9 Factors Shaping the Fate of eDiscovery

About 9 months ago, we took a stab at estimating how much e-discovery costs society each year, concluding that the combined tonnage of US legal activity yields a discovery bill somewhere in the neighborhood of $40 billion annually. That hypothetical figure would account for about 10 percent of the entire US legal services market by some equally tentative estimates.

When considering whether this number — the sheer dollar amount attached to e-discovery — will rise or fall (spoiler alert: it will rise, duh), by how much, and to what impact, many economic, technological, behavioral and legal factors must be taken into account.

Here are nine of them.

1. Proportionality – Because this time, it’s for real. Maybe.

It’s hard to get excited about an allegedly important idea that’s been widely ignored for the 33 years it’s been formally part of the law. The means of discovery has, on the whole, never been proportional to its ends — not since the rise of popular computing, anyway. But the fanfare accompanying this magic word’s six paragraph move up the Rule 26 hierarchy in the 2015 revisions to the Federal Rules suggests that proportionality may indeed weigh more heavily on how, and at what cost, discovery is conducted.

The most optimistic readings of the amendments suggest that while an emphasis on proportionality will naturally check discovery spend in larger cases — where parties and judges will have to think more closely about aligning efforts with needs, expected value, issue importance and so forth —  it will, somewhat counterintuitively, actually stimulate discovery in small matters where, previously, parties would sooner settle than take their chances with unpredictable e-discovery fees.

2. The tug-of-war between law firms and corporate legal

Depending on who you ask or what you read, the balance of power dictating how discovery is performed, by whom, and at what price is either shifting toward the enterprise or back to law firms and other legal service providers. It’s clear that the work is moving “in-house,” it’s just not clear whose. For every survey showing mega-companies are conducting more discovery on their own, with internal tools and internal teams, there is another indicating that law firms, especially the very big ones, are investing more heavily in building their own discovery business units.

Can both be true? Maybe. It does appear that the largest corporations and the largest law firms are both attempting to control more of the process — in the case of the former, to bring more cost predictability and choke off downstream costs; and in the latter, to either capture more billable work, make themselves more attractive to clients (i.e. become one-stop-shops), and/or to increase the “stickiness” of their client relationships — the thinking here being that more hooks into a client’s data correlates to longer account lifetime.

But what’s clear is that both these forces and others are driving the per-unit costs of discovery downward. This is in part because discovery is generally cost-focused. To that end, the providers that will thrive in the future will be not those that can deliver superior costs savings (though, they’ll do this, too), but that will empower organizations to gain new insights from their data, better position themselves from legal and business perspectives, and multiply their internal productivity.

3. The amount of information is growing at an absurd rate

Anyone who attended Steve Watson’s keynote at this year’s Arkfield eDiscovery Conference had their eyebrows set aflame by the wild statistics Intel’s chief data finder casually dropped. Those included:

  • By 2020, the digital universe will surpass 44 zetabytes, the storage capacity of roughly three hundred forty-three billion seven hundred fifty million of the most expensive iPhone 6’s.
  • 32 billion “things” will be connected to the internet by 2020
  • There are currently 3.2 million apps available for purchase via iTunes and Samsung. Forensics vendors have the ability to extract the information from 972 of them.

The vast majority of this data isn’t relevant to business or legal disputes, obviously. But much of it will increasingly be swept up in the dragnet of discovery requests, investigations and so on — which is why the first point on this list is so important. It’s enough to make you wonder whether, years from now, discovery rules will include hard caps on volume.

4. Doc review is not, per se, legal practice

What was one small step for a contract lawyer in North Carolina is potentially one giant leap toward the abyss for law firms that have developed hugely profitable revenue streams placing fleets of contract or “staff” attorneys on large document reviews. Consider the following…

The Second Circuit held last year in the closely followed Lola v. Skadden, Arps, Slate, Meagher & Flom LLP that a contract attorney the firm had employed to perform document review was entitled to overtime pay under the FLSA because that work did not amount to the “practice of law.” It therefore was not exempt from overtime pay.

“A fair reading of the complaint in the light most favorable to Lola is that he provided services that a machine could have provided,” Circuit Judge Rosemary Pooler wrote.

If routine document review does not amount to legal work, what does it mean for how much that work is worth and at what cost it can be charged?

Attorney Wilton Strickland explains:

Whereas a law firm may choose to bill the work of an outside lawyer as a discrete, marked-up legal fee or an obvious, at-cost disbursement, it seems there is no such choice regarding the work of outside non-lawyers. Their work must be billed at cost, absent client consent to the contrary.

Ergo, if doc review is not considered legal work, then the person(s) performing that work, it can be argued, must be billed to the client at cost. And if that’s the case, there goes a major source of profit for law firms who have charged marked-up fees for the routine work performed by temporary contract reviewers or in-house staff. Are those days over? Hardly. But with the Lola ruling, you can at least begin to see the writing on the wall.

