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By Monica Bay

Law Technology News

October 2, 2007

There's no question about it, electronic data discovery is generating huge revenues for vendors and gigantic headaches for corporations and their lawyers. There's outright fear and confusion as everybody struggles to understand -- and corral -- this critical litigation technology.

When Law Technology News first introduced our EDD Showcases in 2002, we scoured the Web and came up with 55 vendors. Just five years later, there are more than 600 providers. And the money is breathtaking: The 2007 Socha/Gelbmann EDD Survey, released in August, pronounced that EDD is now a $2 billion business -- that will double by 2009.

So what's fueling this juggernaut? For starters, four main drivers:

1. The volume of electronic data created by businesses and law firms.
2. Ostrich Day: On December 1, 2006, EDD amendments to the Federal Rules of Civil Procedure went into effect. Practitioners can no longer keep their heads in the sand, and judges are getting savvy, fast.
3. Huge sanctions for EDD mischief, in landmark cases, including:

• Zubulake v. UBS Warburg LLC, 2003 U.S. Dist. Lexis 18771 (S.D.N.Y.Oct. 22, 2003).
• Coleman (Parent) Holdings Inc. v. Morgan Stanley & Co. Inc., 2005 W.L. 679071 (Fla. Cir. Ct. March 1, 2005).
• Qualcomm Inc. v. Broadcom Corp., Case No. 05CV1958-B(BLM), U.S. District Court, Southern District of California.

1. Compliance and regulations: The post-Enron proliferation of government regulations (Sarbanes-Oxley Act et al.) has changed the way corporations process electronic data.

Of course, a core reason for the explosion of EDD is the sheer volume of data. "Only about .01 percent of all information created today begins on paper," observes litigator/consultant Craig Ball,* LTN's EDD columnist. "Evidence is digital."

The abundance and variety of media is a factor, says consultant Thomas Gelbmann,** of Gelbmann & Associates. E-data can be found on everything from computer hard drives to PDAs, voice mail systems, and iPods. Plus, it's easier to process data. "Overall capacity for storage, processing and management of EDD has exploded from terabytes to petabytes with no signs of slowing down," he says.

Indeed, that ease and reduced costs are pushing courts to require full disclosure of electronically stored information, observes Steve King, CEO of Zantaz. "It's no longer a burden to store, recover or produce a terabyte of information, which makes the discovery of this data more likely a requirement -- especially in light of the new FRCP rules."

George Socha* suggests an even more compelling reason for the surge: "The primary driver is one that rarely seems to be discussed openly -- the need for attorneys handling lawsuits to determine what happened. Because that information increasingly is available primarily (or exclusively) in an electronic form, electronic discovery has to grow," says Socha, principal of Socha Consulting.

But panic -- "fear of sanctions and claims of malpractice"-- may be the ultimate fuel for EDD growth, suggests DLA Piper partner Browning Marean.*

Gregory Mazares, president and CEO of Encore Legal Solutions, agrees. In the wake of the new FRCP amendments, "the greatest catalysts for industry growth have been fear, lack of knowledge and inefficiency," he declares. "There is great financial risk for those corporations (and law firms) that don't fully comply with the new federal rules. The fear of severe sanctions and substantial financial losses in litigation are driving a change of behavior in discovery and case preparation," says Mazares.

The panic exists, he says, "because EDD remains a huge mystery to many corporations that a) don't understand its nuances and best practices; b) assume their longtime counsel are suddenly experts in EDD; and c) don't know where their data exists.

"This lack of knowledge leads them to delegate key EDD activities to outside counsel, self-proclaimed EDD expert consultants, and sometimes to vendors. This can result in great inefficiency and overspending on processing and review of data," Mazares concludes.

These theses are supported by the International Legal Technology Association's 2007 Technology Purchasing Survey (produced with Envision Agency). The survey polled large firm chief information officers who reported that attorney education is a key EDD challenge, "especially when it comes to what technology to use and when to deploy it." Other issues cited: staffing; cost-effectively storing and accessing massive volumes of data; establishing policies and procedures for litigation readiness; and managing e-mail (including recovery and extraction).

When EDD first surfaced at the beginning of the century, it was embraced with the same enthusiasm as new DNA tools. Everybody talked about using EDD to find the proverbial "smoking gun" that would win the case. Reflecting EDD's forensic roots, vendors were reactive, not proactive.

But over the last 18 months, a huge shift has occurred. Vendor after vendor has launched a consulting arm, to help firms and corporations with "litigation readiness." Among the providers we visited that now offer this service: Fios Inc.; Kroll Ontrack Inc.; Daticon (Xiotech Corp.); Ringtail (FTI Consulting Inc.); LexisNexis Applied Discovery; Merrill Corp.; Zantaz (Autonomy); Open Text Corp.; and Encore Litigation Solutions.

In essence, the pitch is: Hire us to help you anticipate EDD and set up protocols and procedures, so you're ready if you get sued and won't have to reinvent the wheel with every request for production.

This new approach has been met with appreciation, report vendors. "Everybody in this market wants to swim upstream," says Encore's Mazares. "Those who get involved with clients on a 'preventive care basis' wish to be viewed as knowledge-based consultants rather than production-based vendors."

It's also a sound marketing practice, observes DLA Piper's Marean. "It allows the vendor to get into the company before the litigation begins, and thus assist them when litigation arises."

But Kroll Ontrack's Jeffrey Joyce says it's the customers who are pushing for it: "Clients need and, in fact, demand these services." With the new FRCP amendments, "corporate litigants who aren't properly prepared will face increased cost and risk with disclosures," warns Joyce, vice president of the company's consulting unit.

