The Dark Side of Review Costs

Many blog posts and articles of the past have been prompted by Law.Com articles.  Anytime writings prompt discussion and change, articles are useful whether you agree with the journalist or not.  A recent article prompts this discussion and would fall in the partially agree to strongly disagree category. 

Evan Koblentz’s post “The Dark Side of E-Discovery Pricing” has prompted some emotional responses from “vendors” and lawyers alike.  The upshot of the article is that e-Discovery “vendors” are hiding the true costs.  Inflated pricing is the suggestion, although Evan is not that direct. 

Evan’s post talks about an exchange with some unnamed CEO of an eDiscovery company that stated the following when asked about cost: 

"[The CEO] believes people don't understand how e-discovery is priced or why it costs so much. This trend of price reduction will negatively effect the quality of the discovery process, encourage poor results and further cloud the visibility and understanding of the pricing structure behind the discovery process. ... Yes, the e-discovery process can be expensive but if you reduce the cost or offer free services you will jeopardize the quality and it will cost clients more in the long run."

Evan took issue with that statement writing: 

“Unfortunately, vendors being vague about pricing is the norm, not the exception. The majority of times when I interview companies about their legal technology products, and ask what about costs, they answer, "It depends," followed by numerous reasons why -- some valid, in my opinion, some not. But at least half of the time they do tell me the approximate typical cost, lest customers (and reporters) assume that non-answers mean it's very expensive.”

At first blush, I emotionally and loyally want to side with my competitor here (that unnamed CEO Evan mentions).  While true that some “vendors” do in fact have a hard time explaining or defending their cost models, the good ones in fact do not.  However, figuring out what anything costs requires enough information about what it is you are being asked to do.  Lawyers by and large don’t understand data preservation, processing, filtering techniques, production formats or really most of the issues that arise with data and the importance of doing it right.  Not in terms of something bad happening in court – that fear that Evan writes about.  Rather, in terms of what it is going to cost when you don’t do it right just to get that technology cost down.   Those ignorant of the process don’t understand the large volumes of information corporations are stashing away and are surprised when 10 witnesses have 1,000,000 files between them - literally.  And to someone like Evan, who has likely never darkened a court room door, put an exhibit sticker on actual useful piece of evidence, much less worked the business end of a law suit, it might seem like something that should be simple.  To someone who has spent literally decades supporting lawyers as has this commentator, they know that much of the effort in discovery is in fact wasted effort.  In any case of any size, there are quite literally a handful of documents that have any value to the actual lawyers who will have to stand up in court and use them.  Yet, lawyers are asking “vendors” to process literally billions of files every day in any given corner of the country. Evan is right, cost is out of control. But, the cost that is out of control goes beyond technology cost.

I recently had the great honor to sit with my old friend Pam Radford of Legal Media, Inc. and we reminisce about all of our trials over the years (her list is much longer than mine). 

We talked about how evidence is presented today vs. 10 years ago.  I explained how much time and effort we spend today in discovery (where I spend all of my time these days) on the unimportant.  Processing, filtering, reviewing and producing millions of files that frankly have no value to someone like Pam who is interested only in what the lawyers will use at deposition or trial.  That kind of effort is indeed expensive no matter how much you beat on the “vendor” about price.  Pressing the “vendors” to drive the unit cost down does not address the real problem, however.  That CEO is right.  At some point the price gets driven down so far that corners are cut.  Whole sale processing and review of large amounts of data become the norm.  Untenable search and filtering techniques are used because doing it right is considered “expensive”.  The real problem - attorney’s fees – does not get addressed.  Those that have actually seen the inside of the courtroom have to admit that the real problem is too much information and not enough decision about what IS important.  When you consider that on average 1,000 documents will cost $1,000 to review at $100 per hour (if you’re lucky enough to get a review rate that low), using cut rate pricing and technology, often 80% of what has to be reviewed is useless, the value of filter advice and technology becomes apparent.  But you have to be willing to listen to a new, proven approach.   Evan is right.  “Pricing” should be simpler.  Evan is just a journalist and in many ways like our clients in terms of being ill-equipped to understand what IT will cost. 

When considering cost, IT really does “depend”.   How much you spend depends largely on what the lawyers wants done and whether they will consider defensible filtering methods that will keep from processing and reviewing (the largest cost) a bunch of irrelevant information.  IT will depend upon how much “exception handling” is required.  IT will depend upon whether, as has been the case before, some lawyer wants all excel spreadsheets hand formatted before everything is tiffed (today a useless, wasted effort) before production as opposed to producing native files.  IT depends upon whether the corporation will listen to advice and spend some time and money toward reducing the amount of email they retain through unmanaged PST files (as an example).

So, Evan, consider interviewing “service providers” as opposed to a "vendor".  A vendor is someone who sells hot dogs on the street corner in NYC.  Or, in our business they bring cookies and can take care of your copy job needs as well.  Your readers can find a vendor with an eDiscovery application anywhere and that vendor will probably do the work at a very low rate just to get your business.  And then there are those cookies.  If all you are focused upon is that technology cost, and miss the real cost of review, you miss the most important component of the ROI.  A “service provider” is someone who has a great deal of experience and as your partner will help you determine the most cost effective approach based upon experience.  EDiscovery is not just a technology pricing cost analysis.  Indeed, technology cost is about 20% of the overall cost of discovery.  Paying lawyers to shift through all that unimportant information using scattershot filtering methods, or insisting upon reviewing everything is the real problem that needs solving.  Who do you want solving that problem?  A vendor, or a real trusted advisor that has proven methods for solving the problem, but at a higher rate than that vendor?

Measure twice, cut once! Are you measuring for success?

