e-Discovery Industry Reaction to Microsoft’s Offer to Purchase Equivio for $200 Million – Part Two

October 19, 2014

microsoft_acquiresThis is part two of an article providing an e-discovery industry insiders view of the possible purchase of Equivio by Microsoft. Please read Part One first. So far the acquisition by Microsoft is still just a rumor, but do not be surprised if it is officially announced soon.

Another e-discovery insider has agreed to go public with his comments, and three more anonymous submissions were received. Let’s begin with these quotes, and then I will move onto some analysis and opinions on this deal and the likely impact on our industry.

More Industry Insider Comments

John_Kerry

Jon Kerry-Tyerman (VP, Business Development, Everlaw): “If you think about this potential acquisition in the context of the EDRM, it makes a lot of sense. The technological issues on the left-hand side—from Information Governance through Preservation and Collection—are primarily search-related, rather than discovery-related.  And the technology behind search is largely a problem that’s been solved. That’s why we see these tasks being commoditized by the providers of the systems on which these data reside, entrenched players like Microsoft and Google. Microsoft has already shown a willingness to wade deeper here (see, e.g., Matter Center for Office 365), so the acquisition of Equivio’s expertise to improve document search and organization within the enterprise is a logical extension of that strategy.

I don’t think, however, that this heralds an expansion by Microsoft into the wider “ediscovery” space. The tasks on the right-hand side of the EDRM—particularly Review through Presentation—depend on expert legal judgment. While technology cannot supplant that judgment, it can be used to augment it. Doing so effectively, however, requires a nuanced understanding of the unique legal and technological problems underlying these tasks, and the resulting solutions are not easily applicable to other domains. For a big fish like Microsoft, that’s simply too small a pond in which to swim. It happens to be the perfect environment for a technology startup, however, which is why we’re focusing exclusively on applying cutting-edge computer science to the right-hand side of the EDRM—including our proprietary (read: non-Equivio!) predictive coding system.”
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anonymousAnonymous One (a tech commentator not in e-discovery world provides an interesting outsider view): “I read the commentary and found it to be fairly eDiscovery introspective.  What I think is:

  1. I don’t know the Equivio markets as well as I should. I thought Equivio was/is a classification engine that did a wonderful job of deduplication of email threads. They played in the eDiscovery markets and we don’t focus on these markets except for their relevance to information governance.
  2. Equivio lacked a coherent strategy to integrate to the Microsoft stack, at the level of managed metadata, content types, and site provisioning, which doomed them to bit player status unless someone acquired them or they committed to tight integration with the hybrid SharePoint/Office 365/Exchange/OneDrive/Yammer/Delve/File Share stack for unified content governance. Now someone has. Hats off to Warwick & Co. for $200MM for this.
  3. My expectation is that Equivio will be added into Office 365 and Delve to crawl through everything you own and classify it, launching whatever processes you want. This is not good news for Content Analyst, dataglobal, Nuix, HP Autonomy, or Google, except that Google and HP are able to stand on their own. It is also not good news, but less bad news for Concept Searching, Smart Logic and BA Insight, in that they leverage SharePoint and Office 365 Search and extend it with integration points and connectors to other systems.
  4. Microsoft is launching Matter Center at LegalTech in NYC in February after announcing it at ILTA. This is the first of the vertical solutions that begin the long journey of companies to adopt either the Microsoft or Google cloud solution stacks and abandon the isolated silos of information like Box, Dropbox, etc., for the corporate side of information management.”

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Anonymous Two: “It’s an interesting move for Microsoft. $200M is a little high for tools in our industry, but is peanuts for them. They make dozens of these types of moves and spend billions each year acquiring various companies and technologies. I agree with Craig Ball regarding how many times have we seen formidable competitors go the way of the Dodo after they were purchased by a bigger company. I highly doubt they are planning to jump into our industry to lock horns with all of us. It is more likely that they may be developing some sort of Information Governance & Analysis offering for businesses, which could have some downstream effects on eDiscovery.”

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Anonymous Three: “The acquisition of Equivio by Microsoft and the price paid are not a complete surprise. I agree with others who do not see this as a sign of Microsoft entering the ediscovery business. If Microsoft wanted  to do that it could acquire any of the big ediscovery players out there. Rather, the Equivo acquisition allows Microsoft to offer a service that other big data companies cannot. Putting aside HP’s acquisition of Autonomy, I think Microsoft’s acquisition of Equivo is only the first of what will be a series of technology acquisitions by big data companies. These companies, that handle terabytes upon terabytes of data for major corporations around the world, can one day provide ediscovery as an additional service offering. That day isn’t today, but it is coming.”

What Microsoft Will Do With Equivio

DiogenesThe consensus view is that after the purchase Microsoft will essentially disband Equivio and absorb its technology, its software designs, and some of its experts. Then, as Craig Ball predicts, they will wander the halls of Redmond like the great cynic Diogenes. No one seems to think that Microsoft will continue Equivio’s business. For that reason it would make no sense for Microsoft to continue to license the Equivio search technologies to e-discovery companies. That in turn means a large part of the e-discovery industry that now depends on Equivio search components, and licenses with Equivio, will soon be out of luck. Zoom will go boom! More on that later.

If  Microsoft did not buy Equivio to continue its business, why did it want its technology? As the scientists I talked to all told me, Microsoft already has plenty of artificial intelligence based text search capabilities, software, and patents. But maybe they are not designed for searching through large disorganized corporate datasets, such as email? Maybe their software in this area is not nearly as good as Equivio’s. As smart and talented as my scientist friends seem to think Microsoft is, the company seems to have a black hole of incompetence when its comes to email search and other aspects of information management.

The consensus view is that Microsoft wants Equivio to grab its technology and patents (at least one commentator also thought they were also after Equivio’s customers). The Microsoft plan is probably to incorporate its software code into various existing Microsoft products and new products under development. Almost no one expects those new products to be e-discovery specific. They might, however, help provide a discovery search overlay to existing software. Outlook, for instance, has pathetic search capacities that frustrate millions daily. Maybe they will add better e-discovery aspects to that. I personally expect (hope) they will do that.

Information Governance Is Now King

emperor's new clothes woodcutI also agree with the consensus view in our industry, a view that is now preoccupied with Information Governance, that Microsoft’s new products using Equivio technology will be information governance products. I expect Microsoft to once again follow IBM and focus on the left side of EDRM. I expect Microsoft to come out with new Governance type products and software module add-ons. I do not think that Microsoft will go into litigation support specific products, such as document review software, nor litigation search oriented products. Like IBM, they think it is still too small a market and too specialized a market.

Bottom line, Microsoft is not interested in entering the e-discovery specific market at this time, any more than IBM is. Instead, like most (but not all, especially Google) of the smart creatives of the technology world, Microsoft has bought into the belief that information is something that can be governed, can be managed. They think that Information Governance is like paper records management, just with more zeros after the number of records involved. The file-everything librarian mentality lives on, or tries to.

The Inherent Impossibility, in the Long Run, of Information Governance

Most of the e-discovery world now believes that Information Governance is not only possible, but it is the savior to the information deluge that floods us all. I disagree, especially in the long run. I appear to be a lone dissenting voice on this in e-discovery. I think the establishment majority in our industry is deluding themselves into thinking that information is like paper, only there is more of it. They delude themselves into thinking that Information is capable of being governed, just like so many little paper soldiers in an army. I say the Emperor has no clothes. That information cannot be governed.

paper doll cutouts

Electronic Information is a totally new kind of force, something Mankind has never seen before. Digital Information is a Genie out of the bottle. It cannot be captured. It cannot be managed. It certainly cannot be governed. It cannot even be killed. Forget about trying to put it back in the bottle. It is breeding faster than even Star Trek’s Tribbles could imagine. Like Baron and Paul discussed in their important 2007 law review, ESI is like a new Universe, and we are living just moments after the Big Bang. George L. Paul and Jason R. Baron, Information Inflation: Can the Legal System Adapt? 13 RICH. J.L. & TECH. 10 (2007).

bigbang

 

Ludwig-WittgensteinWhat few outside of Google, Baron, and Paul seem to grasp is that Information has a life of its own. Id. at FN 30 (quoting Ludwig Wittgenstein (a 20th Century Austrian philosopher whom I was forced to study while in college in Vienna): “[T]o imagine a language is to imagine a form of life.”) Electronic information is a new and unique life form that defies all attempts of limitation, much less governance. As James Gleick observed in his book on information science, everything is a form of information. The Universe itself is a giant computer and we are all self-evolving algorithms. Gleick, The Information: a history, a theory, a flood.

Essentially information is free, and wants to be free. It does not want to be governed, or charged for. Information is more useful when free and when it is not subject to transitory restraints.

info_free

Regardless of the economic aspects, and whether information really wants to be free or not, as a practical matter Information cannot be governed, even if some of it can be commoditized. Information is moving and growing far too fast for governance.

Digitized information is like a nuclear reaction that has passed the point of no return. The chain reaction has been triggered. This is what exponential growth really means. In time such fission vision will be obvious. Even people without Google glasses will be able to see it.

Nuclear chain reaction

In the meantime we have a new breed of information governance experts running around who serve like heroic bomb squads. Some know that it is just a noble quest, doomed to failure. Most do not. They helicopter into corporate worlds attempting to defuse ticking information bombs. They build walls around it. They confidently set policies and promulgate rules. They talk sternly about enforcement of rules. They automate filing. They automate deletion. Some are even starting to make robot file clerks.

Information governance experts, just like the records managers before them, are all working diligently to try to solve today’s problems of information management. But, all the while, ever new problems encroach upon their walls. They cannot keep up with this growth, the new forms of information. The next generation of exponential growth builds faster than anyone can possibly govern. Do they not know that the bomb has already exploded? The tipping point has already past?

Information governance policies that are being created today are like sand castles built at low tide. Can you hear the next wave of data generated by the Internet of Things? It will surely wash away all of today’s efforts. There will always be more data, more unexpected new forms of information. Governance of information is a dream, a Don Quixote quest.

Information can not be governed. It can only be searched.

search_globalIn my view we should focus on search technologies, and give up on governance. Or at least realize it is a mere stop-gap measure. In the world I see, search is king, not governance. Do not waste your valuable time and effort trying to file information. Just search for it, when and if you need it. You will not need most of it anyway.

I do not really think Microsoft has the fission vision, but I could be wrong. They may well see the world like I do, and like Google does, and realize that it is all search now. Microsoft may already understand that information governance is just a subset of search, not visa versa. Maybe Microsoft is already focused on creating great new search software that will help us transition from governance to search. Maybe they hope to remain relevant in the future and to compete with Google. No one knows for sure the full thinking behind Microsoft’s decision to buy Equivio.

The majority of experts are probably right, Microsoft probably does have information governance software in mind when buying Equivio. Microsoft probable still hangs onto the governance world view, and does not see it my way, or Google’s way, that it is all about search. Still, by buying good search code from Equivio, Microsoft cannot go wrong. Eventually, after the governance approach fails, which I predict will happen in ten years, or less, and Microsoft and the governance experts finally see the world like Google and me, it will help to have Equivio’s code as a foundation.

