Predicts 2010: Regulatory Changes and Business Demands Will Drive the Long-Delayed Adoption of Legal Discovery Technology

• Law firms and service providers to the legal profession must change their business models from leveraging billable hours to leveraging knowledge to recognize the impact of technological change.
• Enterprise legal clients are demanding, and will continue to demand, improved service and reduced costs.
• E-discovery costs are one of the most important areas to control, and e-discovery software will be a key component in reducing these costs.
• Changes to e-discovery processes inside corporations will affect the providers of outside legal services.

• Law firms must change their fundamental business models to adapt to legislative, regulatory, technological and economic factors.
• Enterprises should require their external legal counsel and external legal service providers to show them a road map for the use of technology to reduce the cost and increase the efficiency of legal discovery and legal review.
• Enterprises whose law firms fail to respond to the demands for technology efficiency in discovery should engage different counsel.

Enterprises can no longer afford to approach legal discovery as if they were still doing business in a paper-based world, and they can no longer afford to engage legal counsel that resists technological innovation, or insists that the legal profession is sui generis (i.e., in a class of its own) when it comes to applying technology to work processes. Enterprises should demand that their law firms embrace technological efficiencies – and if they do not, then enterprises should replace them.

By the end of 2013, the legal technology market will have two segments: unique high-value opportunities and high-volume commodity activities.

By the end of 2011, law firms and e-discovery service providers will require their clients to adopt more-formal information management processes to help reduce the costs and risks of discovery.

By the end of 2011, enterprises will require all legal service providers to employ technology for early case assessment and document review.

For many years, the legal profession has resisted the adoption and integration of new technologies in the formal practice of law, including word processors, e-mail and cameras in the courtroom. Lawyers, judges and juries have almost always been behind the technology curve. Despite arguments being recorded in the U.S. Supreme Court for decades, the first one to be made public on a delayed basis was the 2000 hearing of Bush v. Gore, which determined the winner of that year's presidential election. However, a severe, worldwide economic downturn, coupled with ever-increasing, budget-straining demands for e-discovery, is forcing radical changes in law firms' traditional business models.

A recent National Law Journal study of corporate spending found that the use of outside counsel dropped by 10.8% in 2009, and a new report from the same source indicates that spending will drop another 4.3% in 2010. Many law firms are laying off partners, associates and support staff, and major legal clients are demanding increased value and alternative billing models. The annual Litigation Trends Survey conducted by the international law firm Fulbright & Jaworski found that the amount of corporate litigation actually dropped slightly in 2009 &$150; the first time this has ever happened in a recession (when legal costs historically go up), with the cost of e-discovery as a key reason why (see www.fulbright.com/litigationtrends19).

Analysis By: John Bace

Key Findings: In the U.S., the 2006 amendments to the Federal Rules of Civil Procedure (FRCP) changed the requirements for the discovery of electronically stored information. The U.K. Parliament passed the Legal Services Act 2007, which is designed to liberalize and regulate the market for legal services in England and Wales, and to encourage greater competition. These regulatory developments have opened the door to "alternative business structures" for the provision of legal services, and for nonlawyers to invest in, build and play key roles in the management of law firms and new types of legal businesses.

Market conditions and other economic factors are driving dramatically increased client expectations of legal services.

Market Implications: Many legal clients are demanding greater efficiency, more speed and higher-quality service, and at more-competitive prices. Meeting these clients' expectations requires the use of technologies that automate legal processes to deliver ease of use and commodity-based pricing. Other more-exacting clients are calling on legal professionals to embrace technologies that have had transformative effects in other industries &$150; for example, they want their lawyers to use powerful tools that can search for key facts in discovery, illustrate complex thoughts as a way of winning arguments, and calculate with extreme precision the probabilities of decisions and awards.

Recommendations:

Law firms and enterprise legal organizations:

• Change your underlying business models, shifting from leveraging people to leveraging knowledge, to avoid disintermediation.
• Invest in knowledge management and develop repeatable service delivery methodologies &$150; in much the same way that consulting firms do &$150; to keep costs under control.
• Capture knowledge and leverage it across multiple internal and external clients to prevent those clients from going elsewhere for legal services.

Analysis By: John Bace

Key Findings: Many legal authorities have recognized the need to encourage cooperation between opposing counsel during discovery, but the same spirit of teamwork must also exist between law firms and their enterprise clients. In one notable case, Qualcomm Inc. v. Broadcom Corp., the failure to produce requested documents brought more than $8.5 million in sanctions, and the referral of six attorneys for possible disciplinary proceedings before their state's bar association. It was only on the last day of the trial that the court learned that tens of thousands of requested documents, totaling 300,000 pages, had never been produced, even though the case had been going on for two years. The judge in the case repeatedly stated that attorneys are responsible for supervising the collection and production of documents by clients: "[T]he Court believes the federal rules impose a duty of good faith and reasonable inquiry on all attorneys involved in litigation who rely on discovery responses executed by another attorney.… Attorneys may not utilize inadequate or misleading discovery responses to present false and unsupported legal arguments and sanctions are warranted for those who do so.… The facts of this case also justify the imposition of sanctions against these attorneys pursuant to the Court's inherent power." The judge also ordered in-house counsel and the law firm involved to participate in a "collaborative process" to identify how the discovery failures had occurred and to develop a protocol to prevent violations in future cases.

