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SURVEY SHOWS SURGE IN E-DISCOVERY WORK AT LAW FIRMS AND CORPORATIONS

By Monica Bay | Law Technology News

E-discovery vendors will be happy to hear the metrics released Thursday by The Cowen Group, a New York-based headhunter and research consultancy, which show a strong spurt of growth in electronic data discovery workload at law firms. Writes managing partner David Cowen, in the executive summary: “2012 has been a year of progress and promise for e-discovery professionals.” The survey, of 88 law firm and corporate law department professionals, found that 70 percent of law firms reported an increase in workload for their litigation support and e-discovery departments. That figure, says Cowen, is a sharp rise from the 2Q 2009 report, where only 42 percent of firms reported increases. Corporate law departments followed suit, with 77 percent of respondents also reporting workload spikes.

Bolstering the prediction, 55 percent of corporate and 62 percent of firm respondents said they “anticipate outsourcing a significant amount of e-discovery to third-party providers (with some organizations expected to do both).” The firms expect to grow capacity either by adding head count or purchasing new (or updating) technology, he notes.

Not only that, but the growth is expected to happen soon: 50 percent of the firms believe they will increase technology speeding in the next three months — a sharp contrast from 2010 when only 31 percent of firms were planning additional EDD technology investments. Likewise, 43 percent of firms plan to add people in the next three months, compared to 32 percent last year.

Meanwhile, says Cowen, corporate legal departments are feeling increasing pressure to “do more with less in-house to keep external costs down.” Only 12 percent expect to increase headcount, but 30 percent will spike technology spending in the next six months, he says in the report.

“Corporations continue to be very reluctant to add headcount or spend technology dollars on e-discovery,” Cowen told LTN. “They prefer strategic partners, vendors, and outsourcing. Our phone call follow-ups confirm that corporations are trending towards managed service arrangements.” By contrast, “law firms see the need and benefit to add head count and technology to respond to client and market demand. They are indeed heeding to the demands of their clients and the markets by accelerating their investments in people, processes, and technology.”

Not surprisingly, predictive coding (aka technology assisted review) has had strong impact on investments. “Cases such as Da Silva Moore, Kleen, and Global Aerospace, which have hit our collective consciousness in the past three months, affect the investments in technology that both law firms and corporations are making,” observes Cowen in the report.

In the past year, 49 percent of firm and 23 percent of corporate respondents said they have used predictive coding through a third-party vendor — and another 38 percent of firm respondents said they are considering making the investment. (For firms, that’s a jump of 19 percent from last year for use, says Cowen.)

Cowen ends the report with a note of caution to temper our enthusiasm. “Continued and accelerated growth is always welcome news, and is even more reassuring today. However, it’s important to keep in mind that this growth in e-discovery demand is the result of both more litigation and an exploding, under-managed data footprint at corporations,” he says. And as a headhunter, he offers this career advice: “Educate yourself on the latest evolving industry trends, invest in relationships, and be an active participant in helping your executives, your department, and your clients “do more with less.”

Asked by LTN how much the three cases may be driving the push for predictive coding, Cowen said the cases “simply lit the fuse. The desire to use predictive coding — and much of the work to understand predictive coding — had already been under way at many firms. It’s like DSM gave the community permission to come out, and have a more open exchange of ideas — and to share executive and technology thinking on the business of e-discovery and the workflows that go with it. The momentum and acceleration of adoption is faster than most perceive.”

“Predictive coding is much less about the technology or black box technology and significantly more about the professionals — legalists and technologists who are designing, shaping, and executing the various workflows that accompany predictive coding systems,” Cowen responded. “Users of this technology have been waiting for a case to set the precedent that this new methodology has been sanctioned by the courts.” And, he noted, the community is becoming more comfortable with the concepts as they become more educated.

The three cases, he predicted, will tip the scale and encourage more organizations who are already considering predictive coding to use the technologies in the right situations. “I think firms will still be fairly cautious however, as many of them do not want to become the next predictive coding headline,” Cowen said. “We are also going to see a slew of service providers pushing protocol and process development – some to the benefit of their clients and some to the detriment of the industry.”

And of course, the headhunter looks through the prism of employment. “This is the birth of a new type of lawyer,” he enthuses. “This is a tremendous opportunity for recent law school grads with an optic and penchant for math, statistics, and technology,” said Cowen. “I see a clear path to the front of the line in many litigation departments.”

LTN previewed some of the statistics to our EDD Update blog team.

• “The survey results suggest a conflict which, if true, indicates a looming problem,” observes attorney George Socha, of St. Paul, Minn.-based Socha Consulting. “One finding states that corporations anticipate outsourcing a significant amount of e-discovery, another that corporate legal departments feel increasing pressure to do more with less in-house. Does this mean that companies have incompatible objectives? That they feel pressure to do the work themselves but nonetheless intend to continue outsourcing it? Or that the left hand knows not what the right hand does?”

• “I believe we’re beginning to see these increases due to an uptick in corporate growth,” suggested Matthew Blake, a partner at Hagen, Streiff, Newton & Oshiro Accountants, in Newport Beach, Calif. “To speculate on the tea leaves of the survey, the service market is getting more technically defined and integrated into case strategy. I agree that predictive coding will continue its evolution towards reducing first-pass review speed and costs while increasing accuracy. The challenge will remain in tool selection.”

• David Kearney, director of technology services at Pittsburgh, Pa.’s Cohen & Grigsby, said “outsourcing a good portion of e-discovery collection and processing really makes a lot of sense financially, from a risk perspective, and from a resource management perspective.” The value, he says, “lies in the project management aspects of e-discovery, not the traditional processing and hosting of ESI. Additional value lies in assisting clients with their information management, to reduce costs.”

Predictive coding, said Kearney, “is another area that makes complete sense from a financial and efficiency perspective. It requires a slight change to the traditional e-discovery and review workflow, but the tremendous growth is ESI is going to require a much better option, such as predictive coding, over keywords, deduplication, all eyeballs on the documents, etc.”

• “I’m not at all surprised by the outsourcing prediction, and we are not talking here about outsourcing jobs overseas,” said Ralph Losey, a partner at Jackson Lewis, based in Orlando, Fla. “We are talking about outsourcing to U.S. vendors the non-legal e-discovery work that law firms, or corporations, had been trying to do themselves. That is a smart move as these functions get more and more complex and expensive.”

The Cowen Group’s free “2012 2Q Critical Trends” report is available free by contacting maribel@cowengroup.com, or by calling 212-661-0025. Snap Shots from the survey are available on the company’s website.

FROM THE SNAPSHOTS

• What’s your greatest challenge for 2012? The top challenges for the 88 respondents were: Technology (16), Costs/Budgets (12), People/Staff (11), Project Management/Process (9), Partner, Client, or Executive Interface and Support (9), Education/Training (8), Dept. Structure/Services (8). [Eight other categories drew lower numbers.]

• Social media discovery is still nascent in this group: 41 percent of law firm respondents said “a few” litigation cases have involved social media discovery of electronically stored information, and 30 percent said none. Likewise, 36 percent of corporate respondents said “a few,” with 55 percent saying none.

• Paralegals are invading corporate litigation support teams: While only 27 percent of law firms are using paralegals in litigation support teams, 65 percent of corporate law departments do.

Monica Bay is the editor-in-chief of Law Technology News magazine and a member of the California bar.