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August 2012

Home – E-Discovery Can Be Costly - But Not Doing It Right Can Cost Much More

E-Discovery Can Be Costly - But Not Doing It Right Can Cost Much More

Say you have a fairly complex piece of litigation and you have a million documents to review.  And let's be nostalgic and go with an entirely human solution. You have a group of $150-an-hour attorneys who can review each document in just 30 seconds to determine whether it should be produced. It is easy to see how just that first pass at the documents turns into a $1.25 million expense.  


An over-simplification to be sure (there are myriad other factors and variables to consider), but this illustrates how quickly the bill for document review adds up and why document review is the largest cost driver in e-discovery-far ahead of data collection and processing.  


If estimates of potential savings from methods like predictive coding come even close, $1.25 million can become as little $250,000. That's huge, especially when companies are engaged in multiple complex litigations and when even one case-like the much-publicized Da Silva Moore lawsuit-can involve three million emails.  And the cost of e-discovery can go well beyond the tally in an individual case or the impact on a company's fiscal year.  Some blame the expense of gathering and analyzing Electronically Stored Information (ESI) for the increased difficulty in resolving complex legal and business disputes in general.


Sanctions Risk


These costs seem like chump change when compared to the cost of losing a case when a rigorously managed e-discovery program is not implemented. A recent case in which a law firm "found" a bank client's critical document after trial was called ripe for a finding of either civil or criminal contempt by the federal judge overseeing the case.  A jury returned a $67 million verdict against the bank and a sanctions decision is expected soon.


In its 2012 report, Where the Money Goes:  Understanding Litigant Expenditures for Producing Electronic Discovery, the Rand Corporation said document review for relevance, responsiveness and privilege typically makes up about 73 percent of discovery costs. Collection, which previously drew the attention of policy makers, accounted for only 8 percent of costs, and processing comprised about 19 percent.


Rand's analysis reveals that on a per-gigabyte basis, the cost of collection ranged from $125 to $6,700, processing ranged from $600 to $6,000, and review ranged from $1,800 to $210,000 per gigabyte.  


"As might be expected because of their historical role in the review process, expenditures for the services of outside counsel consumed about 70 percent of total e-discovery production costs.  Internal expenditures, even with adjustments made for underreporting, were generally around four percent of the total, while vendor expenditures were around 26 percent," Rand authors Nicholas M. Pace and Laura Zakaras wrote.  


A reason for the cost difference is that while collection and processing can be automated and performed by lower-cost vendors who can productionize or commoditize volumes of work across many clients, reviewing material takes more time and judgment by higher-cost professionals (i.e., attorneys) bound by human limitations.   While the cost of collection is relatively low compared to review, it can come with an upfront cost.  One company told Rand that it was adopting a collection tool that was going to cost $1 million-half to purchase the system and half to train staff.


More In-House Control


The Rand authors said most of the companies interviewed for Where the Money Goes were committed to performing more e-discovery tasks themselves and outsourcing tasks that could be commoditized.  The Rand authors said that while they did not see evidence that in-house counsel were reviewing more documents, they were asserting more control over the first-pass reviews.


In their March 9, 2012, article about Judge Peck's Da Silva Moore decision-titled "Court Endorses Use of Predictive Coding for ESI Discovery "and published on www.proskauer.com- Proskauer Rose attorneys Mark W. Batten, Enzo Der Boghossian and Steven D. Hurd said "manual review of millions of emails is simply too expensive a task," calling Judge Peck's ruling and the subsequent affirmation "a significant step made by the Southern District in recognizing the immense cost of certain types of litigation to employers."


The old adage that you cannot manage what you cannot measure-and track-would certainly seem to apply in the case of controlling e-discovery costs.  Rand authors Pace and Zakaras implore litigants to "begin tracking and better understanding the cost of preserving documents."  Some of the companies interviewed for their report believe preserving information is "costing them more than producing e-discovery in the aggregate."  


No Longer a Specialized Skill


An educated, informed and prepared legal department is key to cost effective e-discovery, industry analyst Ari Kaplan concludes in his latest report on e-discovery.


