Ediscovery Cost Benefit

The e-Discovery Challenge: Saving Dollars and Making Sense of Your Enterprise Content Daniel B. Garrie, Esq.

A Digital Reef Sponsored White Paper

SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT

Table of Contents Introduction

1

Balancing Act: Choosing Among an Outsourced, In-House or Blended Solution

2

Legal e-Discovery Costs

3

Technology e-Discovery Costs

5

Indirect Business e-Discovery Costs

5

The Balancing Test for e-Discovery Solution Migration

6

Other Benefits of an In-House Solution

7

Information Security Gains

7

Adaptability to Changing Regulatory and Judicial Discovery Requirements

7

Conclusion

7

About the Author

8

About Digital Reef

8

SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT

Introduction Legal discovery can impact your organization in significant ways. The direct costs of expert assistance add up quickly. The indirect costs of disruption impair the focus on the business mission. A key consideration is where to position your organization in the spectrum from an ad hoc largely outsourced solution to a purely in-house enterprise solution. To help the discussion, we will use the Electronic Discovery Reference Model1 (EDRM) as a framework. The ongoing EDRM project develops guidelines and standards for e-discovery consumers and providers. Here is the model they use:

Figure 1. Electronic Discovery Reference Model

Beginning with a large volume of raw information, the goal of the process is to present relevant information responsive to the discovery request. Any of the key elements shown may be performed in-house or outsourced. Typically, the likelihood of outsourcing increases from left to right. For example, an organization may adequately manage its information assets in-house but look to outside experts to produce and present trial exhibits. Because they lack sufficient resources to develop in-house enterprise solutions and/or receive infrequent discovery requests, smaller organizations may look to turnkey outsourcing. However, many organizations are deciding to bring e-discovery in-house. This strategy provides substantial tangible benefits. Direct cost-savings accrue year-by-year. Rigorous policy implementation and directed technology investments diminish business disruption and reduce legal risk in future years. As litigation exposure increases, costs are far better contained. In either case, organizations must develop document retention policies that preserve essential internal information assets (enterprise content) while minimizing retention of information that serves no business purpose. Studies have found that 84% of information stored and archived 1 For further information, see Electronic Discovery Reference Model, http://www.edrm.net/

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT by organizations actually has no business or legal utility whatsoever. 2 The implications for discovery of information in legal disputes, in particular electronic information (e-discovery), are profound. 3 In one antitrust case that I discussed with a colleague, out of 20 million documents reviewed and produced, only several hundred exhibits were eventually introduced as exhibits in court. This ratio of 100,000 to 1 provides clear evidence that organizations are not strategically managing information assets toward specific business goals.4 In deciding on a more effective information management solution, an organization must weigh the costs and benefits of outsourced discovery processes vs. in-house discovery processes. This paper provides a structure for legal and technology stakeholders to anticipate and quantify e-discovery costs and benefits. By balancing the trade-offs in the legal, technology and business domains, organizations can identify e-discovery solution pathways that make migration toward a comprehensive in-house information management system both feasible and worthwhile. This paper also addresses the collateral benefits of minimizing information security risk and facilitating adaptation to changing regulatory and judicial discovery requirements.

Balancing Act: Choosing Among an Outsourced, In-House or Blended Solution Organizations today accumulate unimaginable amounts of information. Although partly driven by external factors (e.g., regulatory oversight and legal demands), the major contributor is internal: Ineffective management of electronic information, exacerbated by the declining cost of information storage. Attempts by information technology (IT) departments to impose storage limitations meet strong resistance. In most cases, IT departments have simply accommodated the explosive increase and excessive retention of information. The crux of the problem: Organizations retain information not because they expect to use it, but because there is no compelling reason to discard it. A growing external demand today is e-discovery.5 In-house counsel is responsible for compliance with discovery obligations and must have knowledge and familiarity with (1) the nature and location of electronically stored information (ESI), (2) relevant computer systems and applications, (3) document retention schedules, policies, practices and enforcement, and any need for suspension or modification thereof and (4) the search, storage and retrieval capabilities of the organization and the attendant costs. The courts expect counsel to confer in good faith early and often throughout litigation disputes, and to cooperatively reach agreement or identify 2

See "Document Analytics Allow Attorneys to be Attorneys," (Chris Paskach and Vince Walden, DDEE, August 2005,

page 10. 3

See The Sedona Principles: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, Second Edition (The Sedona Conference Working Group Series, 2007) [available online ] 4

