Litigation Survey Suggests Future of e-Discovery

A crystal ball prediction - insight, or wishful thinking?A recent survey of over 300 corporate counsel on litigation issues suggests that the internal team approach to e-discovery is a fast growing trend for mid to large size companies. In 2007, these companies turned primarily to e-discovery vendors to help form and support these teams, not outside counsel.  I predict the internal team approach will continue, but in coming years, the dynamics will change. Corporations will rely more on independent law firms and consultants to help them operate these teams, rather than e-discovery vendors. Vendors will still be core members of the team, but the lead will be assumed by impartial experts with nothing to sell but their time.

The study in question was sponsored by Fulbright & Jaworski. It surveyed 253 U.S. corporate counsel and 50 U.K. corporate counsel. A copy of the Fulbright & Jaworski Fourth Annual Litigation Trends Survey Findings can be downloaded after filling out a short questionnaire.

Although this is the fourth year Fulbright has commissioned this survey, it is difficult to extrapolate trends because the demographics of the companies surveyed change each year. For instance, companies with over $1 billion in gross revenues made up 39% of the survey in 2007, but in 2006 they comprised 53%, and in 2005 only 29%. Also, the report does not provide details of the study. For these and other reasons, my suppositions of future trends based on this report could be all wrong. On the other hand, this survey provides a unique glimpse of corporate boardroom attitude to litigation that cannot be found anywhere else, and gives us some factual basis on current events upon which future trends can be predicted.

The 2007 survey included American and British companies ranging in revenue size from less that $100 million (25%), to between $100 – $999 million (36%), to over $1 billion (39%).  Many different industrial sectors are included (although financials are heavily weighted), and a little more than half of the companies are public.

The survey begins by confirming what most litigation attorneys already knew, that litigation overall is down. Still, the number of larger cases, those with $20 million or more at issue, remained about the same as last year. The types of lawsuits that are of most concern to corporate counsel are labor/employment, followed by contracts, regulatory and personal injury. This is the same as prior years. The most active jurisdictions are, once again, Texas, California and East Coast/New England.

An entire chapter of the survey report is devoted to “E-Discovery / Document Production.” The survey at page 22 first notes that e-discovery as an issue of concern is spreading from larger organizations to mid-size and smaller corporations.

The biggest change in e-discovery from 2006 to 2007 is in the percentage of companies using outside e-discovery vendors. For U.S. companies it jumped from 37% to 51%, and for U.K. companies, it spiked from 8% to 71%. The percentage of companies retaining law firms with special expertise in e-discovery also increased, but much more modestly. For U.S. companies, it increased from 26% to 30%, and for U.K. companies, from 17% to 32%. Still, this means that almost one-third of the companies surveyed retain law firms, at least in part, for their e-discovery expertise, and demonstrates a consistent growth in this area.

The survey asked a related question as to whether a company has retained, or is now considering retaining, special national or regional e-discovery counsel “specifically for e-discovery issues that arise in matters.” Here is the survey report on this key question:

Taking the survey sample as a whole, those answering in the affirmative jumped from 17% in 2006 to 42% in 2007. It appears companies in the U.K., in particular, are embracing the concept. There were also equally significant increases across the three company size categories.

When you delve more deeply into these statistics, however, you discover a few very interesting surprises not apparent from this summary. First, although the overall increase was from 17% to 42%, the U.S.-based companies only increased from 18% to 39%, while the U.K.-based companies increased from 14% to 60%.  Not too surprising when you consider the U.K. is still a few years behind the U.S. in e-discovery. But what is surprising is that most of the increase from 17% to 42% came from companies with under $100 million in revenues. They increased from 10% to 69%.  That is a sevenfold increase!

Even more surprising, however, is that the larger companies supposedly reversed this trend altogether. The $100 – $999 million size companies decreased retention of national e-counsel from 91% to 31%, and the $1 billion and up size companies decreased from 77% to 48%. 