Indeed, the FRCP's tight deadlines create added incentive for in-house counsel to assess existing e-data, "and as much as possible, to have off-the-shelf responses prepared for the initial disclosures," suggests Steve Stein, vice president of e-discovery consulting for Electronic Evidence Discovery Inc.

George Rudoy*, global head of practice technology support at Shearman & Sterling, says the consulting agenda boils down to adopting project management protocols. "[Our] firm faces numerous trials, but the process is always the same. We started thinking about firefighters -- how they work, what tools they use, what processes and procedures they follow -- and we began to see how using formal PM techniques might be able to prevent some of those fires before they began (or at least turn what would have been a four-alarm fire into a one-alarm fire)," says Rudoy.

Preemptive analysis also keeps costs down, suggests Tom O'Connor*, director of the Legal Electronic Document Institute. And, adds Matt Kesner, CIO of Fenwick & West, companies are ready to invest in EDD infrastructure. "Corporations are willing (and able) to spend far more money on litigation readiness and compliance, as long-term projects, than can be spent in the short period of time law firms have to work on litigation."

His firm recommends that clients "spend the money to map their IT system, draft and implement realistic data policies, and install collection systems," he says. It may cost more up front than it would to address a single lawsuit, "but they will greatly reduce their litigation and compliance costs over time."

"It's simply good business," says Ashley Watson, GC and vice president of Attenex Corp. "At its core, litigation readiness is really about being proactive and having a process in place for litigation. It's just common sense that once a company realizes it has several hundred legal matters a year -- yet they handle each one differently and the cost can vary widely -- that they'll try to standardize a process."

"Reactive litigation response can be a big waste of corporate resources, let alone a source of potential sanctions, fines and lost cases," concurs Mary Mack, technology counsel for Fios Inc.

Charles Kellner, SPi's vice president of consulting and project engineering, says a litigation-readiness posture can help corporate clients manage risks and find business data they need to retain and reuse.

And establishing EDD protocols early helps vendors who come aboard later, notes Dean Gonsowski, managing director of Daticon's business consulting group. "Trying to select a vendor, even one with great features/functionality, without having an adequate process framework, means limited success for all," he says. "EDD has people, procedure and technology components. Without any one element, customers and vendors alike will waste cycles and inject errors/ risk into the EDD workflow by doing things in an ad hoc fashion."

Rich Ruyle, CEO of Ipro Tech Inc. offers a pragmatic analogy: "We visit doctors and dentists, we purchase health, auto and home insurance, all to prevent the potentially costly reactive situation. The same holds true for corporations and those companies that serve them." But, he cautions, the transition won't happen overnight. "It will be many years before we see even close to a majority of companies in a litigation-readiness position."

Not everybody embraces the new mantra.

"Litigation readiness seems to be the buzzword du jour. Lots of smoke and sizzle, but little substance so far," observes Gelbmann.

John Tredennick, CEO of Catalyst Repository Systems Inc., and former litigation partner at Holland & Hart, concurs: "As nice as litigation readiness sounds, it is all but impossible to prepare for every possible lawsuit that might come your way. Indeed, if you could anticipate lawsuits you could head off most of them. The lawsuits that cause the most pain come in under the radar.

"That said, companies are being forced to manage their data more carefully, and make sure they have a better idea of what they have and don't have."

Few corporations have the ability to define and implement necessary protocols and policies, note many EDD experts.

"Before there is widespread acceptance, basic principles, rational methodologies and practices must be in place," says Gelbmann, who with Socha has developed the Electronic Discovery Reference Model Project.

Another question that can be difficult to answer is "Who owns EDD?" The corporation? The firm? The vendor?

Consultant Michael Arkfeld,* of Arkfeld and Associates, insists it's a joint responsibility: "The rules and case law are making it abundantly clear that EDD is 'owned' by both the client and the law firm."

When it comes to the proper identification, preservation and production of ESI, there are many technology, compliance and legal issues involved, explains Arkfeld. "Those decisions cannot be made in a vacuum." Courts, he says, "have clearly imposed substantial duties of outside counsel, in-house counsel and client personnel to ensure the proper disclosure of electronic evidence to the opposing party."

But many observers insist that the responsibility lies only with one party: "The client. The client. The client," shouts Tom O'Connor.

He's not alone. "The EDD dance should be led by corporate and not the law firm," declares Albert Barsocchini, assistant general counsel of Guidance Software Inc.

"I see potential conflicts with the law firms getting into the EDD market, and corporations are tired of being fleeced by third-party vendors."

Thomas Allman,** former senior counsel with Mayer Rowe, also puts ownership squarely on corporate. "Despite what vendors and outside counsel may think, the problem is created by, and must be solved by, in-house lawyers, empowered by their business leaders to invest in the process, and using an intelligent balance of resources."

"The key to success, however, is a clear-eyed assessment of internal skills, experience and resources, to know what and when to engage others (law firms, EDD service providers)," asserts Gelbmann.

"Remember, outsourcing does not change ownership of the process, it does require a clear definition of expectations and effective oversight to ensure results are delivered."

Patrick Oot,* director of electronic discovery and senior counsel with Verizon, chimes in: "The responsibility of defining litigation preparedness rests heavily on an organization and its in-house electronic discovery team (or legal, IT and records management, if no formal team exists), not its service providers."

"The team should constantly assess criteria, such as annual cost, matter volume and matter importance," he says. Oot predicts that many companies that are currently outsourcing these services will bring them in house, including his own organization.

But George Socha suggests that it may not be that easy to place it in corporate laps. "It depends on the size, sophistication and philosophy toward litigation of the individual corporation, corporate counsel and law firm. In some instances, the corporation ought to own and control EDD; in others, they have no business trying to handle any of this themselves. And the same can be said for law firms."