See Gartner Research “Key issues for an Electronic Discovery Project 2008” Publication Date: 18 April 2008/ID Number: G00155681 5

George Socha & Tom Gelbmann, A Look at the 2008 Socha-Gelbmann Survey, Law Technology News, August 11, 2008, http://www.law.com/jsp/legaltechnology/pubArticleLT.jsp?id=1202423646479

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT e-discovery issues for the court. Such issues may include the form of: production of ESI; cost allocation; protection of privileged, private and confidential information; and other issues relevant to searching, preserving and producing ESI. An organization’s decision to direct either in-house or third-party resources to perform these tasks directly impacts the total cost of discovery, which can reach millions of dollars in large and complex cases. The EDRM introduced in Figure 1 is a diagram of the key functional stages in e-discovery. They may be grouped into these six phases: 1. Information Management – from initial creation of ESI to its final disposition; 2. Identification – locating potentially relevant sources of ESI and determining their scope; 3. Preservation, Collection – ensuring that ESI is protected against inappropriate alteration or destruction; gathering ESI for further processing; 4. Processing, Review, Analysis – reducing the volume of ESI and converting it, if necessary, to more suitable forms; evaluating ESI for relevance and privilege as well as for content and context; 5. Production – delivering ESI to others in appropriate forms and using appropriate delivery mechanisms; and 6. Presentation – displaying ESI before audiences (at depositions, hearings, trials, etc.). Phases 1-3 are normally within the scope of an organization’s IT capabilities. However, consultative services may be necessary in more complex cases. Phases 4-6 are more likely to require outsourcing for two reasons: (a) the scope of the effort may overwhelm in-house resources and (b) the complexity of the discovery request may demand specialized search, analysis and presentation services. Your organization must determine the most cost-effective work plan for each e-discovery request. The preferred work plan will depend on the nature and scope of the e-discovery request and the year-to-year pattern of discovery requests your organization anticipates. A blended solution (partly in-house and partly outsourced) may prove desirable in many instances, but we must emphasize that comprehensive in-house information management (Phase 1) establishes the best foundation for a successful e-discovery response: lowering costs and meeting compliance requirements on the first try. To illuminate the e-discovery cost drivers, we will examine three interrelated cost domains: legal, technology and business. An organization’s legal department is the focal point for ediscovery requests and will normally oversee any outsourced efforts. The IT department not only manages the organization’s enterprise content but can furnish specialized expertise and tools to identify and retrieve relevant documents. The organization’s business mission will inevitably incur indirect costs because of the disruptive nature of e-discovery requests.

Legal e-Discovery Costs Ninety percent of US corporations are engaged in some type of litigation. This suggests that ediscovery is an ongoing process for companies—not a onetime event. Indeed, there are at least 20,000 compliance requirements worldwide and about 10,000 regulations that impact data management in the United States alone. A single hard drive can easily contain up to 1.5 million Page 3 of 8

SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT pages of data and one corporate backup tape can contain 4 million pages of data. 6 To put this in context, one can store more documents on a ten-square-inch hard drive than can be kept as hard copies in an entire story of a building. 7 The task of looking for one document among all active and archived files often becomes overwhelming and expensive, as more documents = more time = more dollars. Cost estimating relationships usually rely on a “sizing” parameter. For ESI, a measure of 9

storage capacity is frequently used: a gigabyte (GB) or 10 bytes (characters) of data. IT managers can readily furnish the storage space in GB utilized by a set of document files. For Microsoft® Word® documents, the page equivalence is about 65,000 pages/GB. However, page equivalence is very much application dependent. Although costs depend on a variety of factors, the following list highlights important elements needed to estimate an organization’s costs of discovery: • • • • •

Preservation of documents under legal requirements to retain evidence for pending or anticipated litigation and/or regulatory inquiries, or to prove or defend a claim; Retrieving and processing documents for litigation, including documents which have been retained longer than records retention policies require;8 Information restoration and collection tasks measured in gigabytes (GB) of storage space; Average volume of information per discovery request measured in GB per request; and Document review burden for a range of analytical needs measured in labor resources per GB.

An in-depth analysis of these elements will allow an organization to estimate the range of actual processing and legal costs when outsourcing the task of responding to a discovery request. The costs can reach unexpectedly high levels. One major Fortune 500 Corporation found that one GB of electronic data collected and produced cost $9,000, with most of that cost occurring in the review stage. Their average litigation discovery request produced 100 – 150 GB of information. Several e-discovery vendors have developed more detailed cost estimating tools. 9 They are based on actual industry experience and reliable cost estimating relationships. Use of these Internet-accessible tools is recommended to complete your estimates.