Most of us have heard this old English proverb many times. My grandfather who was a carpenter used to say it all the time, and not just in connection with building cabinets, which is what he did for a living for almost 50 years. It simply refers to double checking your measurements before you cut something to prevent wasting material. That makes sense doesn’t it? If you cut something too short, you can’t uncut it. The damage is done if you’re off the mark.


In the legal biz, we have historically not been too keen on measurements. Success or failure has been our yardstick. Either you win, or you lose. Here’s another proverb – “You’re only as good as your last trial.” We have historically not had measuring mechanisms in the legal industry, so outside of the result, there has not been many measurements. Not a lot of accountability for eliminating waste. All of that has changed. With technology, we have lots ways to measure, as an example, a document review. Anyone associated with review today knows there is a great deal of wasted effort. After all, in a case of any size, there are only so many documents that can be used at deposition or at trial. Yet, there is a great deal of information to sort through. Document review and the associated discovery is the major cost component of any piece of litigation. Are your lawyers measuring and controlling wasted effort? Here are but a few of the many things that can be measured.

• Culling Rates – What is being eliminated prior to review and at what rate? What are the duplication rates? Do you know?

• Documents Decisions Per Hour (DDH) – The rate at which a reviewer or group of reviewers review documents. Measuring this rate will tell you how much a review will cost. The slower the review, the more it will cost. What is the speed of your review, what will it cost at the current rate, and when will the review complete? Do you know?

• Response Rate – A traditional review everything process will generally yield very low responsive rates - 10% - 15% at best, meaning 85 – 95% of what is being reviewed is wasted effort. Whereas, when a sound culling methodology is used, a much higher percentage of what gets reviewed actually ends up being responsive. Do you know what your responsive rate and how much of the effort is wasted on the unimportant?

• Quality – Measuring the quality of a review is critical in conducting on the spot training for those who need it and eliminating those that are not successful. What is the project error rate, do you know?

There are obviously many other things that can be measured, but the above four are critical. How are you measuring the progress of your project?

PST – The RAT of ESI

A Personal Storage Table, better known as the “PST”, is the RAT of the ESI world.  A PST is an archive file that Microsoft Outlook users use to manage email messages, calendar items and other things normally managed by Outlook.  A PST file is usually stored on a user’s hard drive, or on a network share, as opposed to archived email managed by Microsoft Exchange or Symantec’s Enterprise Vault.  A PST email archive is usually created by individual users to store email outside of the corporate email environment and circumvent server storage quotas.  That 100 MB limit that for me is reached in the first two hours of the day.  As a result, these packRAT users are creating thousands of unmanaged files across the enterprise.  Because these personal folders are stored on individual work stations rather than on a centralized email systems, the corporate retention policies become unenforceable.  While IT solves their problem of keeping the email environment manageable, out of sight, out of mind, considerable increase in legal risk is created by keeping too much information.  While that archived email may be out of the sight of IT, legal is going to come looking and find a lot of information.  It won’t be good news that engineer has 5 years of PST archives on his laptop.  So much information, in fact, that with Outlook 2007, MS increased the functional limit of a PST file from 2 GB, to 20 GB!  Of course, a 20 GB PST won’t perform very well for the user, no matter what Microsoft says, but certainly well north of the previous 2 GB functional limit, which means a user will keep email far longer.  Thanks Microsoft!  Newer versions are going to give us some help with archives, but it will take years for the market to upgrade. 

Each GB of PST file size can contain 10,000 – 35,000 email or more. So, 20 GBs of PSTs could contain 500,000 email messages. Of course, the weight of an email in terms of GB size depends on the size of attachments. A company culture that tends to send a lot of physical attachments to email, as opposed to sending links to document libraries in SharePoint or other Document Management Systems (“DMS”), for example. With those document counts, it takes only a few PackRAT custodians to generate millions of files. When the lawyers come knocking for those PST files, usually scattered across the network and on user drives, the volume of information that must be processed and sorted through can be very, very costly.

There are a few steps you can take that will help.  Doing nothing and letting those RATs spread is going to make the organization sick.

1.  Increase the mail box limit to a reasonable size commensurate with today’s eSociety. Say 1 GB. Find a way to enforce retention schedules.

2.  Utilize email archiving application. Yes, it will cost money, but it will save a ton even if you don’t do another thing but enforce your retention/destruction policies. Can’t afford the implement email archiving software – outsource to the cloud.

3. Ban the PST file. Unmanaged email volume is killing you. Users archive within the system, or not at all.

4. DO NOT journal PST files!!! You will create a great deal of effort. Simply place a stake in the ground and ban them going forward.

5. Put a long term plan together to phase out (via retention policy enforcement) historical PST files starting with a voluntary destruction of out of date email archives for all users not on legal hold.

So Easy a Caveman can do IT! Part IV. SmartSourcing.

Introduction

Calling the electronic discovery business competitive is an understatement. Technology is moving very, very rapidly. Commoditization of processing and production has arrived and downward price pressures abound. Pricing models are in a constant state of flux. Keeping the competition in your rear view window is not easy and requires constant attention to the market around not only price, but solution. Many of those that have just one solution in today’s market are struggling. Today's law firms are considering how they might bring in electronic discovery, some have already gone there, and many are beginning to go down that path. Lawyers are increasingly being called upon to stand up and defend the discovery process. Technology is dramatically impacting traditional law firm revenue components such as review. Technology is rapidly and directly impacting the traditional billable hour. So, law firm’s interest in bringing discovery support services in-house is not just about an effort to capture “ancillary” service revenue. These have been the very challenges, however, with the litigation support business since the days the first copies were made. Like case law, the past and precedent are our teachers. The opening article to this Caveman series, we discussed how we’ve seen this all before. Many law firms have, and will continue to bring in support services, despite all the evidence suggesting that most firms can't justify the expense.  We discussed the Legal Copy, Inc example from the 80’s.    LCI, is but one of many such examples of a copy company started by a law firm in an effort to both capture revenue and gain control.   In the 90’s many law firms brought in scanning.  The 10’s and beyond has seen more firms now tackle the much more complex electronic discovery and related services.

