New technologies and tougher judicial and regulatory requirements are quickly changing e-discovery and the review of electronically stored information (ESI), but many in the legal and corporate sectors have been slow to respond to the sea change they face. A proper response during the next two or three years will be essential if companies are to comply with the new regulations and avoid unnecessary discovery-related expenses in the future, and now is the time to start planning.
Expectations are higher than ever that e-discovery investigations will be accurate, timely and cost-effective. Furthermore, new mandates, such as last year's revision of the federal civil procedure rules, mean data managers and corporate counselors must improve their ability to conduct reactive reviews while adopting a more proactive long-term approach. Many companies and corporate counselors have been slow to adopt a more proactive approach, which could prove costly in the courtroom and on the balance sheet in the future. The early adoption of proactive data storage and indexing should yield big returns in future efficiency and time savings.
Law departments and law firms have seen a substantial rise in the volume of electronic discovery. A 2005 study released by Fulbright & Jaworski LLP found that "electronic discovery was the number one new litigation-related issue for companies with revenue over $100 million." Further, it reported that, "the issue general counsel wants the outside counsel to understand the most is cost control."1 A survey published Nov. 27, 2006, by Computerworld magazine2 found only 5% of the IT managers and staffers in the 172 companies surveyed stated that they were prepared to respond to the new rules while 32% stated that they were unprepared and another 42% said they didn't know the status of their preparation.
The May 2003 issue of Digital Discovery and e-Evidence magazine3 cited a 2003 Socha Gelbman survey that said that the commercial EDD market began in 1999 at about $40 million. By 2006, Socha Gelbman4 estimated that the 2005 e-Discovery market was $1.3 billion and said the market's growth was expected to continue at an annual rate of 37% for the next two years and 29% the year after that.
Fundamental changes in review processes that take advantage of relatively new review technologies have the potential to yield significant improvements in review productivity and reliability. Unfortunately, these technologies often still are being resisted because of some counsel's unfamiliarity with the technology and suspicions about the effectiveness and reliability of the new tools. Initial resistance to new technologies has been typical in nearly every industry facing such changes over the past 50 years, but over time the technologies are improved and become the accepted approach.
This is proving to be the case with e-discovery, which has quickly evolved from an obscure field used in isolated instances into a core part of a wide variety of civil and criminal proceedings. Cases such as the Microsoft anti-trust suit and the investigation into Enron's collapse vividly proved the potency of records reviews and helped make them a routine part of discovery. Records such as e-mails, account-change logs and instant messages are being requested in a wide variety of cases, sometimes requiring the review of millions of records in an effort to identify items relevant to the case, items which must be shared with opposing counsel and items which are privileged.
The growing body of knowledge around alternative approaches to e-discovery and the relative burdens that they place on the parties engaged in the process is leading a number of companies and their counsel to seek to improve the predictability and consistency of the e-discovery processes they employ. For the most part, companies faced with litigation discovery and investigations are relying on their outside counsel to help them deal with the mountains of unstructured data that needs to be searched for responsive and relevant documents.
The law firms handling these review projects are concerned about performing a reasonable search for responsive and privileged documents and typically rely on traditional methods such as keyword searching and attorney reviews to identify them. Because the volumes of data are so large, even the biggest firms are frequently forced to turn to contract attorneys and discovery management service providers, often referred to as "vendors," to cope with the volumes of ESI in the timeframes demanded by the regulators and courts.
This "scale up" approach - adding more people and bigger systems to handle the increased volumes of ESI - without making fundamental changes in the review process yields dramatically higher costs without achieving a significant reduction in review time frames. Similarities to prior review processes can minimize the review teams' learning curves at the outset of the review project, but scaling up the old methods doesn't yield productivity improvements that can save time and money and reduce reviewer errors over the course of the project.
Beyond scaling up the review teams, fundamental changes in the review methodology can have a dramatic impact on productivity. A KPMG forensic analysis team recently assisted a major law firm conducting a review of more than a hundred custodians' data as part of an SEC investigation. By making a basic change in the review methodology to take advantage of the review application's clustering of documents with similar concepts, the first-level review team's productivity was more than doubled, with improved reliability statistically confirmed by the second level QA reviewers. This type of methodological adjustment, especially when combined with Six Sigma planning and monitoring principles, can contribute to great improvements in efficiency.