In Advice from Counsel:  An Inside Look at Streamlining E-Discovery Programs, Kaplan said e-discovery "is no longer a specialized skill, but a process in which every legal department must be versed."


Kaplan's white paper is based on a survey of corporate counsel commissioned by Global Advisory Firm, FTI Technology. In the fall of 2011, FTI interviewed 31 anonymous individuals by telephone, the majority of whom worked for Fortune 1000 companies and all had e-discovery responsibilities


"It is your duty to handle your litigation properly and to understand the law and your litigation," a respondent stated in the survey. He stressed that his colleagues "get smart in-house."


Taking the time to plan and test an e-discovery program in advance is invaluable because it saves money, according to those interviewed. A firm can never perform enough due diligence when it comes to e-discovery, they noted.


Make "Frenemies"


To reduce costs, parties should "work with their adversaries to try to reduce the amount of data in play and if possible, bring some software and staff in house," FTI Technology said in its report.


"The early case assessment (ECA) process, as well as advanced technology such as clustering or predictive coding, can help reviewers be more efficient and get important information faster," the FTI researchers concluded.


FTI also reported the following statistics in its report:


  • There was an 11 percent jump-to 81 percent-in those firms that brought software in-house to reduce law firm costs or service provider fees between 2010 and 2011.


  • When selecting software, 68 percent of the respondents said the defensible and proven criteria was the most important, up 11 percent from 2010's number and 20 percent more than in 2010.Those that said minimal disruption to normal business processes was most important climbed to 35 percent-up five percent from the year before.


  • Next, customer support was most important to 55 percent of respondents, which reflects no change from 2010.


  • The percentage of respondents considering costs as most important leaped to 32 percent, reflecting a 12 percent increase from the year before.


Global Discovery


Multinational matters also played a role for a majority of those interviewed, the researchers concluded.  "Germany and the UK were most frequently listed as collection points in the EU. To comply with European data privacy laws, respondents worked closely with local counsel and either attempted to gain employee consents, or kept the data in the country for processing and review," the researchers noted.


Respondents handling multinational matters worked with global service providers to ensure compliance with data privacy and listed multinational capabilities as an important component in selecting a service provider.  


Interestingly, international capabilities in selecting software wasn't a "most important" criterion to the respondents, and selecting a legal service provider only ranked most important to three percent of respondents.


The researchers noted review remains the "most expensive part of e-discovery."


Humans vs. Robots


However in deciding how to handle the rapid growth of data, the respondents are split, according to the report, with half expressing interest in advanced tools such as predictive coding to automate legal review.  The remaining respondents are leery of predictive coding and are concerned about defensibility or believe predictive coding is a "new sales gimmick for search technology."


While some legal practitioners remain on the sidelines regarding automation, global law firm Bingham McCutchen started using ECA tools several years ago, according to Peggy Stulberg, Bingham's director of litigation technology.


"LexisNexis® Early Data Analyzer filled a crucial need we had for an ECA software tool and did so with minimal up-front costs or organizational adaptation required," Stulberg said. "The software is flexible in that it can work where the original data resides, whether on a network or external drive and allows for defensible data reduction," he said.


"We were impressed with how fast Early Data Analyzer can go through a batch of files and cull them down," said Oliver Silva, a team lead for Bingham's Litigation Technology Department.  


Measurable Benefits


Initial data reduction, cost savings, control and defensible data reduction are the benefits Bingham attorneys say they are enjoying since their firm adopted LexisNexis Early Data Analyzer.


Bowman and Brooke, a nationally recognized trial firm with a large product liability practice, has also enjoyed the benefits of Early Data Analyzer.  During an exercise prior to adopting the program, the firm received a very heavy document collection and had very little production time. "In six days, we went from 1TB [terabyte] to a 74GB production with the help of LexisNexis Early Data Analyzer.  Still a lot of data, but we were feeling the weight on our shoulders-and our document collection-coming off," the firm said.


Tracking and understanding what you are in fact paying for document review, then making a choice on trusted technology to accompany human review is clearly a path to efficiency and will improve your firm's compliance with discovery rules in the face of exploding volumes of data. 


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