6

Linda G. Sharp, Restoration Drama: The Complexity of Electronic Discovery Requires Practitioners to Master New Litigation Skills, 28 L.A. LAW. 31, 31 (Oct. 2005). 7 See Generally Geanne Rosenberg, Electronic Discovery Proves an Effective Legal Weapon, N.Y. TIMES, Mar. 31,1997, at D5. 8 This is a substantial cost that organizations incur by not monitoring and enforcing their existing records management policies. Costs are even higher in the absence of such policies. 9 Access these URLs: http://orangelt.us/technology/pricing_estimator/, http://www.renewdata.com/request-priceestimator.php, http://www.attenex.com/e-discovery_process/costs_and_savings/savingscalculatortool.aspx

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT No shortage exists of third-party companies that can assist an organization in the discovery process. There are now reportedly about 600 companies offering e-discovery services. A recent survey reports that e-discovery services are currently a $3 billion market which is growing by 15-20% a year.10 In seeking to estimate the cost of an in-house response, your organization must utilize appropriate internal labor rates along with the pro-rated cost of requisite technology investments (see Technology e-Discovery Costs section). An in-house solution becomes more attractive as e-discovery becomes a more consistent and predictable cost burden. From our experience to date, an in-house solution is substantially cheaper when litigation costs exceed $2 million annually. 11

Technology e-Discovery Costs The framework for ascertaining technology costs should be formulated in collaboration with senior technology executives to ensure that the approach is correct and complete. This ensures that the conclusions accurately reflect the organization’s current capabilities and projected investments. When e-discovery requests are handled in-house, operations and maintenance (O&M) as well as investment costs must be considered. The important goal is to view e-discovery requirements as integral to the organization’s strategic requirements for managing enterprise content. For this reason, only a portion of the cost of new technology investments needs to be assigned to e-discovery in determining the return on investment (ROI). Even when e-discovery requests are outsourced, some level of O&M costs for existing technology must be estimated in determining the true total cost. For example, a court order may direct that a specified data set be preserved as of a certain date. That data set must be duplicated and held in access-controlled storage, an ongoing cost for the IT department.

Indirect Business e-Discovery Costs The full cost impact of an e-discovery request for an organization also includes indirect costs. Although the impact of e-discovery on the business mission is difficult to quantify, the diversion of internal resources to address e-discovery requests can cause loss of business revenue, decreased job satisfaction and diminished stature in the marketplace. For example, one Fortune 500 company that became entangled in litigation did not have any inhouse capabilities to respond to an e-discovery request. Nor did it have established document retention policies that were aligned with its technology investments. The total cost of responding to the e-discovery request — beyond the $1.2 million dollars spent on document review — also included a substantial decline in revenue relative to its competitors. Because this

10

George Socha & Tom Gelbmann, op. cit.

11 This is based on a case study FSRDG LLC performed over several complex legal matters for in-house counsel at a large multi-national corporation.

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT company was unprepared, it suffered a substantial resource diversion from revenue generating activities and a loss of skilled employees because of job dissatisfaction. The nature and extent of the actual impact of an e-discovery request will hinge in part on the strategic approach your organization chooses to handle such requests. If an organization views e-discovery requests as unplanned events that can only be addressed in an ad hoc manner, the organization will surely experience high recurring costs from outsourcing most of the effort. In addition, with no internal learning curve, indirect costs will impose additional cost burdens over time with no prospect of improvement. The alternative approach assumes that e-discovery requests are inevitable and must be addressed as one of several requirements for a comprehensive information management system for an organization. By establishing effective internal policies, business processes and supporting technologies, your organization can then reap the cost savings when it efficiently responds to e-discovery requests and minimizes disruption to the business mission. More importantly—by internalizing key steps—continued refinement is possible over time. Guided by experience, an organization can lower the cost impact of unwelcome e-discovery requests, while increasing the benefits of information assets for business success.

The Balancing Test for e-Discovery Solution Migration The starting point for weighing possible solutions for managing e-discovery requests is quantifying and gauging relevant cost factors. But the decision is multi-dimensional. For example: • • • •

What are the potential legal risks? How complete are policies for records management and how well are they implemented? What is the strategic plan (if any) for managing enterprise content? What information technologies are deployed and what future investments are planned?