Market Implications: The corrosive and counterproductive contention process that lies at the heart of the common-law system has been recognized for several years as one of the key problems with e-discovery. The Sedona Conference Cooperation Proclamation, which has been endorsed by almost 100 U.S. judges, and has been cited in at least a dozen court decisions, calls for a return to cooperative principles in the conduct of civil discovery. However, in many cases, the problems (including Qualcomm) come about due to misunderstandings and conflicts between in-house lawyers and outside counsel. Maintaining positive relationships will require law firms and their enterprise clients to make sizable investments in time, processes and technology.

Recommendations:

Enterprise legal clients:

• Develop a reasonably complete working inventory of potentially discoverable information that identifies information custodians, time frames and topics.
• Demand that your outside counsel provide a checklist and protocol or road map that will be used to guide the discovery process.
• Explain to outside counsel the formal and informal business structure, and detail how documents (paper and electronic) are stored and maintained.
• Require outside counsel to verify that all possible sources of responsive information have been exhausted, and, if necessary, seek a third opinion &$150; for example, from an IT consultant or the outside counsel's IT staff &$150; as a quality check.
• Document all steps taken to comply with the established discovery protocol.

Analysis By: Whit Andrews and Debra Logan

Key Findings: Gartner clients and references &$150; i.e., major law firms and the enterprises that engage them &$150; have, for some time, reported an increasing need for technology that can improve the efficiency and cost-effectiveness of e-discovery and document review. Beginning in 2009, Gartner began receiving specific enterprise inquiries about the early case assessment capabilities of e-discovery software. We believe this reflects a broader, more-complete understanding of e-discovery activities that directly face courts and regulators, and a desire to understand how these activities will affect their business productivity and practices (positively or negatively). Law firms that serve as outside counsel for e-discovery report that their clients expect them to deliver greater transparency in establishing, defining and describing the means they use to reduce the cost of discovery.

Market Implications: The e-discovery software market has shown a healthy annual growth rate for more than three years, and will continue to grow at a significant pace for at least five years, largely due to enterprises' desire to reduce litigation costs. Another significant factor is private-sector and public-sector enterprises' need to standardize processes that are part of regulatory and legal proceedings. E-discovery software vendors' most-effective marketing approach will be to emphasize the transparency of their products for enterprises and their legal advisors. Multitenancy and security across enterprise borders will also be crucial. Delivery models that enable collaboration and process sharing will likely prove attractive. Application service providers, software-as-a-service delivery models and "cloud" solutions will dominate the review and analysis phases of e-discovery.

Recommendations:

• Ask what software and other e-discovery technologies your enterprise's law firm is using.
• Evaluate these technologies in terms of their ability to reliably and defensibly cull and classify documents, with review efficiency, early case assessment and early resolution of cases as the primary goals, along with improved case management.
• Look for opportunities for direct, electronically mediated collaboration across enterprise firewalls in the very near future.
• Encourage your law firm to adopt early case assessment, collaborative case management and technology to assist with review and analysis. If your firm fails to do so by 2011, then it should be replaced.

In response to your requests, we are taking a look back at a few key predictions from previous years. We have intentionally selected predictions from opposite ends of the scale &$150; one where we were wholly or largely on target, as well as one we missed.

On Target: 2005 Prediction

Strategic Planning Assumption: By 2007, more than half of Global 2000 enterprises will have adopted an e-discovery software solution

Gartner published this prediction more than a year before the FRCP e-discovery amendments were enacted. We were overoptimistic about how quickly enterprises would embrace this new technology, but nonetheless, we were on the right track. The 2009 Fulbright & Jaworski survey reported that 48% of respondents indicated they are insourcing some of their e-discovery activities &$150; principally preservation, collection and processing &$150; while slightly less than half of that percentage also perform document review in-house. We believe enterprise adoption was slowed by the worldwide economic downturn, as well as by confusion and ambiguity surrounding the implementation of the amended FRCP rules.

Missed: 2006 Prediction

Strategic Planning Assumption: By 2011, U.S. courts will recognize one or more specific relevancy algorithms as a basis for selecting documents and determining their value for law cases.

In this instance, we were too pessimistic. No search methodology has yet been certified or approved by the courts, but the U.S. federal judiciary has amended Federal Rule of Evidence (FRE) 502(b) with the goal of establishing uniform, nationwide standards addressing the waiver of attorney-client privilege and work-product protection. The underlying issues are how to cope with the huge volumes of information produced during e-discovery, and how to cope with an attempt to control discovery costs by ensuring that "reasonable steps" have been taken to protect privilege by embracing new methods and technologies. The question of what constitutes reasonable steps remains. This issue is not answered by the law, but the FRE Advisory Committee has written that, "… a party that uses advanced analytical software applications and linguistic tools in screening for privilege and work product may be found to have taken 'reasonable steps' to prevent inadvertent disclosure" (see http://federalevidence.com/advisory-committee-notes#Rule502). To date, little relevant case law exists, but this represents an example of courts looking to technology to keep costs under control.