.  The next round of discussions about possible amendments to the Federal Rules of Civil Procedure (FRCP) is scheduled to take place on September 9th in Dallas, Texas as part of a “mini-conference” led by the Discovery Subcommittee – a committee appointed by the Advisory Committee on Civil Rules.  This post discusses three different rule amendment approaches that attendees have been asked to consider in order to help them prepare for the mini-conference.  A complete list of attendees, preparation materials, and questions the group will consider are included in the Advisory Committee’s June 29, 2011 memorandum to the participants.

The debate about whether or not rule amendments are even required is far from over.  A 452-page document located on the U.S. Courts’ website chronicles many of the meetings, notes, and submissions driving the current discussion.  Page 265 of the document contains a memorandum prepared by the Civil Rules Advisory Committee earlier this year, stating that:

“the Subcommittee has reached no conclusion on whether rule amendments would be a productive way of dealing with preservation/sanctions concerns, much less what amendment proposals would be useful.”

Despite concerns that amending the current rules now would amount to jumping the gun, there is an undeniable desire for more clarity around when the duty to preserve electronically stored information (ESI) is triggered, what must be preserved, and when the duty expires.  This momentum has resulted in the crafting of draft proposals that are likely to help frame the discussion on September 9th. The “proposals” are really draft approaches that have been broken down into three general categories described in the Civil Rules Advisory Committee’s memorandum, titled: “PRESERVATION/SANCTIONS ISSUES” (see page 263).  The Category 1 approach can best be described as providing a higher degree of specificity than the other approaches.  For example, the Category 1 approach provides a fairly detailed explanation of the duty to preserve evidence (Rule 26.1(a)) and details possible triggers (26.1(b)), the scope of the duty to preserve (26.1(c)), and sanctions (Rule 37).  Category 2 proposes a more general preservation rule, while Category 3 only addresses sanctions as a tool for influencing behavior.  The three categories are discussed in more detail below.

Category 1: Specific Rule

This draft includes many different exemplary lists, alternative approaches, and footnotes that highlight the fact that one of the key challenges with drafting a specific rule is trying to foresee all of the challenges that might lie in the road ahead.  For example, the draft rule provides a long list of events that could trigger the duty to preserve evidence, including everything from serving a pleading to taking “any other action” in anticipation of litigation.   The rule also provides a list of information types that are “presumptively excluded” from the preservation duty, such as deleted data on hard drives, temporary internet files, and physically damaged media.

The lists are helpful in that they provide guidance.  However, each list also includes a “catch-all” provision to address scenarios that might not be foreseeable.  The inclusion of catch-all provisions highlights the inherent challenge of providing more clarity and certainty without creating rules that are so inflexible that they are difficult to apply to unforeseen factual scenarios or technological developments.  Some might argue that trying to provide a laundry list of examples will make passage of new rules difficult because each item on the list will stir debate.  Others contend that the lists add little value because the catch-all provisions will still require litigators to pass the sniff test of “reasonableness.”

Despite the inherent challenges related to drafting rules with specificity, most practitioners would likely support the inclusion of lists or examples that provide at least some direction.  What is likely to be far more controversial with respect to Category 1 is the use of alternative language proposing fixed limits around custodians and litigation holds.  For example, one alternative would limit data preservation requirements to a fixed number of custodians and the duty to preserve evidence would similarly expire after a fixed number of years.  Bright line rules like these may be easier to understand, but they also tend to be controversial since they lack the flexibility necessary to fairly address every conceivable situation.

Category 2: General Rule

Like the Category 1 proposal, the Category 2 proposal uses lists and outlines several alternative approaches throughout the rule.  However, the Category 2 proposal fundamentally differs from Category 1 by outlining a more general approach.  For example, one of the alternatives essentially states that the duty to preserve evidence is triggered whenever a “reasonable person” would expect to be a party to an action.  Similarly, the ongoing duty to preserve information after the duty has been triggered would be evaluated based on what is described as a “reasonable period” under the circumstances.

The beauty of this more general approach lies in its simplicity and flexibility.  The idea is that evaluating conduct based on the “reasonableness” of a person’s actions is much easier than attempting to draft bright line legal guidelines that account for every possible factual scenario.  The flip side is that reasonable minds could differ and results could be inconsistent if there are no bright line rules.  What this means in the context of the federal rule discussion is that one judge might find a party’s conduct with respect to data preservation efforts reasonable, while another judge might issue sanctions based on the same set of facts.  In large part, it is this lack of certainty and guidance in the current rules that sparked the current debate in the first place.

Category 3: Sanctions-Based Rule

Unlike the first two categories, the Category 3 approach focuses only on sanctions and would act like more of a “back-end” rule.  In other words, the rule would not contain any specific directives about preservation, but it would provide direction in the areas of when and how sanctions might be applied.

Despite the draconian image a “sanctions” based rule might conjure up, the Category 3 rule may seem surprisingly lenient to some.  For example, absent extraordinary circumstances, the court would be prohibited from imposing any of the sanctions listed in Rule 37(b)(2) or from giving an adverse-inference instruction unless:

“the party’s failure to preserve discoverable information was willful or in bad faith and caused [substantial] prejudice in the litigation.”