I view these numbers with some skepticism, but assuming they are valid, I think they suggest a trend to internal corporate e-discovery teams. First of all, it is extremely unlikely that 91% of midsized companies, and 77% of large companies, in fact employed national or regional e-counsel in 2006. No way! The question posed apparently stated “have or considered retaining” national or regional e-counsel. If these statistics are valid, this must mean that many of the larger companies considered going the national e-counsel route in 2006, and then rejected it. Apparently these companies opted instead to employ vendors, and that is one reason why vendors overall saw such a high growth rate in 2007.

To me these facts suggest that mid to large-size companies are starting to take their e-discovery work in-house, instead of relying on outside counsel to do it all for them. This supports what I am seeing, where many companies are starting to explore the option of creating internal e-discovery teams. These statistics suggest that most are now relying on outside vendors to help make it happen. Unlike many law firms, vendors have been quick to realize a need for these services. To date, very few law firms have moved into the new team building approach I advocate.  Instead, most firms active in e-discovery still follow the entrepreneurial model of legal services that I discussed in the last “Star Trek” blog. Under this model, the law firm does everything for the client, including act as national or regional e-counsel. I doubt that this model will last much longer, and predict that in a few years only small companies will still support it.

Law firms may be slow to change, but they are smart. They will eventually respond to their clients’ needs, and embrace the new paradigm of e-discovery services promoted here. Under the e-discovery team model, outside counsel serve to empower their clients by helping them to form and operate their own e-discovery teams. As this change materializes, I expect the drastic growth rate in vendor usage to level off, or even reverse somewhat as attorneys move into this field.  Also, I would expect the use of national or regional e-counsel to increase again in the large and mid-size corporations, but this time based on a new client relationship and team functionality. The firms who help put the teams together will naturally stay and serve as national coordinating counsel, and speak for the internal teams that they helped organize and coach. 

Admittedly, there is a lot of speculation in these predictions because the question of internal e-discovery team formation was not asked in this survey. Hopefully it will be included in next year’s survey.

I acknowledge that there is another explanation for these statistics that does not support the trend to team based solutions. It could be that mid to large size companies are abandoning the national e-counsel idea in favor of hiring e-vendors to do everything, and doing little or none of the work themselves. This is probably true for some, but I doubt the majority are going this route. It is too expensive, and too risky, since it abdicates control to a third party of key responsibilities of a corporation’s legal and IT departments. Although some vendors would be happy to assume this responsibility, and charge plenty for it, most vendors I have talked to do not want that kind of responsibility. Instead, they seem to agree with the approach I advocate, and prefer to work with corporations to help them set up their own teams.

Smaller corporations with revenues less than $100 million may not have the resources to establish and run their own team, and it makes sense that they would instead rely on outside counsel to do it all for them, or on outside vendors. That would explain the overall spike in reliance on outside national e-counsel by smaller sized corporations, and also help explain the overall growth in vendor usage.

Another very interesting set of facts in the survey pertains to companies’ document retention and communication policies. This is the first year the survey has included these questions. The survey found that:

1. 54% of the companies allow instant messaging.
2. 24% allow the attachment of documents to instant messages.
3. 31% log or retain instant messages.
4. 40% retain voice mail.
5. 40% use technology to send voice mail to others via email.
6. 72% allow access to company network from home.
7. 48% allow use of outside email accounts from company  computers.
8. 40% have a chief privacy officer.

Further, although backup retention periods are said to vary widely, the median for all companies was approximately 60 days.

The survey also questioned companies about their attitude to the new rule changes. Twenty seven percent said it made “handling these issues in federal court more difficult” and only 18% believed it “made the process at least somewhat easier.” Sixty percent of both groups reported little change as a result of the new rules. That’s got to make the Rules Committee members cringe.

Asked about litigation holds, almost all (98%) of the $1 billion plus size companies claim to have one, and almost all size companies are now at least working on it. Eighty one percent of the U.S.  companies and 90% of the U.K. companies have reviewed or revised their hold policies in the past 12 months.

Thanks go to Fulbright & Jaworski for this survey and helping all of us to get a better hold on e-discovery.

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