The Business Model

After getting past IT Infrastructure challenges associated with bringing technology in-house, one is confronted with one of those “institutional” challenges that, frankly, have kept the litigation support industry alive and thriving since the days of the first copy machine. The business model of running a law firm does not fit with the business model of running a services support company. Law firms are already under considerable pressure to move to alternative billing arrangements for their legal services. In January 2009, in an article “Billable Hours Giving Ground at Law Firms”, the New York Times, as have many publications before and since, declared the billable hour for legal services on life support. Yet, here we are, more than two years later, and the billable hour is alive and well, albeit, under attack.

“The last two or three years you’ve really seen a movement away from hourly billing,” said Martin Fantozzi, co-managing director of Boston-based law firm Goulston & Storrs. “That having been said, hourly billing is still the norm.” MassLive.com; Jay Shepherd says the clock is running out on lawyers billing by the hour. Published: Monday, February 21, 2011, 3:32AM

In the beginning, Howrey did just fine with its new approach.  Turns out, however, that changing how you bill clients is not as simple as it sounds.  Setting aside the fact that you must know how to pick winners, you must be successful with those winners.  One can’t forget that a law firm is a business with business rules that are not so easy to change.

“Unlike corporations that operate on an accrual basis, it’s hard to adjust from a cash base on your business to an accrual base where you are deferring significant amounts of revenue into future time periods. Once you make that adjustment, I think it works. But the adjustment period is difficult. Partners at major law firms have very little tolerance for change.” “What Else Happened to Howrey? Here’s More From CEO Ruyak”; WSJ Lawblog; March 10, 2011, 5:20 PM ET

The legal industry is notorious for being resistant to change, particularly large firms with many partners or shareholders. Whatever you call them, partner or shareholder, these lawyers are owners of the business and have a say in how the business should be run, as it should be. “Partners at major law firms have very little tolerance for change”, former Howrey CEO Bob Ruyak recently said to the Wall Street Journal (WSJ). [i] Although some do and will, few lawyers question the need for change. The hourly billing has been firmly entrenched for decades. As many now know, there were many reasons for the demise of Howrey. Among those reasons, in an effort to meet the demand for billing arrangements other than hourly, Howrey chose to dive headlong into “contingent” and performance based arrangements that were not exclusive to the plaintiff’s side of the bar. Howrey was then competing with firms like Susman Godfrey LLP, who pioneered decades ago commercial litigation performance based fee arrangements, like the reverse contingent fee (RCF). What is an RCF, you might ask? Longtime Susman partner Barry Barnett, the man behind popular legal blog, Blawgletter, explains RCF:"

"By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment. If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million. Negotiating an RCF presents unique challenges. The hardest part probably is arriving at the benchmark number. The law firm will want to use the plaintiff's demand as the starting point, but the client will prefer to begin at bupkes. Unless some reliable methodology for assessing exposure exists, the discussions may lead nowhere." “How to Negotiate a Reverse Contingent Fee”; Blawgletter; 25 January 2008.

 There are also the cultural issues that must be overcome.

"It used to be that lawyers just had to write briefs, memos, and letters. Then in the nineties (the ironic ones, not the gay ones), lawyers started writing emails. Now, social media has opened up a whole new world of words for lawyers. And pictures and videos too. But lawyers are conservative, wedded to tradition and bound by precedent. Turns out that lawyers have been a little slow in embracing Web 2.0." "Partners”; The Client Revolution; by Jay Shepherd; 11 January, 2010.

"Lawyers and law firms fear that if they stop keeping timesheets and stop tracking hours, they will make less money than they do billing hourly. And clients, especially in-house lawyers at larger companies, fear that without reviewing detailed time entries in stupefying legal invoices, they won't know if they're getting ripped off." The Client Revolution. “Hourly Billing is Dead.”

As has been widely reported, Howrey also decided that it had to stem the decline of the billable hour associated with litigation support services around document review.

“We had a very strong business model that carried us from 2008 to 2009, that was based on large scale cases, that we thought we handled efficiently, because a lot of those cases involved a lot of discovery, particularly document discovery. We created a whole portion of the firm to handle that efficiently- using staff attorneys and sometimes temporary people, computer systems and facilities. Along came some companies that were “offering to do this work less expensively at a lower price,” he said. “A big part of our business was shifting and we started to make corrections. It’s a major change in the business model for large-scale litigation,” he said. “What Else Happened to Howrey? Here’s More From CEO Ruyak”; WSJ Lawblog; March 10, 2011, 5:20 PM ET

The troubling trend, however, is that despite what history is telling us – law firms are going to be hard pressed to compete with non-law firm service providers - partners and shareholders at major law firms continue to seek to bring services “in-house”.

"More troubling, however, is the fact that the industry seems to have learned nothing from such episodes. Reading the legal press and legal blogs, you find the same uncritical acceptance of the wisdom and inevitability of firms becoming larger and more global, the same acceptance of the free-agency model, the same acceptance of a world in which firms are held together by nothing more than a collective determination to increase profit per partner." Why Howrey law firm could not hold it together. The WashingtonPost.com; Monday, March 21, 2011; 8:43 AM

“Many lawyers may not be good enough businessmen to pick the right price, said Mr. Krebs, of the Association of Corporate Counsel…. The difficulty is, we don’t really know what it costs us to do something,” he said. But the biggest stumbling block to alternative fee structures may be the managing partners at law firms, who will have to overhaul compensation structures to reward partners and associates for something other than taking a long time to do something.