What Happens If Zoom Goes Boom?

In the short-term what companies may be adversely affected by the exit of Equivio from the e-discovery market?  I had first thought that K-Cura would be adversely impacted, but apparently that’s wrong. You can see how I would be confused because when you look at Equivio’s installed base web page, Equivio features K-Cura and its Relativity review platform. Equivio even includes a page on its website that promotes the Equivio Zoom tab on Relativity’s software. Nevertheless, K-Cura insists that it does not have anything built on Equivio’s technology. K-Cura states that its analytics engine is OEM from another company, Content Analyst. For that reason, it says its products will not be affected that much if Zoom is no longer a plug-in.

K-Cura says that its relationship with Equivio is simply that of a Relativity developer partner. It allows Equivio to develop an integration that allows users of Relativity to access Zoom from within the Relativity platform. Those users still need to license Zoom separately and get the plug-in from Equivio. Relativity itself has a Content Analyst’s engine fully baked-in for the same kind of text analytics, predictive coding, etc.  K-Cura states that functionality will still all be there, no matter what happens with Equivio. So I stand corrected on my original comments to the contrary.

So what does happen if Zoom goes boom? Companies that depend on Equivio may be in trouble, or may simply move to Content Analysts or someone else. Are they as good as Equivio? I do not know. But I do know there are huge differences in analytics quality and how well one company’s predictive coding features work as compared to another. That is exactly why Equivio existed, to license technologies to fill the gap. Apparently Content Analyst and others do the same. They do the research and code development on search so that most other vendors in the industry do not have to. The trade-off is dependency and the chance they may close shop or be bought out.

Only a few vendors have taken the time, and very considerable expense, to develop their own active machine learning software features, instead of licensing it from Equivio or Content Analysts. These vendors will now reap the rewards of having the rugs pulled out from under some of their competitors. Eventually even lawyers will realize that search quality does matter, that all predictive coding software programs are not alike.

There is a long list of other key users of Equivio products, some of whom may be concerned about losing Equivio’s prodcuts. They include, according to the list on Equivio’s own website:

  • Concordance by Lexis Nexis
  • DT Search
  • EDT
  • Xera iConnect
  • iPro
  • Law PreDiscovery by Lexis Nexis
  • Thomson Reuters

In addition, Equivio’s installed base web page lists the following companies and law firms as users of their technology. It is a very long list, including many prominent vendors in the space, and many small frys that I have never heard of. They may all be somewhat concerned about the Microsoft move, to one degree or another, according to how dependent they are on Equivio software or software components.

  • Altep
  • BDO Consulting
  • Bowman & Brooke
  • CACI
  • Catalyst
  • CDCI research
  • Commonwealth Legal
  • Crown Castle
  • D4
  • Deloitte
  • Dinsmore
  • Discover Ready
  • Discovia
  • doeLegal
  • DTI
  • e-Stet
  • e-Law
  • Envision Discovery
  • Epiq Systems
  • Ernst & Young
  • eTera Consulting
  • Evidence Exchange
  • Foley & Lardner
  • FTI Consulting
  • Gibson Dunn
  • Guidance Software
  • H&A
  • Huron
  • ILS Innovative Litigation Services
  • Inventus
  • IRIS
  • KPMG
  • USIS Labat
  • Law In Order
  • LDiscovery
  • Lightspeed
  • Lighthouse eDiscovery
  • Logic Force Consulting
  • Millnet
  • Morgan Lewis
  • Navigant
  • Night Owl Discovery
  • Nulegal
  • Nvidia
  • ProSearch Strategies
  • PWC
  • Qualcomm
  • Reed Smith
  • Renew Data
  • Responsive Data Solutions
  • Ricoh
  • RVM
  • Shepherd Data Services
  • Squire Sanders
  • Stroock
  • TechLaw Solutions
  • Winston & Strawn

This is Equivio’s list, and it may not be current, nor even accurate (some of the links were broken), but it is what is shown on Equivo’s website as of October 14, 2014. Do not blame me if Equivio has you on the list, and you should not be, but feel free to leave a comment below to set the record straight. Hopefully, many of you have already moved on, and no longer use Equivio anymore anyway, like K-Cura. I happen to know that is true for a few of the other companies on that list. If not, if you still rely on Equivio, well, maybe Microsoft will still do business with you when it is time to renew, but most think that is very unlikely.

Conclusion

Ralph_bemuzedIt is hubris to think that a force as mysterious and exponential as Information can be governed. Yet it appears that is why Microsoft wants to buy Equivio. Like most of establishment IT, including the vast majority of pundits in our own e-discovery world, Microsoft thinks that Information Governance is the next big thing. They think that predictive coding was just a passing fad that is now over. If these assumptions are correct, then we can expect to see fragments of Equivio’s code appear in Microsoft’s future software as part of general information governance functions. We will not see Microsoft come out with predictive coding software for e-discovery.

Once again, Microsoft is missing the big picture here. Like most IT experts today outside of Google, they do not understand that Search is king, and governance is just a jester. The last big thing, Search, especially AI enhanced active machine learning, iw – predictive coding, is still the next big thing. Information governance is just a reactive, Don Quixote thing. Not big at all, and certainly not long-lasting. If anything, it is the dying gasp of last century’s records managers and librarians. Nice people all, I’m sure, but then so was John Henry.

Microsoft’s absorption of Equivo is a setback for search, for legal e-discovery. But at the same time it is a boon for the few e-discovery vendors who chose not to rely on Equivio, and chose instead to build their own search. It is also a boon for Google, as, once again, Microsoft shows that it still does not get search. You will not see Google fall for a governance dream.

Search is and will remain the dominant problem of our age for generations. Information cannot be governed. It cannot be catalogued. It can only be searched. Everyone needs to get over the whole archaic notion of governance. King George died long ago.

Google has it right. We should focus our AI development on search, not governance. Spend your time learning to search, forget about filing. It is a hopeless waste of time. It is just like the little Dutch boy putting his finger in the dyke. Learn to swim instead. Better yet, build a search boat like Noah and leave the governor behind.


e-Discovery Industry Reaction to Microsoft’s Offer to Purchase Equivio for $200 Million – Part One

October 12, 2014

microsoft_acquiresOn Oct. 7, 2014, the Wall Street Journal reported that Microsoft had signed a letter of intent to buy what they called an Israel-based text analysis startup company named Equivio. The mainstream business press has virtually no understanding of the e-discovery industry, nor anything having to do with litigation support. They also seem to have no real grasp of what kind of software Equivio and others like it in the industry have created. They have probably never even heard of predictive coding! The business press for all of these reasons, and more, have no idea why Microsoft would pay $200 Million to buy Equivio. But, as this blog will show, we in the e-discovery community have plenty of ideas about that, and plenty to say about the whole deal.

Unlike the general business press, including the prestigious Wall Street Journal, everyone in the e-discovery industry knows, or at least know of, Amir Milo, Yiftach Ravid and Warwick Sharp. We all know their company, Equivio. Even though the Wall Street Journal calls Equivio a start up company, we all know that is not true. Equivio’s IPO was in 1998. Milo, Ravid and Sharp have been part of the e-discovery world from the very beginning. I must admit, however, that no one seems to know, not even Milo himself, why Equivio’s website always shows them hiding behind funny paper documents. But at least now we know why they are smiling.

Equivio_management

The WSJ reported that the deal could still fall through, and neither side would comment. Of course, as all lawyers know, deals can always fall though, that is not news. But, in my experience, once the letter of intent stage is reached, and it is leaked, it is pretty much a done deal, barring only unforeseen due diligence problems. So, assuming the deal does go through, what does this mean to the e-discovery industry?

I asked a few of the leaders in the e-discovery world their reaction to the Microsoft Equivio deal. Most of them responded, some on the record, some off, and some both on and off. Here is my report, on what every one seems to agree is very big news indeed, at least for our industry.

Business Press View of the Microsoft Equivio Deal

Before I share the industry insights, it is interesting to see how the general business world views the deal. First, as the WSJ article that broke the news exemplifies, they do not even seem to know that a e-discovery industry exists, nor that Equivio is part of it. Instead, the WSJ just describes Equivio as a startup company that has created:

text analysis software that can group together relevant texts from large amounts of documents—including emails and other organizational social and collaboration networks—using machine learning algorithms. The algorithms generalize samples of texts marked as relevant to the issue at hand to apply the sorting logic to groups of texts, such as legal documentation.

The article states that the technology is already in use by organizations that provide litigation support services to law firms and corporate legal departments. Well, at least the business world seems to knows that there is some sort of litigation support industry. The job our industry supposedly performs is also misunderstood. It is over simplified to the point of absurdity. The WSJ level of comprehension in this area is exceedingly low. They think the job of litigation support is to, as they put it, try to extract relevant data, such as legal contracts, from massive amounts of documents.

amir_marloSo apparently the tens of thousands of us in the e-discovery world spend our professional lives trying to find legal contracts. My, what idiots we must all be! And by implication, what idiots Microsoft must be to spend $200 Million for a company that has developed software with machine learning to find contracts. Wrong! There is much more to predictive coding than meets the eye of the average business journalist, most of whom have never even heard of the term, much less of Mr. Milo. Whatever the final price may be, the Two Hundred Million number sounds about right to me. No one else I talked to seemed shocked by the price either, which was certainly not true about Hewlett Packard’s ill-fated purchase of Autonomy for $10 Billion. Although a few friends I talked to did say that the next time they have dinner with Milo they are going to let him pick up the check.

 Industry Insider On-The-Record Comments

I will start off by reporting the comments where I have been given permission to quote with attribution. Then I will share a few comments where I was provided permission to quote, but not provide attribution. Some insiders also provided interesting background type information and speculation, which I do not have permission to quote or cite in any way. These comments inform my own opinions, which, you can rest assured, will also appear in this blog, but in Part Two, along with any straggler comments I may receive.

But first the attributable quotes, with thanks to the many who quickly responded to my vague questions, and agreed to go on the record about this very interesting, yet, as of today, still only rumored deal. As you can see my favorite industry insiders have a lot to say about this deal. Some of it is kind of corporate approved general writing, but there are also some controversial and strong opinions in here. Plus you will find some deep thoughts about our industry in general, not just this one deal.

Jason R. Baron (Of Counsel, Drinker, Biddle & Reath LLPwho broke the news to me of this story and so gets the lead): “I consider the deal to be a good thing for the legal tech sector.  As we see bigger players with more market power recognizing the value that firms like Equivio contribute, we can hope that the bigger firms will leverage their greater influence to accelerate adoption of good IG practices.”

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Ball_Baron_Losey

Craig, Ralph & Jason at some sort of e-disco event

Craig Ball (ESI Special Master and Attorney,  Computer Forensic Examiner, Author and Educator): “I see two options for an acquired Equivio: Either it empowers Equivio to grow in the legal marketplace, or (and the smart money’s here), it spells the disappearance of Equivio from the legal marketplace. If Equivio’s technology isn’t destined to wander the halls in Redmond like Diogenes carrying a Zune, it will be dedicated to internal use or baked into offerings not geared to e-discovery.