The sanctions based approach would almost certainly have an impact on how parties handle upstream preservation related issues.  However, the key ingredients that will impact what kind of behavior this rule drives are the severity of the threatened sanction as well as the applicable standard.  For example, a party facing severe sanctions for conduct that is either negligent, willful or in bad faith is likely to take their preservation obligations seriously.  On the other hand, if the realm of possible sanctions is trivial, parties are less likely to take their preservation related obligations seriously.

Conclusion

The three rule approaches represent very early attempts at framing possible approaches to amending the FRCP.  If the Discovery Subcommittee chooses to recommend rule amendments following the September 9th mini-conference in Dallas, the proposed language is likely to be closer to final form and easier to assess than the current proposals.  I will continue to monitor the rule making discussion and provide commentary in future posts.  Stay tuned for my next post where former US Magistrate Judge Ron Hedges explains why he thinks the rule changes are unnecessary and why the current proposals might run afoul of the Rules Enabling Act.

As the Mark Twain quote goes, there are “lies, damn lies and statistics.”  In this case, however, and regardless of the exact numbers, two recent surveys provide some very interesting directional trending.  The first is Fulbright & Jaworski’s 6^th Annual Litigation Trends Survey.  In addition to covering a range of general and vertically oriented topics, they also focus on ediscovery specifically.  Not surprisingly, reducing e-discovery costs bubbles up to the top of the list as major initiatives for most respondents.  Interestingly though, remediation plans attacking this problem seem to fall into two different camps.  On the one hand, 24% of respondents plan on outsourcing certain e-discovery tasks further leveraging preferred partners.  Conversely, the method that leads the pack (at a whopping 47%) is the corporate initiative of taking components of e-discovery in-house.  Other methods were listed, but most didn’t appear to have critical mass, including: using clawback agreements more, enforcing document retention policies, and negotiating with the opposition over the scope of discovery.

Similarly, Clearwell Systems recently conducted a survey in partnership with analyst firm Enterprise Strategy Group titled Trends in Electronic Discovery – A Market Perspective, which attempted to pinpoint similar pain points and solutions. The questions focused more on 2010 planning and they found a general expectation of more litigation/regulatory inquiries where 53% of the respondents expect the number of lawsuits and regulatory inquiries to increase by at least 20% in 2010, with 13% of respondents planning for an increase of 50 percent or more.  Again, not surprisingly, many plan on attacking this increase in litigation (and the corresponding e-discovery costs) by bring parts of the process in house.  In fact, 48% indicated that they currently have an active project to bring segments of the e-discovery process in-house. And for those that aren’t currently in the building process, 87% of respondents plan to budget for technology that specifically supports the electronic discovery process in 2010.

Given the length of time required for planning, RFPs and e-discovery tool procurement, clearly time is of the essence for companies that want to take advantage of internal solutions in the 2010 time frame.  Failure to get off the dime means that an enterprise is more likely to get caught in the middle of deliberation, versus deployment.

Read more about Legal discovery & Electronic Discovery Litigation

Part I of this series on reducing e-discovery costs discussed a number of approaches for managing e-discovery costs.  The third approach suggested in the original article is to bring e-discovery in-house.  This means taking some e-discovery tasks that were previously conducted by external organizations, such as e-discovery service providers or outside law firms, and performing them using in-house enterprise e-discovery software, and/or people.

How does bringing e-discovery in-house reduce costs?  The way in-sourcing e-discovery reduces costs is fairly straightforward.  It simply is a way to take variable costs and convert them into fixed costs.  If the variable costs are incurred frequently enough, then the sum of the variable costs will at some point become higher than the fixed costs.  In this case, a company bringing e-discovery in-house reduces costs by investing in fixed cost in-house software and/or people and using these to reduce the amount of variable e-discovery legal and service provider fees.  Over time, the savings from these reduced fees outstrip the cost of the original investment.

Cost is, of course, not the only factor that must be considered when a corporation, or law firm, decides to bring e-discovery in-house.  There are additional benefits as well as additional challenges.  Some of the additional benefits include:

• Increased visibility into costs and schedule: you’ll have a better idea about the specific costs and duration of e-discovery and how they relate to the overall management of the matter.
• Increased control of process and data: better visibility and in-house tools and/or people give you greater control over the conduct of e-discovery, so there’s less finger-pointing.  In-sourcing also allows you to keep control of your data avoiding the risk of entrusting it to third parties.
• Greater efficiencies: over time, in-sourcing allows you to build up data, processes and experience that will reduce costs further over time.  Instead of potentially training new people or adapting new software to your company’s business and processes every case, you’ll build an expertise that will lead to greater efficiency.  It also be easier to retain your work product and reduce the times when, for example, a document is inadvertently re-collected, processed, analyzed, reviewed and produce when it already from produced for a different matter.