“I don’t think law firms have completely come to grips with that issue,” said J. Stephen Poor, managing partner at Seyfarth Shaw in Chicago. “But they need to start coming to grips with it very quickly.” "…Lawyers are having trouble defending the most basic yardstick of the legal business — the billable hour." New York Times; Billable Hours Giving Ground at Law Firms;  

The Better Way - SmartSourcing

As has been previously discussed here and by many commentators, many of the reasons that law firms want to bring discovery support services in-house are sound. They want to capture the revenue, rather than seeing a third party receive that revenue. They want to keep the relationship with their customer rather than allowing outside service providers in on that relationship. They want control of the discovery process. All valid reason that by an large are not supported by the business model. There are dramatic peaks and valleys in revenue from a litigation support business. There are enormous IT and personnel expenses that are fixed, whether you have the business or not. Most firms simply cannot justify the expense when they take a hard look at the ROI. There is a better way.

What if you were able to accomplish the goal of capturing revenue, gaining control of the discovery process and maintain that relationship with your corporate client? There is that way and it is called SmartSourcing. There has been considerable buzz of late about “the Cloud”. The Cloud, of course, has been around for decades. It is nothing more than outsourcing data hosting as well as services to a company that hosts the data for you and provides you with control of those applications just as if the hardware and software reside in your own data center. The law firm does not have to build and maintain a multimillion dollar data center that is required today to host sensitive client information. You don’t have to manage flux in staff – your “cloud” provider will manage that for you by either helping you staff on your premises, provide that additional surge of human power when you need it, and not having to pay for it when you don’t. You will pay for storage space once, with the ability to re-use that space as old matters go away and new matters arrive. With the traditional per GB pricing, complete outsourcing requires paying for a GB with each new matter. You don’t have to keep up with market pricing, your SmartSourced provider will keep up with those for you and help you build into delivery of those services a profit or “breakeven” margin (depending on your business model).

Determining the right mix of in-sourcing and out-sourcing – SmartSourcing – simply makes good business sense. Lawyers can then focus on being lawyers and not focus them, or their staff, on managing a litigation support business.

---

[i] “What Else Happened to Howrey? Here’s More From CEO Ruyak”; WSJ Lawblog; March 10, 2011, 5:20 PM ET

So Easy A Cave Man Can Do IT? Part III – ITs Complex

Introduction
In Part I of the Cave Man series, “Lessons From Howrey”, we looked to some lessons taken from the failure of Howrey.  Heavy investment in a state-of-the-art litigation support center and associated support staff, infrastructure and the inability to compete with “service providers” were cited as among the many reasons the firm failed. 

Part II, “Keeping Up with The Joneses”, dove into Information Technology (IT) Security and touched on the complexity of IT infrastructure.  Part III, “ITs Complex”, will continue to explore IT complexities. 

Law Firm IT has come a long way over the past several years.  We don’t want to send the wrong message here. There are many law firm IT environments that are sophisticated, mature and well maintained with considerable investment in infrastructure year over year.   There have been, and will continue to be, firms that are successful at managing Electronic Discovery – soup-to-nut - largely in-house.   Electronic Discovery is not just for paralegals, techno geeks and other non-lawyers anymore.  A growing number of lawyers are choosing litigation, practice support and broader ESI management roles over the practice of law alone.  Some are successfully merging the practice of law and technology.   Even many mid-sized firms, much less the large ones, simply can’t survive without in-house expertise and capability.   Hosting case management applications and some level of processing capability is becoming increasingly more important.   Electronic Discovery across the EDRM on a large scale, however, is a completely different ball game.  Most firms won’t follow Howrey there.  For those that do, this “So Easy a Cave Man Can Do IT” series is for you.  In this article, we will cover just one aspect of the business – data storage and associated bandwidth.

Storage – You Need Lots of Space!

Why do you need so much space, comes the cry from the CIO, or IT Manager? A few years ago, a typical case consumed gigabytes (GB) of network storage. Today we speak in terabytes (TB) and are beginning speak of petabytes (PB). One of the many things that surprised IT manager needs to know about electronic discovery and ESI processing and hosting environments is that 1 TB of data processed requires in many cases two or three times as much storage space. In other words, 1 TB of original data can require two, three or even four TBs of network storage space. During the act of processing, files are replicated and rendered at least once and sometimes many times.  A SAN (Storage Area Network) and sound data management principles are essential for ESI processing and hosting.  A SAN is a complex array of disk storage devices that utilize block level storage.  Not to be confused with a NAS (Network Attached Storage), that utilizes file level storage, or far inferior DAS (Direct-attached Storage) that is simply a storage device attached to a server or other device that has an operating system attached to the network. 

In a traditional environment, users call for MS Word, Email and other application files one at a time and a typical SAN or NAS configuration works just fine. In a complex processing and hosting environment, however, the game changes dramatically. The number of file “transactions” in a processing environment is much more dynamitic with millions of requests to the storage array in the time span such a system is normally configured to handle just thousands of transactions. Oh, and you need to back everything up either digitally, or to tape.  Most commercial processing environments are fully redundant meaning there are essentially two SANs - one for redundancy.  Everything then gets backup digitally or to tape and kept off site for disaster recovery.  That effort alone can require considerable expertise and expense.  Careful customization and continuous optimization of a highly dynamic complex storage environment is critical.

Bandwidth - How much is enough?