What I do not think the acquisition signals is a desire by Microsoft to compete in the fledgling e-discovery marketplace. Microsoft isn’t buying Equivio for its nascent presence in e-discovery. It wants Equivio’s technology–maybe for 365, maybe for Bing, maybe for a product yet to be named. Sometimes, big companies buy technology to stick it in a drawer. Look at how many great products went to Lexis-Nexis to die. One thing is fairly certain, you can bid Equivio adieu from litigation support.  …

As to the price paid for Equivio, it’s a windfall for Equivio; but for Microsoft, the price is as impactful as it would be for you or I to purchase a good steak.”
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John_GJohn Grancarich (Vice President, Product Management, Kroll Ontrack): “Microsoft is continuing to expand its data analysis offerings to provide solutions for larger data management problems. The ediscovery marketplace has some compelling and cutting-edge technologies that can move Microsoft closer toward achieving those broader goals. A few years back, Microsoft representatives started attending EDRM conferences – and other such think-tank meetings – which certainly helped them attain a deeper level of understanding about the robust capabilities across the entire technology provider landscape. When you think about combining the power of Microsoft with the software and service capabilities of key players in the ediscovery industry, the future ahead is exciting.”
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JohnTredennickJohn Tredennick (Founder and Chief Executive Officer of Catalyst): “I was surprised at the news but extend my congratulations to Amir and the Equivio team for their successful outcome.
I have no inside information on this deal but would suspect that Equivio’s move into the Information Governance space might have been as attractive to Microsoft as their e-discovery background. IG systems can involve billions of documents (rather than the millions in e-discovery) so the problems are of a different magnitude. Systems that can make sense of such volumes will be at a premium in this new era of information management.”
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ken_withersKenneth J. Withers (Deputy Executive Director, The Sedona Conference): “First, all we know is that there is a letter of intent signed between Microsoft and Equivio, in which Microsoft states its intention to acquire Equivio for $200 million. We don’t have any details on exactly why MSFT is doing this, or what it plans to do with Equivio’s products, current client base, IP, or staff. Based on a quick look at Equivio’s web site, it doesn’t’ look like they have any high-ranking female executives, so I think we can rule out “executive and staff diversity” as a goal in this acquisition. Beyond that, it may be a mistake for readers of eDiscovery team to think that entry into the legal marketplace is a goal, either. The eDiscovery market is – or soon will be – dwarfed by the larger Information Governance (IG) market, and that is an area in which MSFT really needs to step up its game, especially in relation to SharePoint. For several years, information professionals have viewed SharePoint as a proverbial poisoned apple, symbolizing the potential for both great knowledge and great sin. You can’t keep people from biting at the apple, you can only manage the consequences of immediate expulsion from IG Eden into a wilderness of terabytes of fractured data. I’m sure it has not been lost on MSFT executives that there are at least a dozen third-party IG solution providers purporting to tame data generated by Microsoft Office applications and stored in SharePoint. There are many facets of IG that are amenable to smart automated solutions. As volumes of data continue to grow exponentially, an advanced data analytics component to an overall IG suite of applications is absolutely essential. Readers of this blog may think first in terms of eDiscovery, but for many companies providing data analytics solutions, eDiscovery has become the market testing ground for the much more lucrative IG market. If you can make it work for the litigators, there is hope for the rest of the world. And not only would you have a good IG tool, but you would also still have a solid eDiscovery tool that could be built into a client’s (or law firm’s) Microsoft deployment. So this acquisition might also be another step in the mainstreaming of eDiscovery – taking some of the most costly and least lawyerly tasks out of the hands of the big law firms and third-party legal service providers, and enabling small businesses, small law firm, and even individuals to cost-effectively engage in eDiscovery. I mentioned, I don’t think that is MSFT’s primary motivation. But if MSFT offers a serious eDiscovery tool to the masses, I think that many of the legal service providers (and large law firms with eDiscovery search and processing divisions) will need to reexamine their business models.

Largely through its eDiscovery offerings, Equivio has built a solid reputation and a respectable client base, so I am not surprised that MSFT would look to it as a potential partner (or meal, depending on your point of view) to add advanced data analytics to an emerging suite of applications for the IG market. And for MSFT, the $200 million offer is equivalent to a rounding error in their overseas tax liability, so it’s a bargain, too. And I don’t equate this with HP’s acquisition of Autonomy at all.

All this is speculation, of course. I’m not qualified to predict what MSFT will do, but by acquiring Equivio, MSFT is positioning itself to compete with IBM (which has Watson and lots of other R&D in the works) and Google (which is, after all, Google) in large-scale data management through analytics.”

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Bill Hamilton (Partner, Quarles & Brady): “I see it as a seismic shift.”

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J. William “Bill” Speros (Attorney Consulting in Litigation Management): “Practical. Rational. Responsible. Therefore, not natural for a big company.”

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Bruce_blankBruce I. Blank (Director, Litigation Services & Support, Foley & Lardner LLP): “With an organization like Microsoft and the endless list of research they are conducting you can only guess at why they would purchase Equivo and that is exactly what I am going to do, guess. Microsoft has been inching closer and closer to the discovery world for several years now.  With the role out of Exchange 2013 and the in-place discovery search tool being integrated into the discovery management system it is clear there is a defined focus on collection for hold and discovery purposes. There was an  announcement today that with Office 365 and OneDrive Microsoft is going to separate attachments from emails. The first reactions is it sends a chill down ones back, at least those that had to deal with linked attachments to emails in the past but maybe Microsoft has solved that problem with key pointers that will preserve family relations. Where does Equivo fit in? Microsoft is using Keyword Query Language, (KQL) which they claim will easily construct powerful search queries to search content indexes for both on-premises and on-line however this is just keyword searches, which is very limiting in many ways. But what if you incorporate Equivo’s analytics in conjunction with the KQL. Keyword searching now with predictive coding analytics raises the bar of credibility. Maybe this, now common workflow, is necessary to make this palatable to the corporate market.

I am not really sure at the end of the day what gets accomplished using Microsoft e-discovery tools, particularly if we are dealing with a large organization with many moving parts. Microsoft clearly says we can search it if it is in our Ecco system but if not, you need another way to search for discovery. In other words, if you are using OneDrive, SharePoint, Exchange, or Office products, for example, then they will be able to search it. If you are using any Apple or Google tools (or many others) on your computer they might not get searched, just tagged as un-searched or un-readable. Thus potentially throwing any search term reports off and possibly even requiring a third party vendor to finish the job to put the pieces back together again. Relaying on an inexperienced attorney or IT member crafting the search strategy coupled with the limits of Microsoft e-discovery tools could be a recipe for disaster.

Well as I said, all of this is only a guess. There is much to learn yet about what they are up to but on the face, I wonder what the discovery attorneys I work with would have to say about clients IT getting even more involved in the discovery process.  The discovery industry has grown in sophistication not only by the technology tools used but by the flesh the attorneys have had to pay for the inconsistencies and inaccuracies of tools given to our IT friends.  There are some good things that Microsoft is doing in discovery but I would certainly recommend solid experienced guidance with your discovery projects. I started this with just a guess but if my guess is close then one must ask not only who will be doing discovery in a few years but what “won’t” be discovered?”

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Melinda_LevittMelinda Levitt (Partner, Foley & Lardner LLP): “Microsoft is certainly a giant of the electronic information world and in many, many ways it has completely changed the way that people communicate in the modern world. But, as an attorney who practices in the ediscovery “space” – I have seen no indication that Microsoft is a player, or has any real experience or expertise in this field. In matters in which we have been involved, we have had clients who bought tools that they were told would make preservation and collection easier to do and it could all be done in-house – and we have seen the significant flaws with those systems because they were not designed by attorneys – or the specialist litigation technician – who really understood, based on hands on experience over many years, the nuances of ediscovery and what is needed . . . what is responsive, or maybe responsive . . .  what may be confidential and worthy of protection, or what is not. Etc. Perhaps Microsoft has such people and is working with them to take us to a next generation of ediscovery/big data management – including most particularly managing enormous caches of emails and making them searchable with advanced analytics . . . . but without some indication that they understand the intricacies of what is involved – that special place where sophisticated legal skill, very specialized technical understanding, and the “art” of practicing law meet – then I remain skeptical and worried.”

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GregoryBufithisGregory P. Bufithis (Attorney & Managing Director, eTERA Consulting Europe): “I am intrigued by the Microsoft/Equivio tie up. My initial reaction was the deal makes sense given Nadella’s strategy for the “New Microsoft”, what he calls the “data analysis” Microsoft. And I agree with Ralph: it seems to be an admission by Microsoft that they do not have any real AI capacity as concerns document search. But I thought Microsoft would have gone after somebody else. The acquisition of Equivio is no surprise. From what I understand, they have had a book out on the street for the past 12+ months. It will be interesting if anyone else makes a play now.But as Ralph says, one’s first thought: is Microsoft really serious about playing in “our” legal sandbox? Just a few points:One point to immediately dismiss: the purchase price of $200 million being bandied about in the press. In the Bloomberg review, the analyst thought $200 million was far too high. I have been following the business press in Israel and the general take is the price will be “far lower”. But we have no way of knowing since we have not seen any press releases, no signed letter of intent being waved about. The 8-K disclosure requirements do not mandate the disclosure of letters of intent and other non-binding agreements so I doubt we’ll see the LOI via an S.E.C. filing by Microsoft. But if it is $200 million … way to go Amir!!

nadellaNadella [Microsoft CEO, Satya Nadella, shown right] has been trying hard to redefine his company for the post-Gates/Ballmer era. If you took the time to read that 3,100 word “positioning memo” he sent out over the summer to every Microsoft employee (and to the world in general) it’s all in there. But as a media guy who spends a lot of time in the digital biosphere, I have a short note to Mr Nadella: your memo was waaaaay too long with too many messages. Your troops either stopped reading it or just forgot it as soon as they scanned it. A video would have worked better at that length [point of reference: Tim Cook’s excellent video to his troops after taking command of Apple]. And Satya, I mean really: fake cheerleading and empty words like “synthesize” and “potential” and “revolution” will bring out all of the cynics. Like me.

Yet I found it a fascinating document for many reasons. Talk is cheap and Nadella has to produce and match his talk of “potential” and “synthesize” and “revolution” with “real substance”. You cannot talk your way into continued technology leadership. A press release is fine and we all love cultural revolutions (and, yes, I admit it: he does looks perfect in a shirt and jacket and jeans; Tim Cook would love to look that good) but he has a problem: he begins at the altar of innovation and for Microsoft that means a tradition of pretty much stealing technology, so Microsoft’s “tradition of innovation” is a bit hard to even detect, much less revive. …

Nadella has talked endlessly about Microsoft keeping important to personal and organizational productivity by emphasizing, it seems, the coordination of information in a world where users have multiple devices and there are a growing number of devices independent from any user. Oh, you know. That damn, that infernal Internet of Things (IoT). But an obvious problem: for the first time in a long time Microsoft is not a leader in any of this. Microsoft is just one of many companies in analytics and business intelligence. Yes, he sleeps a little better knowing Samsung must continue to pay him $1 billion+ a year in patent licenses because Samsung phone technology is dependent on Microsoft tech they patented but never did much with. At least on that score the old Microsoft … Bill Gates’ all embracing essence of Microsoft …. Was a bit innovative, establishing de facto standards. But while Windows is the top OS, it’s pretty much ignored in mobile and IoT.