The best e-discovery solution for an organization must consider all these elements. E-discovery is not simply a legal issue but a business challenge. Outsourcing all responsibility for ediscovery requests will prove problematical over time as we described earlier. In-house management of enterprise content not only lowers e-discovery costs in the long run, but it also gives the organization effective command over its information. Efficient identification of truly relevant documents markedly lowers the cost of downstream review and analysis in e-discovery disputes while simultaneously demonstrating an organization’s ability to strategically manage and exploit its information assets. That is why a blended solution is a worthy goal for most organizations, with outsourcing targeted for expertise and/or resources not available in-house. A completely in-house solution is dictated when litigation demands remain at a consistently high level year to year. Even then, outsourcing some tasks cannot always be avoided.

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT

Other Benefits of an In-House Solution Information Security Gains Security risks are frequently overlooked when an organization evaluates an e-discovery solution. Organizations must recognize that every time critical legal information is accessed by a third-party there is an increased risk that information will be compromised and misused. While it is obvious that a poorly implemented in-house solution may not compete with a well managed and efficient outsourced solution, the final decision must incorporate a thorough risk assessment of the information being handled. Security concerns may prevail over performance criteria, giving the edge to the in-house e-discovery solution.

Adaptability to Changing Regulatory and Judicial Discovery Requirements In a time of increasing regulatory oversight and constantly evolving judicial discovery rules, a flexible (i.e., easily adaptable) in-house information management capability can accommodate changes more readily. By delivering more targeted and focused data sets early in the process, cost savings will multiply during the time-consuming review and analysis phases. An outsourced solution will struggle to extract relevant data from unmanaged and poorly cataloged data repositories.

Conclusion The massive amount of information created and stored by an organization presents a challenge when a response to a discovery request is necessary. It then becomes more evident that most of its ESI is unstructured and unmanaged. This is the environment that drives the escalating costs of e-discovery. Even the control promised by document management systems proves illusory. Because enterprise content inevitably remains outside such systems, they are unreliable solutions for e-discovery. To realize cost efficiencies, an organization should manage its information assets once to meet all its internal needs and external demands. By effectively managing enterprise content — rather than emphasizing control — executives and staff can focus on strategic mission goals. That is why comprehensive in-house information management (Phase 1 in the EDRM) establishes the best foundation for a successful e-discovery response. An in-house solution, utilizing suitable third-party software, provides an organization with several benefits as ediscovery requests are addressed: • • •

Direct and indirect cost savings in the legal, technology and business domains through increased efficiency and reduced disruption; Enhanced information security by internalizing more of the e-discovery processing tasks; and Improved agility when complying with changing regulatory and judicial requirements.

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SAVING DOLLARS AND MAKING SENSE OF YOUR ENTERPRISE CONTENT Each organization must determine the appropriate blend of in-house efforts and outsourced tasking at each phase of the e-discovery process. The EDRM provides a framework to make this assessment. A large organization experiencing recurring litigation may adopt a fullyintegrated in-house solution while a smaller organization may outsource a greater number of tasks. Regardless, the goal is to transform an e-discovery request from an unwelcome pressure point to a demonstration of the organization’s capability to marshal its enterprise content with minimal disruption to ongoing business operations.

About the Author A nationally recognized expert in electronic discovery and electronic information management solutions, Daniel Garrie has delivered complex enterprise technologies for the DOJ, Westpac Bank, Schlumberger, AIG, eBay Motors, DHS, and Johnson & Johnson, and he has advised global companies on complex e-discovery issues. Mr. Garrie consults with attorneys and technologists on complex legal business information management issues involving the use and management of technology to meet regulatory and legal retention requirements and to manage discovery once litigation ensues. Mr. Garrie is considered an industry thought leader on topics that include consumer Web data both in the U.S. and abroad. Mr. Garre’s practice areas include: complex litigation including business/commercial, employment, finance, governmental entities, intellectual property, technology and telecommunications. He holds a JD from Rutgers School of Law and both a BA and MA in Computer Science from Brandeis University.

About Digital Reef Digital Reef has created the first massively-scalable unstructured data management platform for automatically discovering vital information trapped within vast stores of unstructured data. By rapidly examining all of an enterprise’s data and identifying relevant content, Digital Reef allows organizations to respond quickly when called upon to find specific information – even if they didn’t previously know they had it. Large enterprises use Digital Reef to significantly reduce the burden, cost, and risk associated with locating and producing required information for legal discovery, risk management, knowledge re-use, and storage management processes. With Digital Reef, enterprises know what they have, where it is, and how to access it when they need it. Founded in 2006, Digital Reef is headquartered in Boxborough, Mass. For more information call 978-893-1000 or visit www.digitalreefinc.com.

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