How much does eDiscovery cost the U.S. every year?

Calculating the total exact costs incurred for eDiscovery each year in the United States is no more possible than knowing exactly how many french fries Americans consume.

But assume you could gather information on potato crop yields to the ton, the percentage of potatoes likely to be fried, and statistics on how much food Americans tossed out each year. Now you’re getting somewhere.

What follows is an attempt to ballpark the average annual cost of eDiscovery in the US based on a compilation of academic studies conducted over the last five years, caseloads reported by US courts, and assumptions about if and how much discovery occurs in different types of legal matters.

Note that these estimates are a) very general projections in some instances, but b) don’t account for the significant “soft” costs associated with discovery (e.g. business disruption); evidence gathering and handling that isn’t related to litigation (e.g. internal investigations); liability incurred from mishandling discovery (e.g. legal sanctions, disgorgment of fees); dispute-related fees; or preservation. Indeed, some estimates peg preservation costs alone for large companies to be upward of $2 million per year. General counsel for Eli Lilly recently reported spending $40 million for an email archiving system for preservation purposes.

For the purposes of this exercise — and to be clear, it is just an exercise — we will set those costs aside as rounding buffers. Also, eDiscovery and discovery are used interchangeably.

Let’s first review what we know, and then make some calculated guesses.

Facts

  • 19 million civil cases filed in state courts each year (source)
  • 303,000 federal civil filings each year (source)
  • About 12.7 million cases involve contracts or torts. (source)

Note: Author assumes these cases are more likely to involve discovery.

  • About 21 million criminal cases are filed in state courts. (source)
  • About 86,700 criminal cases are filed federal courts (source)

Research

  • Annual costs to the US for civil lawsuits are between $200 and $250 billion (source)
  • Total litigation costs of the Fortune 500 is about $210 billion (source)
  • Total economic impact of US tort litigation is $263 billion, which accounts for administrative costs, defense costs, and benefits paid to third parties (source)
  • For every federal case in which any type of discovery is involved, the average (i.e. median) costs incurred for discovery is estimated to be about $35,000 (based on numerous estimates) (source) (source) (source).
  • 20 to 50 percent of all costs in federal civil litigation are incurred to perform discovery, not including soft costs — like business interruption (source).
  • Combined revenue of the Fortune 500 totals about $12.1 trillion (source); Thus, total litigation costs of the Fortune 500 ($210 billion) are estimated to represent about 1.7% of total revenue.
  • The size of the US economy excluding the Fortune 500 is about $5.6 trillion. (source)

Assumptions 

  • Discovery accounts for between 20 to 50 percent of litigation expenses in civil cases that go to discovery.
  • About 60% of federal civil cases involve discovery.
  • About 60% of state civil cases involve discovery.
  • About 60% of federal criminal cases involve discovery.
  • About 10% of state criminal cases involve significant discovery.
  • Discovery costs incurred in criminal proceedings are one-tenth of those of civil cases.
  • Organizations, including government organizations, that are not among the Fortune 500 incur 50% less litigation costs per dollar of revenue generated, on average, than the Fortune 500.
  • Discovery in state cases is 50% of the cost of discovery in federal cases, irrespective of the type of case.

Estimates 

Note: For the purposes of these calculations, we will assume discovery represents 20% of total litigation costs — the low end of some estimates. 

Estimate #1 — Based on Volume of Filings and Per-Case Costs

Civil discovery costs 

Federal: 303,000 cases x $35,000 per case x 60% of cases = $6.36 billion

State: 19 million cases x ($35,000/2) per case x 60% of cases =  $19.95 billion

Note: Assumes state cases are half as costly as federal cases, and that discovery occurs in 60% of all civil cases.  

Criminal discovery costs

Federal: 86,700 cases x ($35,000/10) per case x 60% of cases = $182.07 million

State: 21 million x (($35,000/2)/10) per case x 10% of cases = $3.67 billion

Note: Assumes state cases are half as costly as federal cases; criminal discovery is one-tenth the cost of civil discovery; and discovery occurs in 10% of criminal state cases and 60% of criminal federal cases. 

Total: $30.162 billion 

Estimate #2 — Based on Litigation Costs Incurred by US Organizations  

Fortune 500: $210 billion x 20% = $42 billion

Note: Assumes discovery costs are 20% of total litigation costs. 

Non-Fortune 500: ($17.7 trillion – $12.1 trillion)/2 x 1.7% of total GDP x 20% = $9.52 billion

Note: This equation represents discovery costs incurred by Non-Fortune 500 US organizations, assuming that Non-Fortune 500 organizations incur half as much litigation cost as Fortune 500 companies; that litigation costs are equal to 1.7% of total revenue for all organizations on average; and that discovery costs are 20% of all litigation costs. 

Total = $51.5 billion

Estimate #3 — Based on Total Estimated Costs of Civil Litigation 

All Civil Litigation (State and Federal): $200 billion x 20% = $40 billion

Note: Assumes discovery costs are 20% of total litigation costs and civil litigation cost the US $200 billion.

All Criminal Litigation:

Federal:  86,700 cases x $408 per case = $353.3 million

State: 21,000,000 cases x $204 per case = $4.284 billion

Note: Assumes that the average cost of discovery in a state case is half the cost of discovery in a federal case and that discovery in criminal cases is one-tenth the cost of discovery in civil cases. 

Discovery in federal civil cases is twice as expensive as discovery in state civil cases and the total cost of discovery in all cases is equal to $40 billion when discovery in the average federal case is $4,080 and discovery in the average state case is $2,040, assuming 303,000 federal civil filings and 19,000,000 state civil filing. 

Thus, discovery in the average criminal federal case is assumed to be $408 and discovery in the average state criminal case is assumed to be $204.  

Total = $44.64 billion

Conclusion

The average of these three estimates is $42.1 billion. To put this in perspective, if US eDiscovery was its own economic nation, it would rank 90th out of 189 countries.

87. Serbia

88. Panama

89. Yemen

90. US eDiscovery

91. Libya

92. Ghana

93. Jordan

References 

http://www.courtstatistics.org/other-pages/~/media/microsites/files/csp/data%20pdf/csp_dec.ashx

http://www.uscourts.gov/statistics-reports/federal-judicial-caseload-statistics-2014

http://www.casact.org/library/studynotes/Towers-Watson-Tort-Cost-Trends.pdf

http://www.metrocorpcounsel.com/articles/9493/fortune-500-total-cost-litigation-estimated-one-third-profits

http://www.ediscoverylaw.com/files/2014/02/Hubbard-Preservation_Costs_Survey_Final_Report.pdf

http://www.rand.org/content/dam/rand/pubs/monographs/2012/RAND_MG1208.pdf

http://mjlst.umn.edu/prod/groups/ahc/@pub/@ahc/@mjlst/documents/asset/ahc_asset_366139.pdf

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

Robert Hilson is a director at Logikcull. He can be reached at robert.hilson@logikcull.com





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