There is no easy answer to how much bandwidth is enough. When we think of bandwidth, we usually think of the pipe that sends your information across the internet from point A to point B. Internet bandwidth is actually a fairly easy problem to solve in most locations today. You just buy as much bandwidth as you need, right? IT is only money after all. Of course, you can’t control the bandwidth at the other end. You know the one, that user that sits at home with a 14 kbit/s wireless modem and complains about your bandwidth.

The more complex bandwidth challenge is that of your internal bandwidth – the speed at which communication occurs between devices within the environment.  In the case of processing, the communication between the various devices within the environment that are needed for processing.  In computing, these paths are referred to as input/output, or I/O.  When there is not enough bandwidth (internally our externally), a system can become “I/O bound”. This condition exists where information is being requested faster than information can be processed.  In the most simplistic terms, there is not enough bandwidth for data to travel from one device to another.  There are many pathways those data travel on the way to the ultimate home on the SAN.

Life usually begins (acquisition) and ends (production) on some external storage media.   Until very recently, transferring files from external storage utilized very slow USB (Universal Serial Bus) connections.  So it did not matter how much “bandwidth” one had elsewhere on the network, data transfer was, and still is, highly restricted, even with newer USB 3.0 devices that are 10 times faster than USB 2.0 connections.  Even with more expensive hardware such as solid state drives (SSDs) with SATA (Serial Advanced Technology Attachment) connections, we are nowhere close to network grade data transfer speeds from external devices.  Careful planning and expectation setting is critical. 

Once data makes it to the network, there remains ample opportunity for bottlenecks. There are switches, routers, Ethernet cables and connections, and a variety of other data pathways all competing for “bandwidth”. All of that infrastructure must be implemented, configured, maintained, optimized and kept redundant. Considerable storage management expertise is needed for a processing operation of any size. IT is not just complex, it is also expensive. In Part IV, we will explore the rapidly moving software side of the business.

Conclusion

Acquiring, filtering, processing, hosting, reviewing and producing large volumes of information require considerable space and bandwidth.  High availability and highly redundant storage and the associated bandwidth challenges alone not only require a considerable, and on-going investment of state-of-the-art infrastructure, considerable expertise is also needed. The most advanced technology on the planet is only as good as the human capital investment. IT is complex.

Enterprise Targeted Search - Danger Will Robinson!

I just loved Lost in Space as a kid (it aired 1965 – 1968). The 1998 movie, not so much. There was that robot who always seemed to know when there was danger.  He would roll around waiving his mechanical arms in the air shouting “Danger Will Robinson, danger!” Will Robinson is the young boy. Dr. Smith, pictured with the hammer, the bad guy. This article is me running around waiving my arms in the air warning about the rapidly advancing “behind the firewall” technology around litigation hold, preservation, collection and beyond. Be very careful what you deploy and how you use this technology. Here’s why:

The software providers have finally, I think, figured out what many of us already knew – corporations by and large are not prepared to spend millions of dollars on ESI management software to solve their downstream discovery issues. Rather, why can’t we just leverage the technology we already have, many ask? Most companies have some sort of records management system – Enterprise Vault managing email, SharePoint and other applications are already indexing and managing content. The problem, however, is that those systems are not designed to cull, review, tag and produce. So, what we’ve been doing is pulling information out of those systems, re-indexing and re-organizing downstream in other tools better suited for those functions. Extraction, rendering and indexing content is the most expensive part of the ESI discovery process.

Clearwell Systems, Inc. today announced enhancements to the Clearwell Identification and Collection Module that will bring next generation targeted collection to e-discovery. This technology will leverage existing ESI management technology within the enterprise.

New features in the Clearwell Identification and Collection Module include:

• Keyword Filters: Provides the ability to filter collections by keywords. Administrators have the option to leverage existing source indices to utilize federated search-enabled keyword collections from data sources behind the firewall or in the cloud.

• Extended SharePoint Collections: Allows users to collect the full range of SharePoint document types including blogs, wikis, calendar items, announcements, discussions and surveys, and render them in context.

• Microsoft RMS Environment Support: Automatically interfaces with Microsoft Rights Management Services (RMS) environments to securely decrypt and collect documents on the fly. 

http://www.clearwellsystems.com/ediscovery-news/pr_06_13_11.php

Lawyers have historically not been very good at developing and using key terms.  But, don’t take it from us: 

In William A. Gross Construction Associates Inc. v. American Manufacturers Mutual Ins. Co., No. 07 Civ. 10639 (S.D.N.Y. March 19, 2009), Magistrate Judge Andrew Peck complained:

"This Opinion should serve as a wake-up call to the Bar in this District about the need for careful thought, quality control, testing, and cooperation with opposing counsel in designing search terms or "keywords" to be used to produce emails or other electronically stored information ("ESI"). While this message has appeared in several cases from outside this Circuit, it appears that the message has not reached many members of our Bar.

Electronic discovery requires cooperation between opposing counsel and transparency in all aspects of preservation and production of ESI. Moreover, where counsel are using keyword searches for retrieval of ESI, they at a minimum must carefully craft the appropriate keywords, with input from the ESI's custodians as to the words and abbreviations they use, and the proposed methodology must be quality control tested to assure accuracy in retrieval and elimination of "false positives." It is time that the Bar -- even those lawyers who did not come of age in the computer era -- understand this."

So, now we can simply bounce terms against data inside the enterprise!  A scary thought, I must admit.  What happens when a targeted collection based on key terms is performed and then 6 months down the path new issues arise and new key terms are needed which is going to yield new files?  If preservation and collection was based only on the initial set of terms, data that was present during the first collection MAY NOT be present during the second run.  The market is screaming for a low cost way to manage litigation holds, conduct and manage preservation and collection and cull data inside the enterprise.  The fear I have is that this great technology will not be used properly.  Technology is dangerous without a sound process in how that technology is used and relied upon.  Saving money only to later spend more becuase you did not do it right the first time helps no one.  Danger Will Robinson!

