The Corporate Takeover: Seizing Control over e-Discovery

Corporate attorneys have long served as trusted advisers, helping organizations avoid and mitigate risk. The rapid proliferation of electronic data generated in recent years presents an increasingly significant risk to companies in the United States and globally: the expense of responding to an investigation or litigation that requires the identification, preservation, collection and production of electronically stored information (ESI). Until recently, corporations have unquestioningly turned the management of these disputes over to outside counsel, who have either managed it directly or partnered with outside technology service providers to assist in handling ESI.

Precarious economic times and advancements in technology are necessitating that corporations seek lower-cost, higher-return alternatives to former practices. The corporate attorney is leading the effort to reduce expenses yet still effectively minimize risk, creating and driving internal policies that help corporations anticipate and respond to litigation and investigatory inquires. In furtherance of this effort, corporations are making significant investments in in-house technology solutions. Corporate lawyers are also joining forces with knowledgeable colleagues in IT and other key departments, as well as with outside counsel and technology experts, in an effort to best protect corporations from the inevitable demands for preservation and production of ESI. This article discusses the trend toward increased corporate litigation investment, preparedness and use of internal and external resources to simplify the process of responding to document-intensive requests. It also highlights recent common-law examples of where corporate litigation preparedness and/or response efforts have fallen short, resulting in costly consequences.

Increased Investment

According to the third annual 2009 ESI Trends Report by Kroll Ontrack, the average corporation has doubled its investment in litigation preparedness and response tactics. Given the significant budgetary squeeze most corporations felt in late 2008 and 2009, this finding proves that a heightened importance is being placed on litigation preparedness and response protocol. Businesses today are managing litigation differently, and are making greater initial investments to reap larger cost-savings down the line. But where are these investments being made, exactly? According to George Socha and Tom Gelbman, as reported in the August 2009 Law Technology News article entitled EDD Showcase: Strange Times, corporations are hiring electronic discovery vendors less and instead are beefing up in-house electronic discovery efforts. Further, strong emphasis is placed on legal hold and early case assessment software. As confirmed by Karen Sloan in the Aug. 18, 2009 Law.com article, For Litigators, a Different Kind of Recession, corporations are increasingly weighing costs vs. benefits analysis before engaging in litigation.

Despite this increased emphasis on preparing for litigation, less than 50% of the corporate respondents to the Kroll Ontrack ESI Trends survey reported having an ESI discovery readiness strategy in place. Not surprisingly, however, almost all of the respondents confirmed the existence of a document retention policy. This disparity suggests a lack of knowledge between the concepts of document retention and discovery readiness, and perhaps a false sense of security that the existence of a document retention policy is comprehensive enough to protect an organization when it must respond to a legal inquiry. The strength of a document retention policy may be determined once it is put to the test, and several recent cases serve as good examples of litigation responses that have been sorely insufficient.

Recent Litigation

In the recent Delaware patent infringement suit of Micron Technology, Inc. v. Rambus, Inc., a defendant microchip technology manufacturer authorized “shred days,” where relevant documents were destroyed after litigation was determined “inevitable” and “reasonably foreseeable.” The court determined the defendant's document destruction to be in bad faith and sanctioned the defendant by declaring the patents unenforceable against the plaintiff. In another recent patent infringement case in Utah, Phillip M. Adams & Assocs., LLC v. Dell, Inc., a software manufacturer argued that e-mail servers were not designed for archival purposes and encouraged employees to locally preserve e-mails of long-term value (as determined by each individual employee). The court held defendant's “irresponsible data retention practices [were] responsible for the loss of significant data,” but delayed the decision of whether sanctions were warranted until after discovery closed.

Enlisting Internal Expertise

The Kroll Ontrack study also reveals what practicing corporate attorneys already know: corporate counsel is partnering with IT and other departmental experts in ways never imagined just a few years before. In fact, 35% of companies reported that responsibility for ESI discovery strategy lies jointly with IT and in-house legal counsel. This news is ground-breaking given that just two years ago, most corporations reported that responsibility for ESI strategy aligned with in-house counsel alone. And, not only are legal and IT working together, their labor is bearing fruit ' a vast majority of corporations (84%) report that IT and legal teams work effectively when responding to ESI requests. However, while these relationships are strengthening, they are not without their challenges; role confusion and language differences continue to present barriers to effective management of ESI.

The common law is peppered with examples of departments that did not effectively work together and subsequently failed to properly safeguard potentially responsive ESI until well after litigation was anticipated. In the July 2009 case of KCH Services., Inc. v. Vanaire, Inc., Judge Jennifer Coffman of the United States District Court in the Western District of Kentucky granted the plaintiff manufacturer's motion for adverse-inference sanctions, holding that the defendant's failure to preserve ESI after the receipt of a preservation letter evinced a “continued unwillingness to place a meaningful litigation hold” on potentially responsive data. In the same month and about 800 miles to the west, Magistrate Judge Paul Cleary of the Northern District of Oklahoma ordered in the case of Pinstripe v. Manpower that the defendant staffing company fund a program on litigation holds for the Tulsa County Bar Association after it failed to implement a litigation hold that had been drafted by outside counsel retained for that very purpose.

