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 LTN 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.

4. 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, voicemail 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 ("ESI" in EDD parlance), 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 long-time 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 over-spending 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 CIOs 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).

LITIGATION READINESS

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., Electronic Evidence Discovery 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 are ready if you get sued and won't have to re-invent 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 are not 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-theshelf responses prepared for the initial disclosures," suggests Steve Stein, vice president of e-discovery consulting for Electronic Evidence Discovery Inc.

PROJECT MANAGEMENT

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 fouralarm 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."

THE SKEPTICS

Not everybody embraces the new mantra.

"Litigation readiness seems to be the buzzword dujour. 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. (See www.edrm.net).

TURF WARS

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. explains. "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."

DIFFERENTIATORS

First, to set context, let's look at the Darwin issues. At the 2007 LegalTech New York show, I predicted three evolutionary trends:

1. The Big Three (Thomson Corp., LexisNexis, and Wolters Kluwer) would continue to gobble up any strong EDD product that doesn't stand still.

2. There would be lots of road kill, reminiscent of the dot.com collapses, as wobbly companies are crushed by poor business models, inadequate technology, and/or competition.

3. Nimble, agnostic niche companies — that play well with others and have sharp agendas — would thrive (at least until #1 applies).

So far, these predictions have held true. What can the EDD vendors do to be heard above all the noise? Some vendors are aggressively capital-izing on brand name recognition and positioning themselves as "one stop shops." That's just about the slogan for LexisNexis. It campaigns with "Total Practice Solutions," and its "LexisNexis Total Litigator" is where you'll find its EDD offerings. And it's been buying, buying, buying. Over the last few years, LexisNexis has acquired Applied Discovery, CaseMap, Concordance (Dataflight Software Inc.), CourtLink, and Mealey's Conferences, and it just announced a deal to publish Michael Arkfeld's books and newsletters.

Meanwhile, Thomson Corp. took an interesting strategy, bringing consultancy Baker Robbins & Co. into the fold, after acquiring Hildebrandt International, and GSI (Edgar).

Some observers suggest that choosing brand name providers comforts wary purchasers, especially if they don't fully understand EDD and its fast-paced marketplace. As many say, it's a variation of the classic purchasing rationale: "Nobody ever got fired for buying IBM or Microsoft."

But just about everybody concurs that even if you go to a big shop, you need customization. LexisNexis' Michael Gersch, vice president of discovery services and case assessment and analysis, says "choices — rather than one-size-fits-all — are what it is all about when working with corporations or law firms to help them with e-discovery projects. Not all cases, projects, companies or firms require the same services or capabilities, so successful vendors will differentiate on what they can provide given these diverse needs."

But users do want "one-stop shopping," where the vendor supports each step of the litigation process, he asserts.

Zantaz' Steve King says his company recently conducted an independent survey of corporate legal departments, to see if they were interested in developing proactive strategies. Two-thirds hollered "yes." "They wanted a system that was 'soup to nuts' . . . that took them from data preservation and collection all the way through production. In effect, they were describing the phases of the EDRM," he says.

Aaref Hilaly, president and CEO of Clearwell Systems Inc., says a one-size-fits-all model can provide "short-term relief to the pain by hiding the ugliness of the problem," but in the long run, companies want programs closely tailored to their specific needs, with interoperability among vendors.

Ultimately quality and effective project management will be key differentiators, suggest many. "Quality means consistent delivery on commitments: on target, on time, on budget," says Gelbmann. "Vendors who engage in a practice of over-commit and underdeliver will be weeded out."

Other factors volunteered by sources include customer service, price, reputation, data security protocols, and depth of technology offerings. And just about everybody acknowledges that "preferred provider" status is becoming more pervasive as general counsel try to control time-and-money resources.

COMMODITY PRICING

A true EDD flashpoint, however, is the concept of commodity pricing. General counsel increasingly demand that vendors and firms drive down the costs of processing data, which in major litigation can include millions of documents and cost millions of dollars.

In the 2007 Socha/Gelbmann report, the authors dismiss the suggestion that cost is a primary differentiator as the "commodity myth." And they place part of the blame for all the corporate pushback on vendor marketing that "conveys the message that EDD is easy, and that therefore, by implication, consumers should shop by price."

Robert Ballou, CEO of Onsite3, is among those who insist that price isn't the first priority. "Cost is more often a secondary factor, following consideration of risk management, based on the growing complexity of EDD requirements," he says. While there has been a reduction of costs for some traditional services, such as processing of paper documents, there has been an increase in demand for new services, such as handling VoIP telephony data, he says.

LexisNexis' Gersch says pricing depends on the specifics at hand. "For a small, straightforward case with no time pressures and few cost concerns, yes, e-discovery services may be a commodity [where users] can choose between any number of providers." But for larger cases, or major litigation, speed and multi-party review are needed, and EDD "is definitely not a commodity."

Craig Ball says increasing standardization will result in commodity fees for items like bulk scanning, photocopying, or tape restoration. "Pricing rules when one vendor's offerings are indistinguishable from another's."

His view is mirrored by Verizon's Patrick Oot: "Service providers seem outraged by the concept that they vie against one another for business, but price is the prime focus when budgetconscious clients see out unsophisticated services." And, he notes, vendors offering unique services may find that what is proprietary one year is commonplace the next.