So Easy A Cave Man Can Do IT? Part II - Keeping Up with The Joneses

Introduction

Last week I promised to write more on the topic of the perceived competitive threat from law firms in the electronic discovery space. This article will address the first in a series of challenges law firms face in being competitive with electronic discovery “vendors”. As a reminder, and for anyone keeping score to remind me later, it remains my prediction made many, many years ago, that law firms will not by and large be able to compete with litigation support providers in general, much less the much more sophisticated and competitive electronic discovery market.
Our system of justice is based upon a precedent or authority.  Black's Law Dictionary defines "precedent" as a "rule of law established for the first time by a court for a particular type of case and thereafter referred to in deciding similar cases."  Many of these views are not mine alone, nor where they originated by me.  So, this is not some isolated electronic discovery vendor rant.  If you’re an attorney with a law firm considering jumping into the cut throat electronic discovery business, you may want to pay attention to this series. 

What is the motivation?

So why do some firms appear to be jumping in with both feet?  As I mentioned in the first article, we have been here before where law firms try to capture revenue that they see going out the door.  

"Gartner estimates that the world’s enterprise e-discovery software market came to $889 million in 2009 in terms of total software vendor revenue. We forecast a five-year compound annual growth rate (CAGR) of approximately 14%, which means the total should reach $1.5 billion in 2013." "Magic Quardrant for eDiscovery Software"; Gartner; 13 May 2011; Debra Logan and John Barce.

$1.5 Billion!  That is a lot of dough and not a small pot of money that lawyers are trying to recover.  $1.5 billion in revenue by 2013 is just the software revenue too.  That figure does not count acquistion, preservation, processing, review and production revenue associated with services. Add those up, services currently being pulled away from law firms by their corporate clients, the pot of gold is many billions more than the $1.5 outlined by Gartner in the Majic Quardrant.  Lawyers are also getting hit very hard by the drain on attorney review revenue (the hourly billing) being caused by smarter, better and faster data culling and contract review techniques that have dramatically reduced the need for review attorneys.  Fewer lawyers are needed today in a typical document review than even a year ago and certainly two years ago.  As a result, law firms have and will continue to go after that revenue.  Many, and likely most, won’t be successful and, regrettably, may go the way of Howrey.  I for one don't relish the idea of watching good firms break apart becuase they made poor business decisions.  Lord knows there are enough other business pressures on law firms today justify their bills for legal advice, much less ESI bills.  But I digress and a topic for the next article. 

Keeping up with the Joneses

The Joneses here are the electronic discovery providers. Keeping up with those Joneses is a full time job for those of us out here doing that now. Don’t law firms have their hands full competing with each other? Back in December 2009, George Rudoy, who writes the E-Discovery Law Blog for Georgetown Law School, stated that historically the decision for a law firm to outsource was based upon the following general factors. In this series, we will look at these initial set of factors:

“Law firms are in business to provide legal advice. Therefore despite the ever-present component of electronic discovery, law firms generally do not view their e-discovery services (sans consulting on the matters of compliance, discovery strategies, etc.) as profit centers, but rather as an unavoidable part of today’s litigation.


Given the point described above, it is therefore rare that a law firm would invest large sums of money into necessary infrastructure to support the ever-changing demands of e-discovery services and their perpetual maintenance to realistically compete head-to-head with the external providers.


A consistent mentorship and evaluation of the e-discovery providers coupled with well-organized and logical selection process of the providers assures some degree of comfort and somewhat predictable results that usually meets the requirements of the discovery exercises.” “To Insource or To Outsource”; Georgetown E-Discovery Law Blog; Posted by George Rudoy at 11:06 AM on 1 December, 2009.

The firms that have gotten into this business have discovered, like Howrey, that competing in the electronic discovery services space is expensive IF they want to compete head to head.  The IT infrastructure required alone can be very expensive.  Considerable IT budgets beyond the initial investments are then required each year. These are investments well beyond the annual IT investments of a typical law firm data center, even that of the Law 200.  Keeping pace with the rollout and support of email and word processing software is a far cry from the expertise and infrastructure needed for today's advanced eDiscovery applications.

Lack of Security

Many law firms already have sophisticated data centers you say? Not so fast, let’s first look at security.
One of the major components of delivering electronic discovery services is the ability to host reviews, sometimes with external reviewers, but certainly with lots of sensitive information being stored on the law firm’s network. The amount of information that a law firm must manage to justify a profitable electronic discovery business is mind boggling. Assuming a firm does have the volume (which will be addressed in a subsequent article), the complexity of the security aspects alone may well be more than most law firms can manage. According to one industry expert, Rob Lee, Director with the information security firm Mandiant and the curriculum lead for the digital forensic training at the SANS Institute, the state of law firm security today is “deplorable”.  According to the March 25, 2011 post by Sharon D. Nelson, Esq, President of Sensei Enterprises, Inc, "deplorable" may be an understatement:

“[T}hat may be kind. Certainly we've never done a law firm security assessment without finding significant vulnerabilities and Rob's experience has been the same.” “The Deplorable State of the Law Firm Security”; {ride the lightning] Electronic Discovery Blog; by Sharon D. Nelson.

Rob Lee goes on to say “…hacking into law firms is so easy that the Chinese don’t even waste their “A” teams on it – the junior rookie squads can handle it”.  See “The Deplorable State of the Law Firm Security”.