Incorporating Emerging Technology

Corporations are working to stay current and incorporate emerging storage media and communication devices into existing protocols. Kroll Ontrack's ESI Trends Report survey data reveals that organizations are more likely to have discovery readiness policies that include mobile devices, but less likely to have policies that contemplate the explosion of social networking sites such as Twitter and emerging storage media, such as virtualization and cloud computing. ESI discovery readiness strategies are only effective when they are kept up-to-date and include the tools, devices and communications their organizations are utilizing. Furthermore, the failure to implement comprehensive policies that include all sources of potentially responsive data can, and often does, result in harsh treatment by the courts. For example, in the August 2009 Florida case of Southeastern Mechanical Services v. Brody, a computer forensics expert testified that the defendant intentionally wiped all data from BlackBerry' smartphones. Given the nature of the destroyed evidence (personal e-mails, telephone records, text messages and calendar entries), the court determined the evidence was likely unfavorable to the defendants and therefore issued an adverse-inference instruction.

Conclusion

Years 2008 and 2009 were marked by corporate counsel working with IT and other experts to seek proactive solutions to avoid risk and reduce the expense and burden involved in responding to data-heavy litigation and investigatory requests. Despite the fact that legal budgets were significantly reduced in 2009, investments made in proactive litigation preparedness tools and internal resources, on average, doubled. And, even though corporations are taking litigation preparedness much more seriously than in past years, less than half of corporations in 2009 reported that they have a litigation readiness strategy in place. In addition, many strategies fail to incorporate emerging technology and social communication behaviors. These findings may not be surprising when studying the many 2009 civil cases that serve as good examples of what not to do and warn corporations that are not properly prepared to preserve, collect and/or producing ESI in the context of a civil suit or inquiry.

The conclusion to this story is that corporate counsel still has its work cut out for them. Sound implementation, enforcement and management of ESI requires regular communication, cooperation and a lot of patience. And, most corporations still have a long way to go to adequately safeguard against the negative outcomes that will result from improper planning and implementation of litigation preparedness protocol.

Regina J. Jytyla is a managing staff attorney in the Legal Technologies division of Kroll Ontrack (http://www.krollontrack.com/). Ms. Jytyla tracks and reports on the evolving law and technology in the areas of litigation readiness and management of ESI, electronic discovery, and computer forensics.

Corporate attorneys have long served as trusted advisers, helping organizations avoid and mitigate risk. The rapid proliferation of electronic data generated in recent years presents an increasingly significant risk to companies in the United States and globally: the expense of responding to an investigation or litigation that requires the identification, preservation, collection and production of electronically stored information (ESI). Until recently, corporations have unquestioningly turned the management of these disputes over to outside counsel, who have either managed it directly or partnered with outside technology service providers to assist in handling ESI.

Precarious economic times and advancements in technology are necessitating that corporations seek lower-cost, higher-return alternatives to former practices. The corporate attorney is leading the effort to reduce expenses yet still effectively minimize risk, creating and driving internal policies that help corporations anticipate and respond to litigation and investigatory inquires. In furtherance of this effort, corporations are making significant investments in in-house technology solutions. Corporate lawyers are also joining forces with knowledgeable colleagues in IT and other key departments, as well as with outside counsel and technology experts, in an effort to best protect corporations from the inevitable demands for preservation and production of ESI. This article discusses the trend toward increased corporate litigation investment, preparedness and use of internal and external resources to simplify the process of responding to document-intensive requests. It also highlights recent common-law examples of where corporate litigation preparedness and/or response efforts have fallen short, resulting in costly consequences.

Increased Investment

According to the third annual 2009 ESI Trends Report by Kroll Ontrack, the average corporation has doubled its investment in litigation preparedness and response tactics. Given the significant budgetary squeeze most corporations felt in late 2008 and 2009, this finding proves that a heightened importance is being placed on litigation preparedness and response protocol. Businesses today are managing litigation differently, and are making greater initial investments to reap larger cost-savings down the line. But where are these investments being made, exactly? According to George Socha and Tom Gelbman, as reported in the August 2009 Law Technology News article entitled EDD Showcase: Strange Times, corporations are hiring electronic discovery vendors less and instead are beefing up in-house electronic discovery efforts. Further, strong emphasis is placed on legal hold and early case assessment software. As confirmed by Karen Sloan in the Aug. 18, 2009 Law.com article, For Litigators, a Different Kind of Recession, corporations are increasingly weighing costs vs. benefits analysis before engaging in litigation.