Guidance Software's Barsocchini says too many vendors "are using smoke and mirrors to make pricing difficult to track." For example, "they may not charge for collecting data, but then make it up in processing costs by having more ESI to process instead of culling at the front end."

Advises DLA Piper's Marean: "Don't look for lowest cost vendor, look for the lowest cost responsible vendor.

STAFFING

Where vendors can distinguish themselves is with human talent and specialized knowledge, says Oot. "Clients are willing to pay for qualified talent."

He is among many observers who predict brewing storms ahead over staffing issues. In fact, he says, it's already thundering. "The market has tremendous firm-to-firm movement, and providers see low retention in project management positions due to the upward volatility in both responsibilities and compensation," says Oot.

"Further, the culture at many law firms dictates electronic discovery counsel and director positions as nonpartner track positions. Although firm culture is shifting, many firms fail to place leadership emphasis with true decision-making power on this crucial position," he says.

Mid-level associates, notes Oot, have very little knowledge of e-discovery processes. "It takes months to find a solid project management candidate. Firms need to re-educate their teams."

Craig Ball says lawyers with "anything that smacks of EDD experience are being snapped up by vendors and consulting companies. I don't know exactly how sweet the deals are, but people are walking away from partnerships at big firms. You do the math."

D-I-Y

Our experts were just about unanimous on the question of whether it's a good idea to "do it yourself" when it comes to EDD. Their answer: Only if you really know what you are doing.

"Honestly, people pay me a lot of money to do things they could do in-house if they invested in the right training and tools," says Ball. "I find it odd that lawyers who wouldn't hesitate to go to a client's facility and collect documents are terrified of the liability that might flow from doing the same thing for e-documents. So what if you might have to testify? Do it correctly and do it routinely, and it is as much a ministerial task (read: one that doesn't disqualify you if you have to testify about it) as making photocopies or moving bankers boxes."

Ball concedes that he is "decidedly in the minority camp on this right now, but mark my words: There's a lot of this stuff that will routinely creep into the realm of D-IY as tools improve."

But SPi's Kellner notes that most organizations just don't have the resources. Corporations may initially go D-I-Y, to save money, he says, only to have to re-collect data, find missed or compromised metadata, and tackle chain-of custody issues.

PROXIES FOR PAIN

One worrisome trend is the increasing tendency of irritated courts to sanction counsel for EDD problems.

"I remember when lawyers were deemed to be acting on behalf of the client," says Ball. " Now it seems we are their proxy for pain."

Recent harsh court rulings should inspire lawyers to help educate the judiciary, argues Verizon's Oot, who has developed an alliance with other Fortune 500 firms, to file appeals when there is an attempt "to move the current standard of reasonableness to one of unobtainable perfection."

Oot urges colleagues to get involved with groups like The Sedona Conference and Georgetown Law Center's EDD programs, to help develop and shape law.

Michael Arkfeld sings in that choir:Recent decisions, he says, "should be enough to create substantial paranoia for all lawyers across the country."

And they predict more shockwaves, especially for major corporations: "ESI requirements must be integrated into multinational corporation procedures to ensure that cases are decided on the merits, and not on the basis of procedural failings regarding electronic discovery," urges Arkfeld, author of Electronic Discovery and Evidence.

"The legal profession as a whole is still fighting a losing battle in refusing to acknowledge the importance — as well as the need to institutionalize — electronic discovery best practices.

To change, law firms or corporations must not only acknowledge the need for training in EDD practices, but also a cultural and operational change needs to be made within firms," he says.

Law firms, says Arkfeld, "need to be shocked into realizing the legal, ethical and malpractice risk that occurs daily for failing to issue an ESI litigation hold, properly prepare for a meet and confer session, or failing to understand the proper foundation for admission of ESI."

DISRUPTER?

If we've learned one thing about technology this century, it's to expect the unexpected. We asked our experts if they see any disrupters that will change the EDD terrain.

Ramana Venkata, president and cEO of Stratify Inc., predicts a convergence of EDD, corporate compliance, and data management and storage. "As these segments meld, the landscape may change."

LexisNexis' Gersch says everybody should keep an eye out for a proposed amendent to FRCP rule 502, covering waiver of attorney/client privilege and work product.

Onsite3's Ballou urges everyone to monitor the courts, and cites the recent Columbia Pictures Industries v. Bunnell, which addressed the issue of whether RAM (random access memory) is discoverable. (See LTN, August 2007.)

Others suggest watching for more über search tools, increased bandwidth for storage, virtualization, enterprise content management systems, and surprises from major technology leaders.

"One is named Microsoft, and the other Google," says Craig Ball. "The first could disrupt, but likely won't. The second can, and will."

As for the big bang, that changes everything? "I wish I knew," muses Browning Marean. "The law of unintended consequences has not yet played out fully."

* LTN Editorial Advisory Board member and author, EDD Update Blog.

** Law.com Legal Technology Editorial Advisory Board member and author, EDD Update Blog.

Monica Bay, a member of the California bar, is editor-in-chief of Law Technology News, and author of The Common Scold blog (www.thecommonscold.com) and EDD Update blog. E-mail: lawtech@alm.com.

Law Technology News September 2007