Yes, Microsoft makes a boatload of money. But in Silicon Valley there are two sayings that everyone regards as truth. One is that profits follow relevance. The other is that there’s a difference between strategic position and financial position. It’s easy to be in denial and think the financials reflect the current reality. They do not. Around three-quarters of Microsoft’s profits come from the two fabulously successful products on which the company was built: the Windows operating system, which essentially makes personal computers run, and Office, the suite of applications that includes Word, Excel, and PowerPoint. Financially speaking, Microsoft is still extraordinarily powerful. In the last 12 months the company reported sales of $86+ billion and earnings of $22+ billion. It has $85+ billion cash on its balance sheet. But the company is facing a confluence of threats that is all the more staggering given Microsoft’s sheer size. Competitors such as Google and Apple have upended Microsoft’s business model, making it unclear where Windows will fit in the world, and even challenging Office.  …

Yes, Microsoft has a boatload of money and thousands of good employees but its management culture works against true innovation. Nadella figures he’ll “buy” that culture (Minecraft and Equivio being examples) to right the ship. So how does Equivio figure in this? A few points:

  1. Nadella is an engineer with advanced degrees in computer science. So he knows that clean logical code simply does not exist in some abstract conceptual space. It “plays” in a complexly shaped, intricately interacting digital information universe. We all know that having been in the e-discovery trenches. And Microsoft and Equivio have been in the trenches together. Equivio has been working with many Microsoft technologies … including Windows XP, SQL Server and SharePoint Server … since 2006, if not earlier. One thing the Microsoft reps noted at LegalTech this past year was that the integration of Equivio’s technology added an important layer of structure to SharePoint data repositories. One chap said “we have seen that it clearly has expedited a corporation’s response to e-discovery requests, internal investigations and regulatory tasks.” And we know from market chats that Microsoft and Equivio have talked about integrating Equivio technology into “Track Changes” and “Compare Documents” and other functionalities within Word. So we must assume that Nadella pretty much knows what he is buying. He now has the chance to weave together the “potential” and the “synthesis” and the “revolution” and the “real substance” he has been talking about. Granted, at a low level but a key one in keeping with the e-discovery model they have been building.
  2. Microsoft has been pushing machine learning in more of its products. I saw Nadella speak earlier this year and his whole focus was “data analysis” and “machine learning.” We know that machine learning traditionally requires complex software, high-end computers, and seasoned data scientists who understand it all. Nadella’s pitch has been that for many startups and even large enterprises “it’s simply too hard and expensive.” So he has moved to bring machine learning/predictive analytics to a more accessible level to a much broader audience. Equivio can help that.
  3. But the point (always in these acquisitions): can Microsoft execute? Can they integrate Equivio? The problem with Microsoft has been they lack consistency and perseverance. They always seem to be looking for quick success. Each Microsoft leadership comes in and implements his own stuff. And I will not even get into the infamous Gates/Ballmer internal wars after Ballmer took over.  … You only need to look at a company like Symantec to realize one can gobble up big and small vendors alike but you really need to integrate, market, and sell them. I have studied the M&A market. Rarely is an acquisition failure a function of buying bad companies/bad technologies. Almost every time it is a direct function of the inability to execute on a broad vision. I will use … yet again … my essay on the H-P acquisition of Autonomy back in 2011. HP wanted to make itself more like IBM, which had been successfully revived by Louis Gerstner. But Gerstner refused to act precipitously after taking over IBM. He had a plan, he had a vision and he and his team slowly showed their vision worked by establishing their operational credibility. They satisfied the Board, they satisfied the market, they satisfied the pundits. That has been something H-P and Symantec have never been able to do.
  4. And the biggie vis-à-vis Equivio: in so many cases Microsoft has acted the “rogue” takeover company, attacking companies to reduce their value then buying them up without the knowledgeable team in place. In the press it became known as “Microshaft”. It would take over a company and then every single person with a brain would immediately resign leaving the source code in the hands of interns and idiots. Will Nadella do the smart thing and keep the Equivio team? Otherwise … as an analysts said about a previous Microsoft acquisition … “they end up handing the new source code over to those without a clue, those who don’t care and they crate Windoze.”

… Will the electronic data discovery (EDD) herd be winnowed down? The EDD pundits say eventually there will be only 7-10 companies doing this. Up until this week I would have not put Microsoft (via Equivio) on that list. But nobody can accurately predict because we are so, so early in this game.” For more on Greg Bufithis’ many interesting thoughts on the deal, see the Project Counsel blog.

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Rob-RobinsonRob Robinson (Managing Partner, ComplexDiscovery Solutions): “The rumored acquisition highlights the ever-increasing need for organizations to do more for information governance purposes than just store documents. Equivio will offer Microsoft enterprise customers additional ways to organize, cull, and work with their text-based documents. However, the combined offering may still leave organizations challenged in terms of being able to work effectively with non-text or poor-text documents – and in some industries like Oil & Gas, those types of documents can account for a significant percentage of entire collections. So bottom line: appears to be good progress for Microsoft in dealing with text-based documents, but still a need and opportunity for technologies dealing will all document formats.”

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William_webberWilliam Webber (Information Scientist, eDiscovery Consultant): “It’s not the case that Microsoft lacks the capacity for applying AI to document search; indeed, the research group at Bing has been somewhat in advance of Google in applying machine learning approaches to web search. I think that a company like MS buys a company like Equivio not for their technology in the abstract (and while I think Equivio has been successful in finding the appropriate application of technology to e-discovery, I don’t think that their technology itself is all that revolutionary); rather, a MS would buy an Equivio as a path into an industry, first for having a concrete product, and second for having practical experience (and a customer base) in that industry. Is Equivio a good choice for MS on this basis? Well, I guess time will tell. My main query here would be that Equivio seem to have an offering narrowly focused on certain technologies, most specifically predictive coding, while leaving much of the surrounding work (processing, review, producing) to other products.  MS-Equivio have to decide whether they’re going to continue in this technological niche, or to expand to a full e-discovery management system. Staying in the technological niche seems an odd choice, and a potentially perilous one, as it assumes that full-featured providers will not be able to replicate Equivio’s technology offering on their own. But will an Equivio under MS ownership have the focus, drive, and industry understanding to expand their offering to a full e-discovery suite?”

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barclay-t-blairBarclay T. Blair (President and founder of ViaLumina and the Executive Director and founder of the Information Governance Initiative): “In the past two weeks, three of the Information Governance’s Initiative’s vendor supporters have been involved in M&A transactions. Fontis International was purchased by Iron Mountain, and, according to some reports, Equivio is being acquired by Microsoft. These transactions are exciting to me as they provide the latest validation that the information governance market is taking hold. In the case of Fontis, Iron Mountain was attracted to the central IG rules engine that Fontis provides. In the case of Equivio, I can only surmise that Microsoft was not only interested in Equivio’s predictive coding offering for e-discovery, but also in the long-term growth opportunity represented by its productization of predictive coding for proactive management and remediation of content, another IG use case. I expect that we will see other transactions involving leading IG companies as this market matures and develops. This topic has come up in advisory sessions innumerable times in the past couple of quarters both with my IG provider clients and with investors. Hot acquisition targets are any company that provides automation of IG, or so-called auto-classification. Everybody is looking for it and the smart money realizes that there is a huge opportunity there for companies who can bring it to market in a way that is easy, cost-effective and that scales across multiple categories (a very different use case than e-discovery). There are dozens of small, specialized companies in that space. Remember it encompasses a much broader world than e-discovery. Clearly there will be massive consolidation as the big horizontal enterprise software companies move into this space. Enterprise software companies hear the same thing over and over from their customers: we need help managing the deluge of unstructured information. Even the new wave of content management vendors like Box, which claim to “not be your father’s content management system” are adding decidedly unsexy features like workflow and retention management.

The most important question moving forward is: who has the data? As more data flows out of company owned and operated data centers and into broad horizontal cloud environments like Google, Amazon, IBM, Microsoft, HP, and even Apple and “data lake” providers like Pivotal, and into vertical-specific hosted applications (construction management, sales management, manufacturing management), I believe we will see wide-scale adoption of things like industry-standard taxonomies, automated retention schedules, file plans, information protection programs, etc. The vendors who hold this data are starting to see and realize the opportunity to add increasingly valuable services on top of the data.”

Industry Insider Off-The-Record Comments

anonymousThe following are verbatim quotes, but without attribution. All I can say is that these insiders work for large organizations and do not have permission to speak on the record. But hey, I got them to speak! I will let you imagine who said what.

Anonymous One: “EDiscovery is data dialysis. We take the data out of the corporate body and scrub it, then re-inject the data into the enterprise requirements flow (in this case, production of responsive ESI). In the long run, if the corporate filters are functioning well (like a healthy liver) externalizing ESI to filter it appropriately will not be necessary. EDiscovery will be part of enterprise IT, inside the firewall. Microsoft apparently believes this.Microsoft only acquires 2.0 and above versions. Their faith that advanced analytics of ESI by Equivio are at the 2.0 level is good news for every predictive coding solutions provider.Predictive coding is now in play for enterprise IT. Look for more acquisition and integration.”

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Anonymous Two: “Anomaly or harbinger? The discovery market still seems very fragmented and immature, and curiously so. If we were to start the clock around the time the 2006 amendments came into force and compare the discovery market to other markets, say in some technology sectors, the discovery market has remained very much immature. Just when there one thinks that the market is starting to rationalize, new entrants arrive. At times it feels like a game of whack-a-mole. Whether this market immaturity is a desirable or undesirable depends on your point of view. Put another way, how do the buyers of discovery services view a more consolidated market? Is it a good thing, as it may engender standardization and more efficient vendor management, or will it result in less competition in the market. I just don’t know.”

Economic theory most certainly teaches that, in the long run, the market will consolidate and mature but, then again, “in the long run we are all dead.” (A quotation attributed to John Maynard Keynes, I believe).”

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Anonymous Three: “There is no question that Microsoft was a pioneer in business software. But the kind of workflow automation software at the core of eDiscovery and information governance is not Microsoft’s area of expertise, which is likely why they’ve waited so long to enter this market.

The easiest way to close gaps in their information governance and eDiscovery portfolio is by acquiring technologies like Equivio, but that still leaves a lot of unanswered questions for their customers and the eDiscovery market as a whole. For example, all of the eDiscovery providers who license Equivio’s technology for predictive coding may find themselves in a major bind because they don’t own their own machine learning technology. It will be interesting to see how this move impacts companies like Kcura and their Relativity product.