Despite this increased emphasis on preparing for litigation, less than 50% of the corporate respondents to the Kroll Ontrack ESI Trends survey reported having an ESI discovery readiness strategy in place. Not surprisingly, however, almost all of the respondents confirmed the existence of a document retention policy. This disparity suggests a lack of knowledge between the concepts of document retention and discovery readiness, and perhaps a false sense of security that the existence of a document retention policy is comprehensive enough to protect an organization when it must respond to a legal inquiry. The strength of a document retention policy may be determined once it is put to the test, and several recent cases serve as good examples of litigation responses that have been sorely insufficient.

Recent Litigation

In the recent Delaware patent infringement suit of Micron Technology, Inc. v. Rambus, Inc., a defendant microchip technology manufacturer authorized “shred days,” where relevant documents were destroyed after litigation was determined “inevitable” and “reasonably foreseeable.” The court determined the defendant's document destruction to be in bad faith and sanctioned the defendant by declaring the patents unenforceable against the plaintiff. In another recent patent infringement case in Utah, Phillip M. Adams & Assocs., LLC v. Dell, Inc., a software manufacturer argued that e-mail servers were not designed for archival purposes and encouraged employees to locally preserve e-mails of long-term value (as determined by each individual employee). The court held defendant's “irresponsible data retention practices [were] responsible for the loss of significant data,” but delayed the decision of whether sanctions were warranted until after discovery closed.

Enlisting Internal Expertise

The Kroll Ontrack study also reveals what practicing corporate attorneys already know: corporate counsel is partnering with IT and other departmental experts in ways never imagined just a few years before. In fact, 35% of companies reported that responsibility for ESI discovery strategy lies jointly with IT and in-house legal counsel. This news is ground-breaking given that just two years ago, most corporations reported that responsibility for ESI strategy aligned with in-house counsel alone. And, not only are legal and IT working together, their labor is bearing fruit ' a vast majority of corporations (84%) report that IT and legal teams work effectively when responding to ESI requests. However, while these relationships are strengthening, they are not without their challenges; role confusion and language differences continue to present barriers to effective management of ESI.

The common law is peppered with examples of departments that did not effectively work together and subsequently failed to properly safeguard potentially responsive ESI until well after litigation was anticipated. In the July 2009 case of KCH Services., Inc. v. Vanaire, Inc., Judge Jennifer Coffman of the United States District Court in the Western District of Kentucky granted the plaintiff manufacturer's motion for adverse-inference sanctions, holding that the defendant's failure to preserve ESI after the receipt of a preservation letter evinced a “continued unwillingness to place a meaningful litigation hold” on potentially responsive data. In the same month and about 800 miles to the west, Magistrate Judge Paul Cleary of the Northern District of Oklahoma ordered in the case of Pinstripe v. Manpower that the defendant staffing company fund a program on litigation holds for the Tulsa County Bar Association after it failed to implement a litigation hold that had been drafted by outside counsel retained for that very purpose.

Incorporating Emerging Technology

Corporations are working to stay current and incorporate emerging storage media and communication devices into existing protocols. Kroll Ontrack's ESI Trends Report survey data reveals that organizations are more likely to have discovery readiness policies that include mobile devices, but less likely to have policies that contemplate the explosion of social networking sites such as Twitter and emerging storage media, such as virtualization and cloud computing. ESI discovery readiness strategies are only effective when they are kept up-to-date and include the tools, devices and communications their organizations are utilizing. Furthermore, the failure to implement comprehensive policies that include all sources of potentially responsive data can, and often does, result in harsh treatment by the courts. For example, in the August 2009 Florida case of Southeastern Mechanical Services v. Brody, a computer forensics expert testified that the defendant intentionally wiped all data from BlackBerry' smartphones. Given the nature of the destroyed evidence (personal e-mails, telephone records, text messages and calendar entries), the court determined the evidence was likely unfavorable to the defendants and therefore issued an adverse-inference instruction.

Conclusion

Years 2008 and 2009 were marked by corporate counsel working with IT and other experts to seek proactive solutions to avoid risk and reduce the expense and burden involved in responding to data-heavy litigation and investigatory requests. Despite the fact that legal budgets were significantly reduced in 2009, investments made in proactive litigation preparedness tools and internal resources, on average, doubled. And, even though corporations are taking litigation preparedness much more seriously than in past years, less than half of corporations in 2009 reported that they have a litigation readiness strategy in place. In addition, many strategies fail to incorporate emerging technology and social communication behaviors. These findings may not be surprising when studying the many 2009 civil cases that serve as good examples of what not to do and warn corporations that are not properly prepared to preserve, collect and/or producing ESI in the context of a civil suit or inquiry.

The conclusion to this story is that corporate counsel still has its work cut out for them. Sound implementation, enforcement and management of ESI requires regular communication, cooperation and a lot of patience. And, most corporations still have a long way to go to adequately safeguard against the negative outcomes that will result from improper planning and implementation of litigation preparedness protocol.

Regina J. Jytyla is a managing staff attorney in the Legal Technologies division of Kroll Ontrack (http://www.krollontrack.com/). Ms. Jytyla tracks and reports on the evolving law and technology in the areas of litigation readiness and management of ESI, electronic discovery, and computer forensics.