Some of the challenges of bringing e-discovery in-house include:

• Risk: Risk is often the biggest concern when a company considers in-sourcing.  Many corporations feel that in-sourcing could increase their liability and risk of sanctions because if something goes wrong, they are more responsible.  The reality, of course, is that if something goes wrong the corporation often bears much of the liability even if e-discovery is out-sourced.  There are also ways to mitigate risks, which is typically more related to people in-sourcing not software.
• Expertise: how do you find the right people and software to perform e-discovery in-house?  This can be challenge but there are now many good options.  The first is to hire expertise from service providers or law firms.  The second is in-source only the software and continue to use outside people.  This is an approach worth discussing in more detail.
• Overhead: many corporations are concerned that bringing in software will require a large investment in people and an increase in operational costs, potentially out-weighing the variable cost savings.  Fortunately, e-discovery software has improved such that the best software does not result in a significant increase in overhead, and the savings from reduced service costs more than offset any additional overhead.

In recent months, a large number of organizations have analyzed all of the benefits and challenges of bringing e-discovery in-house.  The results have been both unsurprising and somewhat surprising.  Unsurprisingly, what most of these companies have found is that bringing parts of the e-discovery process in-house makes a lot of sense if the company has a fairly consistent case load from litigation and/or internal investigations.  More surprisingly, many companies have also determined that bringing e-discovery software in-house can often pay for itself with just one large case.  The first finding suggests that, as one might suspect, most Fortune 500 companies and large government organizations, should be taking a look at bringing e-discovery in-house.  The second finding though suggests that it’s not just the Fortune 500 that should be taking a hard look at in-sourcing.  If bringing parts of e-discovery in-house can pay for itself on one large case, then many organizations, not just the Fortune 500 should be taking a hard look at e-discovery in-sourcing.  When they do, one of the big questions that each organization needs to answer is what part of the e-discovery process do I want to in-source?  That will be the subject of my next post.

Learn More On: Frcp Electronic Discovery.

As most electronic discovery veterans are aware, the EDRM Project is an effort founded five years ago by George Socha and Tom Gelbmann to bring together a community of e-discovery practitioners for the purpose of solving some of the industry’s most challenging problems.

It may be hard to believe, but there was time in the very recent past where the iconic EDRM model did not yet exist. No multicolored boxes, no arrows, no sloping volume and relevance lines — nothing. Coming up with a standard way of talking about electronic discovery was the first problem that the group set about solving, and I think it would be hard to argue with the fact that they came up with the gold standard: a simple, clear, concise model that, at least so far, is standing the test of time as a way of thinking about the flow of the e-discovery process.

With each passing year, the group has started to address a broader set of problems, all with a practical bent.  Currently, there are eight:

This year’s annual EDRM conference took place back in May. After years of meeting in the same chilly and wind-swept location in downtown St. Paul, Minnesota, George and Tom had the brilliant idea of spicing up the meeting a bit by moving it to a more exotic locale: Bora Bora! Plans were set in motion, but quickly the overwhelming feedback came back from EDRM members: E-discovery is so fascinating, so heart-warming, that adding Bora Bora to the mix would simply be too much for the vast majority of the participants to bear. So St. Paul it was!

This was Clearwell’s third EDRM conference, and location aside, it’s been fascinating to see how it has changed over the last few years. Here are several notable trends from this year’s kickoff:

• More participation from end-users: There was a definite increase in the number of end-user/consumer participants (that is, those not from the vendor community), particularly from law firms. This could be taken as further evidence that e-discovery is indeed moving in-house.
• Increased enthusiasm to take on new challenges: One of the great things about EDRM is its willingness to try to tackle new areas that aren’t being directly addressed by some of the other (fantastic) organizations out there like Sedona. This was in evidence several years ago, when Clearwell was fortunate to get involved in the early stages of the EDRM XML project, which has proven to be a huge time, cost, and risk reducer for many in the industry by providing a common standard that can be used to move data within the e-discovery process. It was in evidence last year when Clearwell’s CTO was able to help launch a new effort around Search that is seeking to develop standards and best practices in an increasingly complex and contentious area. And, finally, it was in evidence this year with the launch of the Information Management project, a cutting-edge group that is exploring how to solve the challenges that e-discovery poses for information management – certainly a complex area in need of thought leadership.

• Improved collaboration: One thing that has amazed us from day one is how collaborative EDRM is, and continues to become. There are a lot of e-discovery vendors involved who, outside of the confines of the St. Paul Hotel, aggressively compete in the marketplace. However, George and Tom have been able to create an environment at EDRM where competitive spirits are set aside and ideas can be cultivated which provide huge value across the e-discovery landscape (both vendor and consumer).

One final note: If you’re an e-discovery practitioner in a law firm or corporate setting, I’d encourage you to get connected, either informally (through the EDRM web site) or formally (by signing up for one or more of the projects). While end-user involvement continues to grow, there is definitely still a need for more non-vendor involvement. It is critical in ensuring real and relevant problems get solved, and to pushing the state of the art in e-discovery forward. Please join us!

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.

Learn More On Electronic Discovery Litigation.

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.