On the customer front, Microsoft also needs to figure out how to handle data collection from laptops, desktops and systems beyond Exchange and Sharepoint. There are also a lot of lingering questions about Microsoft’s search limitations, scalability and integration between multiple on premise and cloud offerings that have to be answered.

Buying Equivio could help solve problems related to analytics, review and production, but they still have a long way to go to catch a lot of enterprise eDiscovery and information governance competitors who have a big head start.”

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Secret Shh!Stay tuned for Part Two of this blog next week where I will try to synthesize all of these great comments and bring it all to a conclusion. Are you an industry leader that would like to comment, but your words have to be undercover? Perhaps you are with Microsoft or Equivio? Or one of their competitors, where it might be unseemly to speak on the record, especially if it is not all politically correct? I will keep your identity secret and I never reveal my sources. Ready to talk openly, but I just failed to ask? My bad. Send me an email. I did not have time to ask all of the important folks that I wanted to hear from. I will try to include your remarks in Part Two.


Is the IRS’s Inability to Find Emails the Result of Unethical Behavior? New Opinion by U.S. Tax Court Provides Some Clues – Part 2

October 5, 2014

Lerner_arroganceThis is Part Two of the essay where I go into the specifics of the holding in Dynamo. Please read Part One first: Is the IRS’s Inability to Find Emails the Result of Unethical Behavior? New Opinion by U.S. Tax Court Provides Some Clues – Part One. There I pointed out that the IRS attitude towards email discovery, particularly predictive coding, shows that they belong to the unethical category I call The Clueless. Yes, the IRS is clueless, but not in an affable Pink Panther Inspector Clouseau way, but in an arrogant, super-know-it-all way of egomaniac types. It is wonderfully personified in Ms. Lerner’s face during her Congressional non-testimony. Like Congress did to Lerner, the Tax Court in Dynamo properly cut down the IRS attorneys and rejected all of their IRS’ anti-predictive coding non-sense arguments.

Dynamo Holdings Opinion

Judge_Ronald_Buch2Dynamo Holdings, Ltd. vs. Commissioner, 143 T.C. No. 9 (Sept. 17, 2014) is a very well written opinion by United Stated Tax Court by Judge Ronald L. Buch. I highly recommend that you study and cite this opinion. It is so good that I have decided to devote the rest of this blog to quotation of the portions of it that pertain to predictive coding.

I cannot refrain from provided some comments too, of course, otherwise what would be the point of doing more than provide a link? But for the sake of clarity, and purity, although I will intermix my [side bar comments] along with the quotes, I will do so with blue font, and italics, so you will not mistake the court’s words with my own. Yes, I know, that is not how you do things in law review articles, that this is way too creative. So what? It will be a lot more interesting for you to read it that way, and quicker too. So damn with the old rules of legal writing, here goes.

[P]etitioners request that the Court let them use predictive coding, a technique prevalent in the technological industry but not yet formally sanctioned by this Court, to efficiently and economically identify the nonprivileged information responsive to respondent’s discovery request. [The Petitioners are the defendants, and Respondents are the plaintiff, IRS. The IRS sued to collect tax on certain transfers between business entities alleging they were disguised gifts to the owners of Dynamo. Seems like a pretty clear cut issue to me, and I cannot see why it was necessary to look at millions of emails to find out what happened. The opinion does not explain that. The merits of the case are not addressed and a detailed proportionality analysis is not provided.]

Respondent [IRS] opposes petitioners’ request to use predictive coding because, he states, predictive coding is an “unproven technology”. Respondent adds that petitioners need not devote their claimed time or expense to this matter because they can simply give him access to all data on the two tapes and preserve the right (through a “clawback agreement”) to later claim that some or all of the data is privileged information not subject to discovery.2 [This is the disingenuous part I referred to previously.]

FN 2 – We understand respondent’s use of the term “clawback agreement” to mean that the disclosure of any privileged information on the tapes would not be a waiver of any privilege that would otherwise apply to that information.

The Court held an evidentiary hearing on respondent’s motion. [It looks like the Tax Court followed Judge David Waxse on this often debated issue as to whether an evidentiary hearing should be provided, but he only went part way. As you will see, a full scale Daubert type hearing was not provided. Instead, Judge Buch treated their testimony as informal input. Most judges agree that this is appropriate, even if they do not agree with Judge Waxe's position that Daubert type rulings are appropriate in a mere discovery dispute. Most judges I have talked to think that Evidence Rule 702 does not apply, since there is no evidence or trial, and no presentation to the jury to protect; there is just a dispute as to discovery search methods.]

[W]e hold that petitioners must respond to respondent’s discovery request but that they may use predictive coding in doing so. [The defendants had argued they should not have to search two backup tapes for email at all, and the use of predictive coding was a fall back argument. The decision did not provide any detailed explanation as to necessity, and I get the impression that it was not really pushed, that the main focus of the briefs was on predictive coding.]

Petitioners ask the Court to let them use predictive coding to efficiently and economically help identify the nonprivileged information that is responsive to respondent’s discovery request. More specifically, petitioners want to implement the following procedure to respond to the request: [I have omitted the first four reasons as not terribly interesting.] … 5. Through the implementation of predictive coding, review the remaining data using search criteria that the parties agree upon to ascertain, on the one hand, information that is relevant to the matter, and on the other hand, potentially relevant information that should be withheld as privileged or confidential information.

[T]he Court is not normally in the business of dictating to parties the process that they should use when responding to discovery. [This is a very important point. See Sedona Principle Six. The defendants did not really need the plaintiff's approval to use predictive coding. Judge Buch is suggesting that this whole permission motion is an unnecessary waste of time, but he will indulge them anyway and address it. I for one am glad that he did.] If our focus were on paper discovery, we would not (for example) be dictating to a party the manner in which it should review documents for responsiveness or privilege, such as whether that review should be done by a paralegal, a junior attorney, or a senior attorney. Yet that is, in essence, what the parties are asking the Court to consider–whether document review should be done by humans or with the assistance of computers. [These are all very good points.] Respondent fears an incomplete response to his discovery. [Parties in litigation always fear that. The U.S. employs a "trust based" system of discovery that relies on the honesty of the parties, and especially relies on the honesty and cooperativeness of the attorneys who conduct the discovery. There are alternatives, like having judges control discovery. Most of the world has such judge controlled discovery, but lawyers in the U.S. do not want that, and it is doubtful that taxpayers would want to fund an alternative court based approach.] If respondent believes that the ultimate discovery response is incomplete and can support that belief, he can file another motion to compel at that time. Nonetheless, because we have not previously addressed the issue of computer-assisted review tools, we will address it here.

Each party called a witness to testify at the evidentiary hearing as an expert. Petitioners’ witness was James R. Scarazzo. Respondent’s witness was Michael L. Wudke. [I added these links. Scarazzo is with the well known vendor, FTI, in Washington D.C., and Wudke is with another vendor in N.Y., Transperfect Legal Solutions. He used to be with Deloitte.] The Court recognized the witnesses as experts on the subject matter at hand. We may accept or reject the findings and conclusions of the experts, according to our own judgment.

Predictive coding is an expedited and efficient form of computer-assisted review that allows parties in litigation to avoid the time and costs associated with the traditional, manual review of large volumes of documents. Through the coding of a relatively small sample of documents, computers can predict the relevance of documents to a discovery request and then identify which documents are and are not responsive. The parties (typically through their counsel or experts) select a sample of documents from the universe of those documents to be searched by using search criteria that may, for example, consist of keywords, dates, custodians, and document types, and the selected documents become the primary data used to cause the predictive coding software to recognize patterns of relevance in the universe of documents under review. The software distinguishes what is relevant, and each iteration produces a smaller relevant subset and a larger set of irrelevant documents that can be used to verify the integrity of the results. [That is not technically correct, at least not in most cases. The relevance subset does not get smaller and smaller. The probability predictions do, however, get more accurate. True predictive coding as used by most vendors today is active machine learning. It ranks the relevance of the probability of all documents. See Eg AI-EnhancedReview.com] Through the use of predictive coding, a party responding to discovery is left with a smaller set of documents to review for privileged information, resulting in a savings both in time and in expense. [Now the judge is back on track and this is an essential truth.] The party responding to the discovery request also is able to give the other party a log detailing the records that were withheld and the reasons they were withheld. [Judge Buch is referring to the privilege log, or in some cases, also a confidentiality log.]

Andrew J. PeckMagistrate Judge Andrew Peck published a leading, oft-cited article on predictive coding which is helpful to our understanding of that method. [Of course Judge Peck's photograph is not in the opinion.See Andrew Peck, “Search, Forward: Will Manual Document Review and Keyboard Searches be Replaced by Computer-Assisted Coding?”, L. Tech. News (Oct. 2011). The article generally discusses the mechanics of predictive coding and the shortcomings of manual review and of keyword searches. The article explains that predictive coding is a form of “computed-assisted coding”, which in turn means “tools * * * that use sophisticated algorithms to enable the computer to determine relevance, based on interaction with (i.e., training by) a human reviewer.” Id. at 29. The article explains that:

Unlike manual review, where the review is done by the most junior staff, computer-assisted coding involves a senior partner (or team) who review and code a “seed set” of documents.Less_More_Ralph [Judge Peck wrote this back in 2011. I believe his understanding of “senior parter” level skill needed for training has since evolved. I can elaborate, but it would take us too far astray. Let’s just say what is needed is a single, or at least, very small team of real experts on the relevance facts at issue in the case. See Eg. Less Is More: When it comes to predictive coding training, the “fewer reviewers the better” – Part One, Part Two, Part ThreeThe 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.)

When the system’s predictions and the reviewer’s coding sufficiently coincide, the system has learned enough to make confident predictions for the remaining documents. Typically, the senior lawyer (or team) needs to review only a few thousand documents to train the computer. [The number depends, of course. For some projects, tens of thousands of documents may be needed over multiple iterations to adequately train the computer. Some projects are much harder than others, despite the skills of the search designers involved. Yes, it takes a great deal of skill and experience to properly design a large predictive coding search and review project. It also takes good predictive coding software that ranks all document probabilities.]

Some systems produce a simple yes/no as to relevance, while others give a relevance score (say, on a 0 to 100 basis) that counsel can use to prioritize review. For example, a score above 50 may produce 97% of the relevant documents, but constitutes only 20% of the entire document set. [All good software today ranks all documents, typically 0 to 100% probability, rather than give a simplistic yes/no ranking.]

Counsel may decide, after sampling and quality control tests, that documents with a score of below 15 are so highly likely to be irrelevant that no further human review is necessary. Counsel can also decide the cost-benefit of manual review of the documents with scores of 15-50. [Typically the cut off point is way above 15% probability. I have no idea where that number came from. A more logical and frequent number is below 50%, meaning they are probably not relevant.]

Id.

