In 2006, the Federal Rules of Civil Procedure were amended to make clear that discovery of electronically stored information (ESI) “stands on equal footing with discovery of paper documents.” See Fed. R. Civ. P. 34(a) advisory committee’s notes (2006). The amendments, combined with the concurrent exponential growth in the creation and storage of ESI, led to a fundamental change in the nature and expense of litigation. Considerations regarding discovery of ESI, and particularly the cost thereof, now influence every stage of litigation, from the decision about whether to bring suit to determinations of liability. This article addresses several unfolding developments that could lead to reductions in the cost of e-discovery.
One way in which the costs of e-discovery are being reduced is through the increased use of predictive coding, otherwise known as technology-assisted review. Predictive coding involves the use of algorithms that enable a computer to review a large set of ESI to determine relevance. The predictive coding process has been explained by New York Magistrate Judge Andrew Peck, an early advocate of the technology:
Unlike manual review, where the review is done by the most junior staff, computer-assisted coding involves a senior partner (or [small] team) who review and code a “seed set” of documents. The computer identifies properties of those documents that it uses to code other documents. As the senior reviewer continues to code more sample documents, the computer predicts the reviewer’s coding. (Or, the computer codes some documents and asks the senior reviewer for feedback.)
Andrew Peck, “Search, Forward,” L. Tech. News, Oct. 2011, at 25, 29.
Predictive coding can significantly reduce e-discovery costs. A 2012 study by the RAND Corporation found that costs incurred in manual review of data sets make up approximately 87 percent of total ESI costs. RAND Institute for Civil Justice, Where the Money Goes (2012). While predictive coding requires a larger investment at the outset (for the detailed review of the “seed set”), it does away with the need for manual review of an entire collection of ESI by an army of document-review lawyers. By reducing the costs of document review, predictive coding attacks e-discovery bloat at its source.
The seminal federal decision approving the use of predictive coding was Moore v. Publicis Groupe, 287 F.R.D. 182 (S.D.N.Y. 2012), in which Magistrate Judge Peck examined at length the reliability and appropriateness of predictive coding as a review tool. Following the decision in Moore, courts have increasingly accepted predictive coding. See, e.g., Bridgestone Ams., Inc. v. Int’l Bus. Machs. Corp., No. 3:13-cv-01196, 2014 WL 4923014, at *1 (M.D. Tenn. July 22, 2014) (approving use of “predictive coding on documents that [plaintiffs] have previously identified, based on search terms defendants provided.”) Indeed, a recent decision from the U.S. Tax Court noted that predictive coding had become “widely accepted for limiting e-discovery to relevant documents and effecting discovery of ESI without an undue burden.” Dynamo Holdings Ltd. P’ship v. Comm’r, 143 T.C. 9 (2014).
Predictive coding is not without its naysayers. Predictive coding may not be appropriate for smaller cases with manageable sets of ESI data. See EORHB, Inc. v. HOA Holdings LLC, 2013 WL 1960621, at *1 (Del. Ch. May 6, 2013) (withdrawing order requiring predictive coding where case involved limited amount of documents and ESI). Also, because predictive coding involves teaching a computer program to replicate the decisions made by reviewers of the “seed set,” any mistakes that are made in the initial document review will be replicated and multiplied throughout the computer-assisted review. The technology has gained acceptance among lawyers and judges, however, and the predominant trend today is for courts to accept the use of predictive coding in appropriate cases.
Managed Services Contracts
A second trend that may lead to reduction in e-discovery costs, or at least more certainty in predicting and managing such costs, involves managed services contracts between law firms and e-discovery service providers. The firms engaging in these partnerships are driven by several factors, including the growing complexities and sizes of cases, the ability to provide clarity and predictability to the cost of e-discovery, and the need to leverage technology to mitigate the risks associated with e-discovery.
Examples of firms that use managed services contracts are firms that retain external service providers to run their internal e-discovery technology teams, firms that outsource all e-discovery technology to service providers, and firms that take a hybrid approach in which the service provider and an internal e-discovery technology team work collaboratively and as an extension of the internal team. Each model has its own unique benefits, but regardless of the model, when leveraged appropriately, value is transferred directly to the client in the form of better service and more certain costs.
Historically, firms have engaged service providers on one-off matters and, consequently, have obtained pricing based on that one matter. Service providers, however, generally provide discounts for larger quantities of data, usually depicted in some sort of range (e.g., up to 250 gigabytes at X rate, 251 to 500 gigabytes at X–Y rate). In the managed services world, many firms negotiate with service providers to prepay for e-discovery services, thereby obtaining deep discounts that the firms may directly transfer to their clients.