Most electronic discovery providers undergo regular “vulnerability scans”.  A “vulnerability scanner” is a computer program designed to assess computers, computer systems, networks or applications for weaknesses.  While these scans vary from program to program, the basic principles of security scans remains the same – enumerating the vulnerabilities present in one or more targets.  The company I work for undergoes monthly vulnerability scans, often by separate organizations because we do sensitive work for financial intuitions.  How many law firms do you think undergo regular security scans and how many do you think could meet the security regulations of their clients?

Conclusion

Assuming law firms were willing to make the considerable investment in IT Infrastructure and on-going security measures required for a competitive electronic discovery business, are they willing to continue the annual investment required to maintain a world class, highly secure data center? If so, then that firm makes it past the first of many challenges it will face competing with companies that are years and some cases decades ahead of them. It is difficult enough for those of us who have been in this for almost 3 decades, much less someone just entering the fray.  Next week we will discuss keeping up with quickly changing technology, how difficult it is to keep up and remain competitive. We will also discuss commoditization of processing and production and how law firms are going to find the profit margins on these services are very, very thin and in many cases services with loss leader or breakeven margins. Stay tuned, and please provide your input into this discussion.

So Easy A Cave Man Can Do IT? Or, NOT! Lessons From Howrey

There has been a lot of discussion here lately about the recent trend toward law firms and corporations bringing electronic discovery in-house. I have been relatively quiet on the topic, until now. As with most topics, I am jumping in hopefully with some insight based on past experience. We’ve been here before and history tends to repeat itself.

 Some in our industry are very concerned with law firms entering the “electronic discovery space”. Many electronic discovery “vendors” see law firms as a competitive threat. Corporations, well, it certainly makes economic sense in some cases to bring those services in-house where justified. My attitude has always been – if they want to bring services in-house, let’s help them see if there is justification (gap assessment) and then help them build it the right way and track their ROI to make sure their investment pays off. How about law firms? What is their motivation? Partially it is control of the discovery process. Mostly, however, it is revenue. ESI management is a multi-billion dollar industry. Lawyers are business people just like anyone else and when they see business opportunity, they want to capitalize.

Nothing New Here - We've seen it all before.

This is not a new trend, however.  Lawyers have been trying to capture collateral services revenue for decades.  Remember the fax and copy centers?  Many still exist with the firm still seeing revenue.  Some firms have even started copy and scanning companies.  I know firsthand because I was with Susman Godfrey, LLP in the late 80’s when the partnership decided that too much copy money was being outsourced (SG was paying many of the expenses then) so it started Legal Copy, Inc.  Seemed like a good idea at the time.  Ask any current or former partner how it worked out for them.  It did not work out very well. The venture lost money and had to fend off at least one lawsuit. (Jones vs. Legal Copy Inc)  The Susman partners eventually divested themselves of the company and vowed to focus on being great trial lawyers.  They clearly suceeded in that task. 

Rain Clouds Ahead - Look to the Future, but learn from the past.

Today we see several law firms attempting to become discovery service providers, in some case full service.  Where do we think this trend will end?  Well, the same way it always has when someone in one profession (not just the legal profession) attempts to run a competitive business that is outside of their core business – disastrous results.  Don’t get me wrong, there will be some that will be successful.  Fulbright has had some measure of success, but even that firm still outsources.  They know their limitations.  Some law firms have brought in some electronic discovery services, but on a small scale if for no other reason than to be able to evaluate and understand their service providers.  In my view, the right course and the course I’ve taken successfully in the past at 2 different firms.  Every major firm should have a litigation support or practice support department.  However, attempting to be competitive on a large scale is generally not going to be successful if law firms stick with their current model.  But don’t take it from me.  How about the most recent example – Howrey.  As most know, the law firm Howrey, at its 18 offices and 750 lawyers world-wide, imploded for various reasons, but one that was cited was failure to compete with service providers.  CEO Robert Ruyak told Wall Street Journal blogger Ashby Jones: 

Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, he said. Howrey, a law firm with many offices in big cities, and thus, higher costs and couldn’t compete, he added. (Ashby Jones; “CEO Ruyak Partly Blames Contingency-Fees, Discovery Vendors, for Howrey’s Fall”; WSJ Law Blog; 9 March 2011)

In an interview in January of this year, before the implosion, Ruyak saw the train coming, but helpless to stop it. 

 “We had to make the decision to focus even more than in the past and it was clear we needed to downsize the firm,” Ruyak told the Lawyer. “You also need to remember there have been some dramatic shifts in litigation in the U.S. The use of electronic discovery and outsourcing has meant less need for manpower. That’s been a dramatic shift in the past few years.” (Debra Cassens Weiss; “Howrey MP Says Outsourcing, Electronic Discovery Spurred Partnership Downsizing”; ABA Journal; 12 January 2011)

By then Howrey had built a massive electronic discovery unit outside of DC and in India.  The road to implosion for them began back in February 2008 when Howrey was the first major law-firm to open a back office "document service" in India. 

Howrey is to become the first major US firm to open an office in India, writes The American Lawyer, in a move the intellectual property (IP) specialist hopes will give its clients a low-cost option for document management. (Daphne Eviatar; Howrey hits India for 'low-cost option'; Legal Week.com; 12 February 2008)

Washington Post writer Steven Pearlstein also cited investment and inability to compete in electronic discovery as one of factors in Howrey’s demise. 

Howrey invested heavily in a state-of-the-art litigation support center in Falls Church, specializing in the hot new field of “electronic discovery.” There was also a back office in Pune, India, to provide low-cost legal research. In 2008, Legal Times cited Ruyak as one of 30 “visionaries” of the legal profession. (Steven Pearlstein; “Why Howrey Law Firm Could Not Hold it Together”; The Washington Post; 19 March 2011)

Be Careful Out There!