The substance of the article was eventually adopted in an opinion that states: “This judicial opinion now recognizes that computer-assisted review is an acceptable way to search for relevant ESI in appropriate cases.” Moore v. Publicis Groupe, 287 F.R.D. 182, 183 (S.D.N.Y. 2012), adopted sub nom. Moore v. Publicis Groupe SA, No. 11 Civ. 1279 (ALC)(AJP), 2012 WL 1446534 (S.D.N.Y. Apr. 26, 2012).

Respondent asserts that predictive coding should not be used in these cases because it is an “unproven technology”. We disagree. [The alternative methods, keyword search and linear human review are the "unproven technologies," not predictive coding. Indeed, the science proves that keyword and linear review are unreliable. See Eg. LEGAL SEARCH SCIENCE.  The new gold standard is active machine learning, aka predictive coding, not hundreds of low paid contract lawyers sitting in cubicles all day.] Although predictive coding is a relatively new technique, and a technique that has yet to be sanctioned (let alone mentioned) by this Court in a published Opinion, the understanding of e-discovery and electronic media has advanced significantly in the last few years, thus making predictive coding more acceptable in the technology industry than it may have previously been. In fact, we understand that the technology industry now considers predictive coding to be widely accepted for limiting e-discovery to relevant documents and effecting discovery of ESI without an undue burden.10 [Excellent point. Plus it is not really all that "new" by today's standards. It has been around in academic circles since the 1990s.]

FN 10 – Predictive coding is so commonplace in the home and at work in that most (if not all) individuals with an email program use predictive coding to filter out spam email. See Moore v. Publicis Groupe, 287 F.R.D. 182, n.2 (S.D.N.Y. 2012), adopted sub nom. Moore v. Publicis Groupe SA, No. 11 Civ. 1279 (ALC)(AJP), 2012 WL 1446534 (S.D.N.Y. Apr. 26, 2012).

See Progressive Cas. Ins. Co. v. Delaney, No. 2:11-cv-00678-LRH-PAL, 2014 WL 3563467, at *8 (D. Nev. July 18, 2014) (stating with citations of articles that predictive coding has proved to be an accurate way to comply with a discovery request for ESI and that studies show it is more accurate than human review or keyword searches); F.D.I.C. v. Bowden, No. CV413-245, 2014 WL 2548137, at *13 (S.D. Ga. June 6, 2014) (directing that the parties consider the use of predictive coding). See generally Nicholas Barry, “Man Versus Machine Review:  The Showdown between Hordes of Discovery Lawyers and a Computer-Utilizing Predictive-Coding Technology”, 15 Vand. J. Ent. & Tech. L. 343 (2013); Lisa C. Wood, “Predictive Coding Has Arrived”, 28 ABA Antitrust J. 93 (2013). The use of predictive coding also is not unprecedented in Federal litigation. See, e.g., Hinterberger v. Catholic Health Sys., Inc., No. 08-CV-3805(F), 2013 WL 2250603 (W.D.N.Y. May 21, 2013); In Re Actos, No. 6:11-md-2299, 2012 WL 7861249 (W.D. La. July 27, 2012); Moore, 287 F.R.D. 182. Where, as here, petitioners reasonably request to use predictive coding to conserve time and expense, and represent to the Court that they will retain electronic discovery experts to meet with respondent’s counsel or his experts to conduct a search acceptable to respondent, we see no reason petitioners should not be allowed to use predictive coding to respond to respondent’s discovery request. Cf. Progressive Cas. Ins. Co., 2014 WL 3563467, at *10-*12 (declining to allow the use of predictive coding where the record lacked the necessary transparency and cooperation among counsel in the review and production of ESI responsive to the discovery request).

Mr. Scarazzo’s expert testimony supports our opinion. He testified that11 discovery of ESI essentially involves a two-step process.

FN 11 – Mr. Wudke did not persuasively say anything to erode or otherwise undercut Mr. Scarazzo’s testimony. [This is to the credit of Mr. Wudke, an honest expert.]

First, the universe of data is narrowed to data that is potentially responsive to a discovery request. Second, the potentially responsive data is narrowed down to what is in fact responsive. He also testified that he was familiar with both predictive coding and keyword searching, two of the techniques commonly employed in the first step of the two-step discovery process, and he compared those techniques by stating:

[K]ey word searching is, as the name implies, is a list of terms or terminologies that are used that are run against documents in a method of determining or identifying those documents to be reviewed. What predictive coding does is it takes the type of documents, the layout, maybe the whispets of the documents, the format of the documents, and it uses a computer model to predict which documents out of the whole set might contain relevant information to be reviewed.

So one of the things that it does is, by using technology, it eliminates or minimizes some of the human error that might be associated with it. [Note proper use of the word "some," it eliminates some of the human error. It cannot be eliminated entirely.] Sometimes there’s inefficiencies with key word searching in that it may include or exclude documents, whereas training the model to go back and predict this, we can look at it and use statistics and other sampling information to pull back the information and feel more confident that the information that’s being reviewed is the universe of potentially responsive data.

He concluded that the trend was in favor of predictive coding because it eliminates human error and expedites review. [The modifier "some" to "eliminates human error" is not used here, and thus is a slight overstatement.]

In addition, Mr. Scarazzo opined credibly and without contradiction that petitioners’ approach to responding to respondent’s discovery request is the most reasonable way for petitioners to comply with that request. Petitioners asked Mr. Scarazzo to analyze and to compare the parties’ dueling approaches in the setting of the data to be restored from Dynamo’s backup tapes and to opine on which of the approaches is the most reasonable way for petitioners to comply with respondent’s request. Mr. Scarazzo assumed as to petitioners’ approach that the restored data would be searched using specific criteria, that the resulting information would be reviewed for privilege, and that petitioners would produce the nonprivileged information to respondent. He assumed as to respondent’s approach that the restored data would be searched for privileged information without using specific search criteria, that the resulting privileged information would be removed, and that petitioners would then produce the remaining data to respondent. As to both approaches, he examined certain details of Dynamo’s backup tapes, interviewed the person most knowledgeable on Dynamo’s backup process and the contents of its backup tapes (Dynamo’s director of information technology), and performed certain cost calculations.

Mr. Scarazzo concluded that petitioners’ approach would reduce the universe of information on the tapes using criteria set by the parties to minimize review time and expense and ultimately result in a focused set of information germane to the matter. He estimated that 200,000 to 400,000 documents would be subject to review under petitioners’ approach at a cost of $80,000 to $85,000, while 3.5 million to 7 million documents would be subject to review under respondent’s approach at a cost of $500,000 to $550,000. [This is a huge reduction, and shows the importance of predictive coding. It is a reduction of from between 2.2 million to 6.6 million documents. That seems credible to me, but the actual cost saving quoted here seems off, or at least, seems incomplete. For instance, if you assume 300,000 documents, the mid-point of the estimated document count using predictive coding, and a projected cost of $85,000, that is only $00.28 per document. That is a valid number for the predictive coding culling process, but not for the actual review of the documents for confidentiality and privilege, and to confirm the privilege predictions.]

Our Rules, including our discovery Rules, are to “be construed to secure the just, speedy, and inexpensive determination of every case.” Rule 1(d). Petitioners may use predictive coding in responding to respondent’s discovery request. If, after reviewing the results, respondent believes that the response to the discovery request is incomplete, he may file a motion to compel at that time. See Rule 104(b), (d).


Is the IRS’s Inability to Find Emails the Result of Unethical Behavior? New Opinion by U.S. Tax Court Provides Some Clues – Part One

September 28, 2014

Lois-Lerner-invokes-5th-AmendmentThe IRS seems inherently incapable of finding emails. The most famous incident that everyone has heard about, and many have complained about, is the loss of emails of key witnesses in a Congressional investigation of the IRS tea party targeting scandal. In June 2014 the IRS admitted that it could not find many of the emails of the key witness, Lois Lerner. Lerner is the first IRS official to admit that agents had improperly scrutinized tax exempt applications. When she was subpoenaed to testify before Congress, she plead the Fifth Amendment and refused to answer any questions. She is not the only IRS official under investigation whose email has gone missing. As of September 5, 2014, eighteen of the 82 people questioned “had some type of technical computer issue” and at least five have lost all emails.

An opinion in the United Stated Tax Court by Judge Ronald L. Buch shows that email search incompetence continues at the IRS. Dynamo Holdings, Ltd. vs. Commissioner, 143 T.C. No. 9 (Sept. 17, 2014). In Dynamo IRS lawyers wanted to force linear review of millions of emails stored on backup disks covering hundreds of custodians. Everyone knows that this outdated approach is the least likely way to find relevant evidence in big data searches.

irs_scandalThe IRS lawyers’ position in Dynamo shows a complete lack of understanding of legal search. It is almost like they are hard wired not to find emails, or any other ESI for that matter. The real scandal at the IRS goes beyond targeting political groups fir special treatment, it includes the general lack of technical competence of the whole agency. I dare say this Nineteenth Century paper mentality is not unique to the IRS. In infects many federal agencies, most of who still file emails by printing to paper.

Judge_Ronald_BuchFortunately Tax Court Judge Buch is a lot more savvy than the IRS lawyers who practice before him. He forcefully rejected the attempts of IRS lawyers to prevent the defendant from using predictive coding. His well written opinion now stands as a significant contribution to the growing jurisprudence of legal search.

Even though it is clear to most everyone in the field of e-discovery that predictive coding technology is the best way to find needles with probative value in an otherwise haystack of emails, the IRS lawyers opposed the defendants use of predictive coding. Instead, the IRS wanted to have individual all too human reviewers look at everything to determine relevance and privilege. Of course, the IRS also argued, quite disingenuously I think, that the defendant could, if it wanted, simply turn over all the contents of backup tapes without any review at all. The IRS would do that for them. How nice. Reminds me of that famous phrase: “Hello. I’m from the Federal Government and I’m here to help.”

Of course, the defendant would have none of that phony cooperation approach of just give me everything and we’ll protect you with a clawback. Instead, the defendant moved the Tax Court for permission to use predictive coding over the objection of the IRS.

Although I am sure the motion practice and hearing, which included testimony of experts on predictive coding, was an expensive exercise, the results are fortuitous. The opinion by Judge Buch should be of great value to other litigants and judges when faced with dinosaurs like the IRS.

Insights Into Unethical Behavior of the IRS

The kind of incompetence we see here by IRS lawyers is also revealing as to what kind of evil may lay behind the IRS’s destruction of emails in the Tea Party Targeting scandal. Many do not believe the IRS claim that the destruction of key email was an accident. They believe it was intentional; a criminal act of destruction of evidence. They argue that the emails were destroyed to protect a powerful government agency and many of its high ranking officials, bureaucrats all. They call this email loss an egregious abuse of power. I used to think that was possible, as I have had some personal experiences with the non-profit group at the IRS myself, and I know just how arrogant and abusive they can be. Power often corrupts. But I am not so sure this is what happened here. There may be an unintentional form of unethical behavior at work here.