Negotiations over rates for prepaid services contracts depend largely on the current and future needs of the firm as a whole, and this requires an appreciation for the quantity of ESI handled firm-wide. Thus, managed services contracts work best when law firms “know their own data.” This means gathering and analyzing firm-wide metrics for all e-discovery matters and using these metrics to establish a set of benchmarks and a starting point to negotiate rates and services across all matters. A partial list of data metrics that firms are gathering is set forth below. These metrics can be calculated and aggregated by client, type of matter, practice group, section, or a combination of these, to reveal different results:
1. The quantity of ESI a firm handles across all matters (both client data and inbound productions)
2. The quantity of client data that is collected across all matters
3. The overall filtration rate per matter and across all matters
4. The quantity of data that is hosted in an average matter and across all matters
5. The quantity of inbound production data
6. The number of new databases created in a typical year
7. The number of unique users that hit all databases in a typical month
8. The current cost to push a single gigabyte of data through the full workflow (collection through production)
9. The average number of custodians
10. The quantity of data for a typical custodian
Some managed services models include more than just the basic services of processing and hosting data and allow firms to gain access to advanced services that increase efficiencies and drive down document review costs (e.g., email threading, near de-duplication, clustering, and predictive coding). Managed services contracts that include fixed-cost models allow for the use of these tools in cases that would otherwise be too small to justify the expense. Under this type of managed services contracts, cost is removed from the equation, and even small matters may gain access to the advanced technologies. Some managed services models even include advanced collection services and forensic investigations.
The many different forms of managed services contracts allow e-discovery users to harness the buying power of the firm or corporation as a whole, as opposed to negotiating over each individual matter. The contracts are not without risk to both sides, however, particularly if predictions regarding the volume of usage fail to materialize. But these contracts present novel ways to achieve certainty and reduction of e-discovery costs.
New Amendments to the Federal Rules of Civil Procedure
Relief from the prohibitive expense of e-discovery may be on the way, in the form of amendments to the Federal Rules of Civil Procedure that were approved on September 16, 2014, by the Judicial Conference of the United States. The rules are now pending before the Supreme Court, and if adopted and submitted to Congress by May 1, 2015, they will take effect on December 1, 2015. While the 2006 amendments contributed to the rise in costs of e-discovery, several of the 2014 amendments are intended to address directly the cost and scope of e-discovery.
Two themes underlie these proposed amendments: cooperation and proportionality. Thus, a proposed amendment to Federal Rule of Civil Procedure 1 states that the rules are to be “construed, administered and employed by the court and the parties to secure the just, speedy and inexpensive determination of every action and proceeding.” (New text emphasized.) The committee note to this proposed amendment states that the intent is to emphasize that the court and the parties “share the responsibility to employ the rules” to secure the just, speedy, and inexpensive determination of actions, and that “effective advocacy is consistent with—and indeed depends on—cooperative and proportional use of procedure.” (Emphasis added.) It has long been a goal of the Sedona Conference to use the ideal of cooperation as a means to reduce the cost of discovery in general and e-discovery in particular. The Sedona Conference Cooperation Proclamation, 10 Sedona Conf. J. 331 (2009). With the 2014 amendments, the Federal Rules of Civil Procedure would explicitly embrace and require cooperation.
Similarly, Rule 26(b)(1) would be amended to require that discovery be
proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.
While the concept of proportionality is not new to discovery under the Federal Rules, the amendment attempts to place renewed emphasis on proportionality by expressing the concept explicitly within the description of the scope of discovery.
Finally, Rule 26(c), which deals with protective orders, would be amended to provide specifically that the court may enter an order “(B) specifying terms, including time and place or the allocation of expenses, for the disclosure or discovery . . .” (New text emphasized.) The committee note observes that “[a]uthority to enter such orders [allocating expenses] is included in the present rule, and courts already exercise this authority. Explicit recognition will forestall the temptation some parties may feel to contest this authority.” The note makes clear, however, that the amendment is not intended to “imply that cost-shifting should become a common practice. Courts and parties should continue to assume that a responding party ordinarily bears the costs of responding.”
It is likely that the full effects of the 2014 amendments will not be felt in practice for a year or more. Many of the amendments, however, purport to state expressly concepts that are already implicit in the rules. Therefore, legal counsel may be able to point to the proposed amendments, and particularly the comments thereto, in support of arguments in favor of cooperation, proportionality, or cost allocation, even before the amendments themselves are enacted.
Conclusion It is premature to opine that the spiraling costs of e-discovery are being brought under control, but the trend is toward better control and predictability of those costs. E-discovery is best viewed now as a business process in which technology and analytics are being constantly applied to improve and enhance the process.
Keywords: litigation, business torts, e-discovery, predictive coding, managed services contracts, Federal Rules of Civil Procedure, amendments, cooperation, proportionality, cost allocation