e-discovery 2.0

It’s been a little over a month since the news first broke that Guidance Software was the frog in an electronic discovery kettle whose water had just reached the boiling point, with the arbitrator in an employment case demanding, “I want this game-playing stopped.” We thought that, with a little time between the initial story and now, it would be worth taking a step back and looking at possible lessons learned — not so much for Guidance specifically, but for enterprises who find themselves in similar situations, as well as the electronic discovery community that serves them.

First, a quick summary. Based on published accounts, it seems like a classic discovery situation (that’s just plain old discovery, without the “e”): a party is sued and fails to produce a document that, lo and behold, surfaces via some other source, throwing the integrity of the sued party into question. After all, if one potentially incriminating document wasn’t discovered, then who knows what else could be out there?

Guidance contended that it did everything that was required of it, and that it didn’t have (or couldn’t find, despite good faith efforts) the emails in question. But, of course, that didn’t stop the litigation support community (via forums such as the Litigation Support List) from pouncing on the perceived hypocrisy.

After all, how could a leading, publically-traded electronic discovery company get caught up in such a mess? How could their cutting-edge electronic discovery technology not have saved them? Or their (hopefully) best-in-class internal electronic discovery processes? If the electronic discovery companies don’t have their acts together, what about all the other poor souls who lack their knowledge and expertise?

That last question is a scary one, particularly given today’s environment, and it’s why the situation has stirred up so much chatter out in the electronic discovery blogosphere. Almost without exception, commenters have jumped to one of two conclusions. Either (a) Guidance has not followed proper e-discovery best practices, or (b) Guidance has willfully chosen to hide relevant documents that it could have produced, because they would be detrimental to its case.

Let’s explore each of those conclusions in a little more detail.

First, is there any direct evidence that Guidance did not follow electronic discovery best practices? The answer there is murky. Certainly, from Guidance’s perspective, the answer is a resounding “no”. They continue to claim that the emails that were produced from another source did not exist on the various laptops, desktops, and servers that were part of the initial discovery request, and it is certainly possible that that is true. Perhaps Guidance had a 1-year retention policy for emails, and the emails in question were outside of that policy. Perhaps the individuals involved had legitimately deleted the emails in question prior to receiving a litigation hold notice, without thinking that they would ever be relevant to a legal matter. Certainly an independent observer has grounds for incredulity here, but it does not necessarily follow that Guidance did not follow electronic discovery best practices for a company of their size and resources. Certainly, from the reports, they did not exactly act in a way that earned much confidence from or favor with the arbitrator. However, that’s a completely different issue, and one which may be a legitimate tactical decision by Guidance (to avoid, for example, the high cost of recovering the corrupt backup tapes).

Second, what if Guidance willfully chose to hide relevant documents? At this point, there is no evidence that this is the case. And, you would think that of all of the companies out there, Guidance would be keenly aware of the extremely high level of risk associated with this strategy. A company well-versed in computer forensics understands keenly that the odds of any potentially negative emails not being out there, somewhere, in cyberspace are incredibly small. Thus there is little incentive to intentionally hide documents. If, however, a company did make such a perilous and unethical decision, it has nothing to do with a lack of e-discovery best practices or technology: it simply has to do with a lack of ethics.

So, has the coverage of the Guidance situation been nothing more than an electronic discovery witch hunt? Far from it… even if both of the “conventional wisdom” conclusions are in fact wrong.

Why? Because even if Guidance has its electronic discovery house in order and is acting with complete integrity, if there’s one thing that anyone in the electronic discovery business should have taken away from the last 5 years of court rulings, it’s that perception and transparency in electronic discovery is everything. Electronic discovery is technically complex and fraught with challenges, and companies – particularly those who are perceived as having vast expertise in the space, whether as vendors (i.e. Guidance) or institutions (i.e. pick your favorite TARP recipient) – have to act in such a way as to appear spotless before the court of law and the court of public opinion.

Assuming you already have your electronic discovery house in relative order (a baseline, fundamental requirement for doing business today), perhaps the most important take-away from Guidance is how carefully you need to consider how minor electronic discovery slip-ups, whether real or perceived, can bite, big time. The legal and media environment is primed to pounce on any hint of a cover-up or conspiracy, and enterprises must go the extra mile (or two, or three…) to ensure that their e-discovery efforts are, and will be perceived, as upright, ethical, and above reproach – or be ready and willing to pay the price in sanctions or loss of public confidence.