To explain, I must harken back to the typology of unethical lawyers set forth in my last blog, What Can Happen When Lawyers Over Delegate e-Discovery Preservation and Search to a Client, and Three Kinds of “Ethically Challenged” Lawyers: “Slimy Weasels,” “Gutless,” and “Clueless”.  There I outlined three basic types of ethically challenged lawyers, and added three subcategories for one of those types, the Clueless, for a total of five kinds of unethical lawyers. As to why lawyers are often ethically challenged, another subject I have tried to understand for years, see my article: Lawyers Behaving Badly, 60 Mercer L. Rev. 983 (Spring 2009).

Under my typology the theory that the IRS destroyed the emails on purpose would make the IRS officials involved Slimy Weasel types. They did bad, they knew it, and they did not care. They wanted to cover up the truth and they did not care how many laws they broke in the process.

This could well be true, but the Dynamo Holdings, Ltd. vs. Commissioner case suggests that the IRS are not actually a bunch of Slimy Weasel types, at least when it comes to emails. It instead suggests that we are dealing with the Clueless, whom, as my last blog spells out, come in three types:

  1. Egomaniac Clueless. People who are so full of themselves that they have no idea they are clueless; they think they know it all.
  2. Open Clueless. People who have some slight idea that they might possibly be clueless and so might be open to learning some new things.
  3. Arrogant Clueless. These are the people who actually brag about how clueless they are. You know the lawyers who bash all things technological. They still think (pray) that email and this whole ESI discovery thing may be a fad. They brag about sticking to good old paper discovery

Lerner_arroganceThe positions the IRS lawyers took in Dynamo Holdings suggest they are among the Egomaniac Clueless, which are, as everyone knows, among the most obnoxious kind of ethically challenged lawyers. Some might say it is a bit harsh to refer to clueless lawyers as unethical, after all, they have done nothing wrong on purpose, they just did not know any better. Being clueless is not unethical they may say, but taking on a case, and serving a client incompetently, certainly is unethical. The duty of competence is spelled out in the Rules of Professional Conduct of every Bar Association in the country. They all require competence of their lawyer members as an Ethical Duty, not just as good advice on how to avoid malpractice. In fact, under the model ABA Model Rules of Professional Conduct that most states follow, it is Rule 1.1:

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.

As the ABA saysCompetence: Acquire it or Hire it. It cannot and should not be ignored, much less faked. It is not ok to handle e-discovery and be clueless about it at the same time. It is unethical. Either spend the time to learn, which is a good idea for any litigator under fifty, or bring in another attorney who knows how in order to help you. I might add it also helps to listen to what they say and actually follow his or her advice!

In Part Two of this blog I will go into the actual holdings of Dynamo Holdings, Ltd. vs. Commissioner, 143 T.C. No. 9 (Sept. 17, 2014) by providing extensive quotations and my commentary. Yes, you can rest assured, I will tell you what I really think, even if this does trigger yet another audit.


What Can Happen When Lawyers Over Delegate e-Discovery Preservation and Search to a Client, and Three Kinds of “Ethically Challenged” Lawyers: “Slimy Weasels,” “Gutless,” and “Clueless”

September 21, 2014
Sergeant Schultz of Hogan's Heros

“I see nothing, NOTHING!” Sergeant Schultz

Bad things tend to happen when lawyers delegate e-discovery responsibility to their clients. As all informed lawyers know, lawyers have a duty to actively supervise their client’s preservation. They cannot just turn a blind eye; just send out written notices and forget it. Lawyers have an even higher duty to manage discovery, including search and production of electronic evidence. They cannot just turn e-discovery over to a client and then sign the response to the request for production. The only possible exception proves the rule. If a client has in-house legal counsel, and if they appear of record in the case, and if the in-house counsel signs the discovery response, then, and only then, is outside counsel (somewhat) off the hook. Then they can lay back, a little bit, but, trust me, this almost never happens.

To see a few of the bad things that can happen when lawyers over delegate e-discovery, you have only to look at a new district court opinion in Ohio. Brown v. Tellermate Holdings Ltd., No. 2:11-cv-1122 (S.D. Ohio July 1, 2014) (2014 WL 2987051 ). Severe sanctions were entered against the defendant because its lawyers were too laid back. The attorneys were personally sanctioned too, and ordered to pay the other side’s associated fees and costs.

The attorneys were sanctioned because they did not follow one of the cardinal rules of attorney-client relations in e-discovery, the one I call the Ronald Reagan Rule, as it is based on his famous remark concerning the nuclear arms treaty with the USSR: Trust but verify

The sanctioned attorneys in Brown trusted their client’s representations to them that they had fully preserved, that they had searched for the evidence. Do not get me wrong. There is nothing wrong with trusting your client, and that is not why they were sanctioned. They were sanctioned because they failed to go on to verify. Instead, they just accepted everything they were told with an uncritical eye. According to the author of the Brown opinion, U.S. Magistrate Judge Terence P. Kemp:

… significant problems arose in this case for one overriding reason: counsel fell far short of their obligation to examine critically the information which Tellermate [their client] gave them about the existence and availability of documents requested by the Browns. As a result, they did not produce documents in a timely fashion, made unfounded arguments about their ability and obligation to do so, caused the Browns to file discovery motions to address these issues, and, eventually, produced a key set of documents which were never subject to proper preservation. The question here is not whether this all occurred – clearly, it did – but why it occurred, and what, in fairness, the Court needs to do to address the situation which Tellermate and its attorneys have created.

Id. at pgs. 2-3 (emphasis added).

What is the Worst Kind of Lawyer?

slimy_weasel3Taking reasonable steps to verify can be a sticky situation for some lawyers. This is especially true for ethically challenged lawyers. In my experience lawyers like this generally come in three different varieties, all repugnant. Sometimes the lawyers just do not care about ethics. They are the slimy weasels among us. They can be more difficult to detect than you might think. They sometimes talk the talk, but never walk it, especially when the judge is not looking, or they think they can get away with it. I have run into many slimy weasel lawyers over the years, but still, I like to think they are rare.

cowardOther lawyers actually care about ethics. They know what they are doing is probably wrong, and it bothers them, at least somewhat. They understand their ethical duties, they also understand Rule 26(g), Federal Rules of Civil Procedure, but they just do not have the guts to fulfill their duties. They know its is wrong to simply trust the client’s response of no, we do not have that, but they do it anyway. They are gutless lawyers.

Often the gutless suffer from a combination of weak moral fibre and pocketbook pressures. They lack the economic independence to do the right thing. This is especially true in smaller law firms that are dependent on only a few clients to survive, or in siloed lawyers in a big firm without proper management. Such gutless lawyers may succumb to client pressures to save on fees and just let the client handle e-discovery. I have some empathy for such cowardly lawyers, but no respect. They often are very successful; almost as successful as the slimy weasels types that do not care at all about ethics.

ScarecrowThere is a third kind of lawyer, the ones who do not even know that they have a personal duty as an officer of the court to supervise discovery. They do not know that they have a personal duty in litigation to make reasonable, good faith efforts to try to ensure that evidence is properly preserved and produced. They are clueless lawyers. There are way too many of these brainless scarecrows in our profession.

I do not know which attorneys are worse. The clueless ones who are blissfully ignorant and do not even know that they are breaking bad by total reliance on their clients? Or the ones who know and do it anyway? Among the ones who know better, I am not sure who is worse either. Is it the slimy weasels who put all ethics aside when it comes to discovery, and are not too troubled about it. Or, is it the gutless lawyers, who know better, and do it anyway out of weak moral fortitude, usually amplified by economic pressures. All three of these lawyer types are dangerous, not only to themselves, and their clients, but to the whole legal system. So what do you think? Please fill out the online poll below and tell us which kind of lawyer you think is the worst.

 

I will not tell you how I voted, but I will share my personal message to each of the three types. There are not many slimy weasels who read my blog, but I suspect there may be a few. Be warned. I do not care how powerful and protected you think you are. If I sniff you out, I will come after you. I fear you not. I will expose you and show no mercy. I will defeat you. But, after the hearing, I will share a drink with some of you. Others I will avoid like the plague. Evil comes in many flavors and degrees too. Some slimy weasel lawyers are charming social engineers, and not all bad. The admissions they sometimes make to try to gain your trust can be especially interesting. I protect the confidentiality of their off-the-record comments, even though I know they would never protect mine. Those are the rules of the road in dancing with the devil.

The-devil-s-advocate

As to the gutless, and I am pretty sure that a few of my readers fall into that category, although not many. To you I say: grow a spine. Find your inner courage. You cannot take money and things with you when you die. So what if you fail financially? So what if you are not a big success? It is better to sleep well. Do the right thing and you will never regret it. Your family will not starve. Your children will respect you. You will be proud to have them follow in your footsteps, not ashamed. I will not have drinks with gutless lawyers.

As to the clueless, and none of my readers by definition fall into that category, but I have a message for you nonetheless: wake up, your days are numbered. There are at least three kinds of clueless lawyers and my attitude towards each is different. The first kind is so full of themselves that they have no idea they are clueless. I will not have drinks with these egomaniacs. The second type has some idea that they may need to learn more about e-discovery. They may be clueless, but they are starting to realize it. I will share drinks with them. Indeed I will try very hard to awaken them from their ethically challenged slumber. The third kind is like the first, except that they know they are clueless and they are proud of it. They brag about not knowing how to use a computer. I will not have drinks with them. Indeed, I will attack them and their stone walls almost as vigorously as the weasels.

Judges Dislike the Clueless, Gutless, and Slimy Weasels

Judges dislike all three kinds of ethically challenged lawyers. That is why I was not surprised by Judge Kemp’s sanction in Brown of both the defendant and their attorneys. (By the way, I know nothing about defense counsel in this case and have no idea which category, if any, they fall into.) Here is how Judge Kemp begins his 47 page opinion.

There may have been a time in the courts of this country when building stone walls in response to discovery requests, hiding both the information sought and even the facts about its existence, was the norm (although never the proper course of action). Those days have passed. Discovery is, under the Federal Rules of Civil Procedure, intended to be a transparent process. Parties may still resist producing information if it is not relevant, or if it is privileged, or if the burden of producing it outweighs its value. But they may not, by directly misrepresenting the facts about what information they have either possession of or access to, shield documents from discovery by (1) stating falsely, and with reckless disregard for the truth, that there are no more documents, responsive or not, to be produced; or (2) that they cannot obtain access to responsive documents even if they wished to do so. Because that is the essence of what occurred during discovery in this case, the Court has an obligation to right that wrong, and will do so in the form of sanctions authorized by Fed. R. Civ. P. 37.

Take these words to heart. Make all of the attorneys in your firm read them. There are probably a few old school types in your firm where you should post the quote on their office wall, no matter which type they are.

Brown v. Tellermate Holdings Ltd.

Judge_KempThe opinion in Brown v. Tellermate Holdings Ltd., No. 2:11-cv-1122 (S.D. Ohio July 1, 2014) (2014 WL 2987051) by U.S. Magistrate Judge Terence Kemp in Columbus, Ohio, makes it very clear that attorneys are obligated to verify what clients tell them about ESI. Bottom line – the court held that defense counsel in this single plaintiff, age discrimination case:

… had an obligation to do more than issue a general directive to their client to preserve documents which may be relevant to the case. Rather, counsel had an affirmative obligation to speak to the key players at [the defendant] so that counsel and client together could identify, preserve, and search the sources of discoverable information.