The cost of conducting a large e-discovery review can be daunting. Most of the money spent in e-discovery investigations is invested in the review process as highly compensated experts sort through thousands of potentially relevant records. Over-inclusive reviews are needlessly costly, showing the importance of a carefully managed records archive and well managed review.
While the volumes of unstructured data are growing rapidly, until recently little has been done by most companies to address this growing mountain of data - either in reducing its growth or in handling it when it comes time to respond to a discovery request. Gartner Inc. reported in October 2006 that 25% of all Global 2000 companies had adopted records management technology in 2004. However, Gartner said that by 2008 that percentage of the same group of companies would increase to 60%.5
KPMG recently consulted on a review of roughly five million records that took nearly four months of six- and seven-day weeks despite using a team of at least 100 reviewers costing thousands of dollars an hour. During this review, nearly 70 percent of the documents and records were found to be unrelated to the case. Of the remaining 30 percent with some passing relevance to the case, only one percent was deemed substantively relevant and included among key, discoverable documents.
The next two years will see profound changes as managers and legal counsel implement the proactive controls, archiving and e-discovery protocols required by the new federal civil procedure rules. Now is the time for companies to take the lead, set the direction and raise expectations for e-Discovery performance.
Companies that are involved with significant e-Discovery processes have the IT knowledge and resources to bring to bear on the large e-Discovery matters. These companies also have the dual incentives of risk reduction and cost management to get their unstructured ESI and e-Discovery processes under control. They will need to take a more active role and exercise greater control over their e-Discovery preparation efforts and review processes.
To achieve success in this area, companies will need to follow a consistent methodology for managing ESI and e-Discovery.
1. Prepare: Preparation is proactive and needs to be undertaken before an e-Discovery event occurs. It involves understanding all of a company's ESI and assessing the processes and risks related to creating, retaining and retrieving ESI in the normal course of business and in response to regulatory and litigation events.
2. Plan: Planning is also proactive and refers to having plans in place to identify, preserve and review ESI in response to the typical requests a company is likely to receive. In addition, event-specific planning is reactive and requires understanding and addressing a specific request for ESI when it occurs.
3. Preserve: Preserving ESI in response to a specific e-Discovery event is reactive and involves the issuance and implementation of litigation holds and performance of forensic data preservation processes.
4. Pare: Paring down the high volumes of potentially responsive ESI is also reactive and involves applying the most effective filtering techniques to focus high-cost resources on the documents that relate to the matter at hand, while minimizing the effort expended on unrelated and irrelevant documents.
5. Process: Processing the ESI related to a specific event is also reactive. The review tools and processes should be focused on achieving the highest efficiency and reliability in the review process.
6. Produce: Producing the responsive, non-privileged documents in a matter is reactive and should support the efficient production in the agreed formats, combined with reliable tracking of all documents that have been produced.
By following the approach outlined above, companies will be able to achieve lower costs in responding to requests for ESI along with greater predictability and reduced risks. 1 "Second Annual Litigation Trends Survey," 2005, Fulbright & Jaworski LLP.
2 IT Unready for New Rules on Electronic Evidence, Computerworld, November 27, 2006; www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=274762&intsrc=news_ts_head.
3 Digital Discovery and e-Evidence, Pike and Fischer, Vol. 3, No. 5, May 2003, page 1
4 2006 Socha-Gelbmann Electronic Discovery Survey Report, www.sochaconsulting.com/2006surveyresults.htm.
5 Dataquest Insight: Emerging E-Discovery Market Spurs New Content and Records Management Investments, Gartner, Inc. October 12, 2006, p 7.
Chris Paskach is a Partner in KPMG LLP's Forensic practice. Chris also is the global coordinating partner for KPMG's Forensic Technology Services. KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 104,000 professionals, including 6,700 partners, in 144 countries. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.