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.

Today’s questionee is Monica Bay, editor-in-chief of Law Technology News. Not only is she the author of The Common Scold, Law Technology Now podcasts, and co-author of the EDD Update blog, but she is also a rabid New York Yankees fan (as you will see below).  Let’s get to the questions.

1) As a lawyer, what advice would you give litigation support professionals to them to help foster more successful and productive litigation support-lawyer relationships?

In June, I wrote “Can You Adapt?” in Law Technology News which explores the changing terrain of EDD support staff. Increasingly, vendors, law firms and corporate counsel are hiring lawyers to handle e-discovery, particularly the review phase. This is creating tremendous opportunities for both attorneys and non-attorney professionals to further develop their careers, and make a whole lot of money (we’re already seeing poaching).

As for advice, it is the same I would give anyone in any job. Think baseball:

• Be a team player: It’s about the team, not the individual. You win and lose as a team. (See, Derek Jeter).
• Play your position well: Make yourself indispensible… be reliable, accurate, prompt, and anticipate needs. Raise your hand when there’s a job nobody wants to do because it’s too complicated or detailed. Extra points for utility players (See, Miguel Cairo).
• Home runs are great, but small ball wins more games. Watch the details. (See, Tampa Bay Rays)
• Take pre-emptive strikes: If you screw up, tell your boss immediately. It is far better for YOU to bring it to your boss than the reverse. Don’t try to hide problems (See, Tanyon Sturtz).
• Bring answers, not problems. Don’t whine. Instead of complaining about problems to your boss, come to her with alternatives. Show initiative and ingenuity. (See, Derek Jeter, Joe Girardi)
• Be low maintenance. ‘Nuf said. Even Manny got traded for being a pain. (See, Jeter, Abreu, Nady, Posada, et al)
• Don’t sit back and wait to be noticed. Ask for promotions. Do your homework, know the market, don’t take the first offer – negotiate. This is particularly important for women, who traditionally haven’t been encouraged to be assertive. (See Joe Torre, Joe Maddon)
• Don’t exaggerate your own importance. (See, Scott Boras, re: B. Molina, Rodriquez, etc.).
• Be loyal, work hard, kind, considerate, passionate, diligent, and work smart (See, Derek Jeter)

2) Socha-Gelbmann abandoning their existing ranking system: Good or bad (or both), and why?

Good.  George Socha and Tom Gelbmann, creators of the Socha/Gelbmann E-Discovery Survey, have said that they are rethinking how they rank, because too many folks were “foolishly” simply relying on their reports rather than doing the necessary due diligence to be sure they were buying the right products. I applaud them and look forward to the next iteration.

3) Helping strengthen the legal technology community is obviously a big passion of yours. Any new issues you are championing?

My latest crusade is the result of recent disheartening news reports that document severe gender gaps in pay for members of our profession; as well as the latest statistics about how painfully difficult it is for minority lawyers to climb partnership ranks, especially in large firms. Even among paralegal ranks there is a gender gap, which is especially ridiculous because that’s an area dominated by women.

There are no easy answers to these problems, but we simply must address them. In our October issue, I challenged every law firm managing partner, vendor CEO and company GC to immediately remedy gender pay gaps in their shops. There is no excuse for those. Solving the issue of obstacles facing career growth for women, minorities, gays and lesbians is a more challenging and nuanced problem, but one that we simply must make a top priority and continue to address. We cannot give up. It is only right and just. I wrote about this in our November issue, and will continue to keep it front and center in LTN.

4) Since it’s Halloween, we’ll ask a scary question. In your view, is e-discovery in its current state a help or a hindrance to the legal system?

The short answer is that it’s both. But e-discovery is here to stay, and the challenge before us is to work to develop systems and protocols that help us attain the real goal – to resolve disputes in a fair, speedy, reasonable manner.

I worry that litigation costs have so escalated that disputes today are being resolved more based on risk management assessments (e.g., the cost of the litigation) than the actual merits of the dispute.

5) Finally, be honest with us: How do you REALLY determine who gets to be in the President’s Corner?

Narrowing it down to the most newsworthy releases of the month, and then finding the one photo among all the finalists that’s actually in focus.