Id. at pg. 35.

In Brown the defense counsel relied on representations from their client regarding the existence of performance data within a www.salesforce.com database and the client’s ability to print summary reports. The client’s representations were incorrect and, according to the court, had counsel properly scrutinized the client’s representations, they would have uncovered the inaccuracies.

As mentioned, both defendant and its counsel were sanctioned. The defendant was precluded from using any evidence that would tend to show that the plaintiffs were terminated for performance-related reasons. This is a very serious sanction, which is, in some ways, much worse than an adverse inference instruction. In addition, both the defendant and its counsel were ordered to jointly reimburse plaintiffs the fees and costs they incurred in filing and prosecuting multiple motions to compel various forms of discovery. I hope it is a big number.

The essence of the mistake made by defense counsel in Brown was to trust, but not verify. They simply accepted their client’s statements. They failed to do their own due diligence. Defense counsel aggravated their mistake by a series of over aggressive discovery responses and argumentative positions, including such things as over-designation of AEO confidentiality, a document dump, failure to timely log privileged ESI withheld, and refusal to disclose search methods used.

The missteps of defense counsel are outlined in meticulous detail in this 47 page opinion by Judge Terence Kemp. In addition to the great quotes above, I bring the following quotes to your attention. Still, I urge you to read the whole opinion, and more importantly, to remember its lessons the next time a client does not want you to spend the time and money to do your job and verify what the client says. This opinion is a reminder for all of us to exercise our own due diligence and, at the same time, to cooperate in accord with your professional duties. An unsophisticated client might not always appreciate that approach, but, it is in their best interests, and besides, as lawyers and officers of the court, we have no choice.

[when e-discovery is involved] Counsel still have a duty (perhaps even a heightened duty) to cooperate in the discovery process; to be transparent about what information exists, how it is maintained, and whether and how it can be retrieved; and, above all, to exercise sufficient diligence (even when venturing into unfamiliar territory like ESI) to ensure that all representations made to opposing parties and to the Court are truthful and are based upon a reasonable investigation of the facts.

 Id. at Pg. 3.

As this Opinion and Order will explain, Tellermate’s counsel:

- failed to uncover even the most basic information about an electronically-stored database of information (the “salesforce.com” database);

- as a direct result of that failure, took no steps to preserve the integrity of the information in that database;

- failed to learn of the existence of certain documents about a prior age discrimination charge (the “Frank Mecka matter”) until almost a year after they were requested;

- and, as a result of these failures, made statements to opposing counsel and in oral and written submissions to the Court which were false and misleading, and which had the effect of hampering the Browns’ ability to pursue discovery in a timely and cost-efficient manner (as well as the Court’s ability to resolve this case in the same way).

These are serious matters, and the Court does not reach either its factual or its legal conclusions in this case lightly.

Id. at pg. 4.

In addition to the idea that discovery is broad and is designed to permit parties to obtain enough evidence either to prove their claims or disprove the opposing party’s claim, discovery under the Federal Rules of Civil Procedure has been designed to be a collaborative process. As one Court observed,

It cannot seriously be disputed that compliance with the “spirit and purposes” of these discovery rules requires cooperation by counsel to identify and fulfill legitimate discovery needs, yet avoid seeking discovery the cost and burden of which is disproportionally large to what is at stake in the litigation. Counsel cannot “behave responsively” during discovery unless they do both, which requires cooperation rather than contrariety, communication rather than confrontation.

Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354, 357-58 (D. Md. 2008). Such a collaborative approach is completely consistent with a lawyer’s duty to represent his or her client zealously. See Ruiz-Bueno v. Scott, 2013 WL 6055402, *4 (S.D. Ohio Nov. 15, 2013). It also reflects a duty owed to the court system and the litigation process.

Id. at pgs. 28-29. Also see: Losey, R. Mancia v. Mayflower Begins a Pilgrimage to the New World of Cooperation, 10 Sedona Conf. J. 377 (2009 Supp.).

Tellermate, as an entity, knew that every statement it made about its control over, and ability to produce, the salesforce.com records was not true when it was made. It had employees who could have said so – including its salesforce.com administrators – had they simply been asked. Its representations were illogical and were directly contradicted by the Browns, who worked for Tellermate, had salesforce.com accounts, and knew that Tellermate could access those accounts and the information in them. And yet Tellermate’s counsel made these untrue statements repeatedly, in emails, letters, briefs, and during informal conferences with the Court, over a period of months, relenting only when the Court decided that it did not believe what they were saying. This type of behavior violated what has been referred to as “the most fundamental responsibility” of those engaged in discovery, which is “to provide honest, truthful answers in the first place and to supplement or correct a previous disclosure when a party learns that its earlier disclosure was incomplete or incorrect.” Lebron v. Powell, 217 F.R.D. 72, 76 (D.D.C. 2003). “The discovery process created by the Federal Rules of Civil Procedure is premised on the belief or, to be more accurate, requirement that parties who engage in it will truthfully answer their opponents’ discovery requests and  consistently correct and supplement their initial responses.” Id. at 78. That did not happen here.

Id. at pg. 31.

But it is not fair to place the entire blame on Tellermate, even if it must shoulder the ultimate responsibility for not telling counsel what, collectively, it knew or should have known to be the truth about its ability to produce the salesforce.com information. As this Court said in Bratka, in the language quoted above at page 3, counsel cannot simply take a client’s representations about such matters at face value. After all, Rule 26(g) requires counsel to sign discovery responses and to certify their accuracy based on “a reasonable inquiry” into the facts. And as Judge Graham (who is, coincidentally, the District Judge presiding over this case as well, and whose views on the obligations of counsel were certainly available to Ms. O’Neil and Mr. Reich), said in Bratka, 164 F.R.D. at 461:

The Court expects that any trial attorney appearing as counsel of record in this Court who receives a request for production of documents in a case such as this will formulate a plan of action which will ensure full and fair compliance with the request. Such a plan would include communicating with the client to identify the persons having responsibility for the matters which are the subject of the discovery request and all employees likely to have been the authors, recipients or custodians of documents falling within the request. The plan should ensure that all such individuals are contacted and interviewed regarding their knowledge of the existence of any documents covered by the discovery request, and should include steps to ensure that all documents within their knowledge are retrieved. All documents received from the client should be reviewed by counsel to see whether they indicate the existence of other documents not retrieved or the existence of other individuals who might have documents, and there should be appropriate follow up. Of course, the details of an appropriate document search will vary, depending upon the circumstances of the particular case, but in the abstract the Court believes these basic procedures should be employed by any careful and conscientious lawyer in every case.

 Id. at pgs. 32-33.

Like any litigation counsel, Tellermate’s counsel had an obligation to do more than issue a general directive to their client to preserve documents which may be relevant to the case. Rather, counsel had an affirmative obligation to speak to the key players at Tellermate so that counsel and client together could identify, preserve, and search the sources of discoverable information. See Cache La Poudre Feeds, LLC v. Land O’ Lakes, Inc., 244 F.R.D. 614, 629 (D. Colo. 2007). In addition, “counsel cannot turn a blind eye to a procedure that he or she should realize will adversely impact” the search for discovery. Id. Once a “litigation hold” is in place, “a party cannot continue a routine procedure that effectively ensures that potentially relevant and readily available information is no longer ‘reasonably accessible’ under Rule 26(b)(2)(B).” Id.

Id. at pg. 35.

As noted above, Tellermate and its counsel also made false representations to opposing counsel and the Court concerning the existence of documents relating to the Frank Mecka matter. Indeed, at the hearing on the pending motions, Tellermate’s counsel stated that she was unaware of the existence of the great majority of the Frank Mecka documents until almost a year after they were requested. Once again, it is not sufficient to send the discovery request to a client and passively accept whatever documents and information that client chooses to produce in response. See Cache La Poudre Feeds, 244 F.R.D. at 629.

 Id. at pg. 37 (emphasis added).

There are two distinct but related problems with trying to remedy Tellermate’s failings concerning these documents. The first is the extremely serious nature of its, and counsel’s, strenuous efforts to resist production of these documents and the strident posture taken with both opposing counsel and the Court. Perhaps the most distressing aspect of the way in which this was litigated is how firmly and repeatedly counsel represented Tellermate’s inability to produce these documents coupled with the complete absence of Tellermate’s compliance with its obligation to give counsel correct information, and counsel’s complete abdication of the responsibilities so well described by this Court in Bratka. At the end of the day, both Tellermate’s and its counsel’s actions were simply inexcusable, and the Court has no difficulty finding that they were either grossly negligent or willful acts, taken in objective bad faith.

Id. at pg. 43.

The only realistic solution to this problem is to preclude Tellermate from using any evidence which would tend to show that the Browns were terminated for performance-related reasons. … This sanction is commensurate with the harm caused by Tellermate’s discovery failures, and is also warranted to deter other similarly-situated litigants from failing to make basic, reasonable inquiries into the truth of representations they make to the Court, and from failing to take precautions to prevent the spoliation of evidence. It serves the main purposes of Rule 37 sanctions, which are to prevent parties from benefitting from their own misconduct, preserving the integrity of the judicial process, and deterring both the present litigants, and other litigants, from engaging in similar behavior.

Id. at pg. 45.

Of course, it is also appropriate to award attorneys’ fees and costs which the Browns have incurred in connection with moving to compel discovery concerning the salesforce.com documents and the Mecka documents, and those fees and expenses incurred in filing and prosecuting the motion for sanctions and the motion relating to the attorneys-eyes-only documents. … Finally, Tellermate and its counsel shall pay, jointly, the Browns’ reasonable attorneys’ fees and costs incurred in the filing and prosecution of those two motions as well as in the filing of any motions to compel discovery relating to the salesforce.com and Frank Mecka documents.

Id. at pgs. 45-46.

So sayeth the Court.

 Conclusion

obligatory iPhone Selfie jazzed up with ink strokes effectsThe defendant’s law firm here did a disservice to their clients by not pushing back, and by instead simply accepting their clients’ report on what relevant ESI they had, or did not have. Defense counsel cannot do that. We have a responsibility to supervise discovery, especially complex e-discovery, and be proactive in ESI preservation. This opinion shows what happens when a firm chooses not to be diligent. The client loses and the lawyers are sanctioned.

Our obligation as attorneys of record does not end with the client’s sending a litigation hold notice. If a client tells us something regarding the existence, or more pointedly, the non-existence, of electronically stored information that does not make sense, or seemingly is contradicted by other evidence, it is critical for an attorney to investigate further. The client may not want you to do that, but it is in the client’s best interests that you do so. The case could depend upon it. So could your license to practice law, not to mention your reputation as a professional. It is never worth it. It is far better to sleep well at night with a clear conscience, even if it sometimes means you lose a client, or are generally not as successful, or rich, as the few ethically challenged lawyers who appear to get away with it.


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