Despite all the evidence suggesting lawyers should be lawyers, some law firms continue down this slippery slope. Some may well be successful, but there will be many that will not.  Next week we will explore why some law firms will continue to remain minor players in this business and bad things will likely happen to some, regrettably. Someone said to me just yesterday that sometimes lawyers have to learn things the hard way. My belief, however, is that lawyers are just getting poor business advice in some cases. Electronic discovery is NOT “so easy a cave man can do it”. Stay tuned and find out why. I will write an article next week analyzing the competitive factors in this fast moving business. Subscribe to the RSS feed and follow the discussion.

Rocket Docket Court Opinion on Self-Collection

Go to any eDiscovery service provider blog site and you will find a post or discussion of the recent opinion out of the Eastern District of Texas where Judge Ward joins a long list of Federal Judges and Magistrates unhappy with the current state of Discovery around ESI.  Let’s begin with what the penalty assessed against the defendant for what essentially was a self collection.

“In conclusion, the Court holds that Blitz is subject to sanctions for various discovery violations as described in this Memorandum Opinion & Order. The Court orders Blitz to pay $250,000.00 in civil contempt sanctions to the plaintiff in this case. The Court additionally orders that Blitz has thirty (30) days from the date of this Memorandum Opinion & Order to furnish a copy of this Memorandum Opinion & Order to every Plaintiff in every lawsuit it has had proceeding against it, or is currently proceeding against it, for the past two years. The Court issues an additional $500,000.00 sanction that will be tolled for thirty (30) days from the date of this Memorandum Opinion & Order. At the end of said thirty (30) days, if Blitz has certified to this Court that it has complied with the Court`s order, the $500,000.00 sanction will be extinguished. Finally, for the next five years subsequent to the date of this Memorandum Opinion and Order, Blitz is ordered that in every new lawsuit it participates in as a party, whether plaintiff, defendant, or in another official capacity, it must file a copy of this Memorandum Opinion and Order with its first pleading or filing in that particular court. This Court expresses no opinion as to the manner in which a particular court may use or not use such copy.” Green v. Blitz U.S.A., Inc, 2011 U.S. Dist. LEXIS 20353 (E.D. Tex. Mar. 1, 2011)

What happened to defendant Blitz U.S.A. is something that could happen in just about any case. If you’re a litigator and reading this and still think it is a good idea to allow your corporate customer to “self collect”, to “save money”, re-read the above conclusion by the court, and read on.

Fox Guarding the Henhouse

In the paper days we conducted document discovery by going to each witness and asking them about how they keep files and then gathering and copying relevant material. Early on, there were times where we would rely upon the witnesses, or the legal department to gather responsive documents. We quickly learned what Blitz just found out the hardway. Someone close to an event that gave rise to the dispute is the last person you want making decisions about what is relevant and what is not because it is guaranteed that their view of what is relevant is going to be narrow, no matter how many instruction memos you write. The bigger problem, however, is what Ralph Losey referred to in his analysis of the Blitz option as “the fox guarding the henhouse”.

"There are many dangers inherent in self-collection, including good faith omission by inadvertence, laziness, or lack of technical or legal training. But the chief danger is bad faith omission by fraud, by the natural desire of a witness to protect him or herself by not producing incriminating emails. This is the fox guarding the hen house scenario that represents the greatest danger of self-collection." Another “Fox Guarding the Hen House” Case Shows the Dangers of Self-Collection. By Ralph Losey.

In the world of ESI, unlike the world of paper, the delete key can erase forever millions upon millions of records in a blink of the eye, or in this case with the stroke of a key. There is also the danger that a witness will alter evidence. On March 29 in Richmond, Va., District Judge Robert Payne sanctioned the mortgage division at SunTrust by ordering the bank to pay the legal fees related to the pretrial discovery-related work of its adversary, United Guaranty Residential Insurance Co. of North Carolina (UG), a mortgage insurance subsidiary of AIG. The offense? Former bank employee Mary Pettitt tried to re-write history by altering email from 2005. SunTrust is appealing the decision.


Why do I care about what some Judge in East Texas says?

If you are a commercial litigator, particularly someone that handles IP litigation, you might care what Judge Ward says. After all, this is not just any old Federal Judge. This is the rocket docket court. What is a rocket docket? The term was originally applied to the United States District Court for the Eastern District of Virginia, after Albert V. Bryan Jr., who ran the federal courthouse in Alexandria, decided that justice was being dispensed too slowly for his liking. The court earned the nickname among attorneys practicing there in the 1960s, who told stories of Bryan ruling on the spot when motions were argued, and trying entire cases in one afternoon.

More recently, the Eastern District of Texas has seen an increase in the number of cases filed relating to patent infringement. This District has experienced an increase in the number of patent cases filed and tried, notably in the courts of Judge T. John Ward in the Marshall Division, Judge Leonard Davis in the Tyler Division, and Judge David Folsom in the Texarkana Division. Some believe the reason so many IP cases get filed there is because the judges are “Plaintiff friendly”, which is actually not the case. The reason so many patent cases get filed in Marshall is because the district has a set of local rules for patent cases and relatively fast trial settings. As a result, patent plaintiffs have flocked to this small venue. In addition the proximity to larger cities (such as Dallas and Houston) along with an aging jury pool interested in protecting property rights, may attract patent cases to Marshall, Tyler, and Texarkana. See Wikipedia. 
The opinions relating to the discovery of ESI continue to come out of courts across the country, yet we still don’t see a significant change in the way lawyers generally approach the identification, preservation, collection, review and production. We are, however, beginning to see considerable involvement from their corporate customers. What is your preservation and collection process?