5. Law firms are combining at unprecedented rates

On the heels of a record-setting year for mergers and acquisitions, in which 91 firms combined, the dizzying rate at which law firms are being dissolved and swallowed shows no signs of waning. In the first four months of 2016, 28 firms have already folded into others, according to Altman Weil’s Merger Line. And that figure doesn’t account Polsinelli’s gutting of the one-time IP powerhouse Novak Druce, whose remaining members said they “will wind down actively practicing law.”

Some say that one of the driving forces behind this activity is the collective belt-tightening of clients no longer willing to pay their outside firms to train young lawyers on the job. Thus, those young lawyers are not being trained, period. The surge in law firm M&A, then, is in part due to a shortage of younger talent capable of leading firms with aging leadership into the future. Merging with another firm is a natural solution to the inability to plan for succession.

Jordan Furlong, an attorney and commentator, explained to Logikcull earlier this year:

For a long time, first and second year associates have arrived in law firms with not much more than the ability to turn on their computers.

Clients, especially after the financial crisis, increasingly said, “We’re not paying for you to train these people on the job anymore, especially because, frankly, we think you’re over-charging for what they’re actually doing. And number two, it’s not like you’re actually training them anyway! It’s not like they’re actually doing anything of value for us!”

While this phenomenon may only relate to discovery tangentially, it shows how clients’ push for efficiency amid economic uncertainty and increased competition is reshaping the legal services market in profound ways. There is a new normal — perhaps best outlined by Ron Friedmann’s #DoLessLaw principle — and it will not sustain the black-hole, anything-goes tactics of old.

6. Lawyers will eventually be forced to learn e-discovery…

While there are a growing number of young attorneys who’ve come of age with technology, and veteran attorneys who’ve embraced and made careers out of it, there is an entire category of legal professionals who continue to avoid technology out of either fear or disgust. That’s understandable — eDiscovery is often marked by impenetrable complexity and loads of risk.

But in addition to the business incentive to learning the basics — the ability to discern discovery issues is a prerequisite to field a growing number of even the smallest, most routine matters — national and state bar groups are increasingly pressuring attorneys to obtain a baseline level of e-discovery competence. This is best exemplified by the California State Bar’s dictum that lawyers handling cases with complex discovery issues must either become competent to handle them, get help, or pass on the representation entirely.

7. …But by then, Watson will be the only lawyer left

It is no secret that modern technology is steadily wiping out entire categories of legal workers whose jobs have been automated or eliminated completely. What was once, for instance, the work of fleets of contract reviewers is now the purview of an attorney with an internet connection and MacBook. And while it is not true that lawyers will be entirely replaced by robots — to practice law, you need intrinsically human traits like creativity, judgment, compassion, and the ability to think strategically — it is certainly true that the low-value work that has long sustained many legal service providers and law firms will. The rise of predictive intelligence and AI embodies this trend.

David Bilinsky, a lawyer and commentator on legal innovation who recently spoke to Logikcull, puts it this way:

What AI, including IBM’s Watson, holds for any profession, law being one of them, is very much an open question today. Certainly Watson is also being applied to medicine and other professions including law. Is it going to be something that’s adopted by lawyers? Or will it come up as an alternative to lawyers? Will people sign on to the IBM Watson website to get legal advice and reach IBMLaw.com? That’s a distinct possibility.

8. The rise of corporate legal ops

Legal has traditionally been thought of as the dumpster fire of corporate departments. There’s a reason for this: litigation, investigations and M&A are unpredictable and, often, existentially threatening. When a key part of your business, or the whole thing, is at stake, you spend what you need to spend and move on — no questions asked.

But that thinking has been marginalized in recent years, and a major reason why is the rise of legal operations: the business-minded efficiency experts who have been given mandates by C-level executives (or are C-level executives themselves) to control cost, integrate silos, and streamline processes.

The legal operations profession has been around for more than two decades at the most forward-thinking (and highly regulated) companies, but it is having a moment in 2016 amid new economic jitters and a maturing of legal technology, both of which are turning focus on cost control. The San Francisco Bay Area-based group CLOC, whose in-house operations specialists are fundamentally reshaping how legal services are delivered and imposing accountability where it is in short supply, is at the forefront of this movement. Its inaugural conference this week drew more than 500 corporate practitioners who seem hellbent on bending the power dynamic between in-house and outside counsel in their favor.

Taking the long view, there is seemingly little doubt that large corporations, whose collective drumbeat for more predictable legal costs, transparency and efficiency grows louder by the day, will increasingly dictate the terms of discovery and legal services in general.

9. Modern technology is a force multiplier

The hallmarks of eDiscovery and many other legacy legal workflows are complexity, extreme cost, waste, opaqueness, and old-school tools that recall the IBM supercomputer inhabiting its own wing of Sterling Cooper Draper Pryce. But these processes are being mercifully put out of their misery by a new class of intuitive, accessible and extremely powerful modern solutions — many of them, yes, cloud-based — that are both broadening the base of users able to perform these once-complex activities and acting as force multipliers. So not only are organizations able to do work themselves that they would have otherwise had to outsource to specialists, but they are in fact able to do more of that work more efficiently than those services firms. A side effect is that legacy providers on the losing end are themselves being forced to innovate.

To learn more about how technology and rules changes are changing the fundamentals of e-discovery, check out the whitepaper below.

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