ESI & Electronic Discovery - October 3, 2013

by Nexsen Pruet, PLLC

The emergence of mid-size firms outside the major metropolitan areas as players in the Ediscovery market is coming.  Clients who are tired of soaring document hosting and review costs associated with Big Data will appreciate the ability to engage these firms for their ability to control costs.  Cloud based computing, coupled with new technologies in the industry such as Concept Based Searching and Technology Assisted Review (TAR) are now available to any firm of any size anywhere in the country.  Moreover, these firms can provide hosted document review at very competitive rates, and this will change the division of labor in the legal field dramatically. 

New Technology

In case you are unfamiliar with these technologies lets run through them here.  • Cloud based computing, while not necessarily new technology, allows users to access centrally stored files from various interfaces.  In the realm of litigation and document review this now means that attorneys, clients, and in some cases opposing counsel may collaborate on document review in an internet or web based environment.  This allows small to mid-size firms to host and store very large amounts of data they would otherwise not be able to support.  • Concept based searching allows users to cluster or retrieve documents based on concepts or the similarity of documents.  This means that fewer attorneys can now review larger data sets due to the increase in efficiency.  • Technology Assisted Review (TAR) allows attorneys to leverage the clustering and concept identification associated with concept based searching by having the computer subjectively sort and determine relevance or privilege of discovery based on a statistically significant sample set of documents.

Attorneys, historically slow to adopt the newest “techno-tools,” are confronting the demand of clients that they efficiently handle the increasingly large and complex information produced in discovery with tools like these.  The purchasing of expensive software packages with annual maintenance costs, large scalable storage solutions to hold client data, redundancy operations to comfort clients, and bandwidth upgrades to handle this information have left many firms with costs as robust as their capabilities.

The Impact on Firms, both Large and Small

Without the driving need to constantly invest in high-end, fast evolving technology many smaller firms now find themselves in a unique position.  They are not burdened by the history of large expenditures which need to be justified.  These firms see new technologies such as cloud based review and TAR as a method to set themselves apart from their geographically distant colleagues while leveraging their relatively low billable rates to take business from the large firms in major metropolitan markets.  Technology is allowing them to compete for client business in a way that was impossible only a few years ago.  These firms can now use cloud based document review to provide the same service and technological approach to document review to a client in New York as any AMLaw firm.

Large firms must see this trend as well.  Clients have increasingly large amounts of data.  With technology developing rapidly over the past few years the constant reinvestments in infrastructure required to keep up have taken a toll.  In the past decade many, if not most, major firms purchased their own version of document review and ediscovery processing and placed it behind their firewall as a revenue stream.  The leap from server based installations of document review tools to first generation cloud-based tools to newer, more robust tools that integrate concept based searching and TAR have not been cheap.  These investments must now be justified, whether as loss-leaders or profit centers for the firms.  Moreover, in a rapidly changing technology world, software purchases typically have no trade-in value.  A large 6 figure purchase of software with a three year maintenance agreement is worth little to nothing in year 4 if you move to a new product.

Third-party Vendors

Smaller firms are beginning to see that by integrating third-party vendors and outsourcing these capabilities they can offer the same resources without the burden of covering the cost of a half decade in the ediscovery and document review arms race. Without having to purchase software and infrastructure which would represent a relatively large portion of their budget they can offer services for much lower rates than large firms.  The risk of making large purchases of technology can be removed while the reward of having access to cutting edge tools remains.  The ability to quickly switch between tools and use “best of breed” technology is appealing to anyone. 

The responsibility of maintaining Continuity of Operations or Disaster Recovery can be placed in the hands of these third-parties who are themselves subject matter experts.  For attorneys, being able to tell clients their data is stored in a fully-redundant SAS 70 datacenter is now an option for firms who previously may have had an IT infrastructure consisting of a few servers.  Suddenly the second-tier market and its technology embracing firms are looking more appealing to clients looking to cut costs and increase efficiency.

How are smaller firms, with their relatively low buying power, able to leverage these deals from third-party vendors?  The answer is actually simple.  By committing to subscription models with vendors these firms are able to achieve a single low price cost per month.  The upside for vendors is the hope that the firm will not use their allocated amount of resources thus providing a large profit margin since they are not providing a service. The firm’s perspective is that when they are using the resources the cost is much smaller than with the previous model of vendors providing a la carte pricing for things like user fees, loading fees, project management, storage fees, etc.

I believe we are at a crossroads.  Technology has evolved to a point of theoretically conducting document review with minimal human interaction.  Clients are looking for ways to control costs as the amount of information they maintain increases.  If businesses are embracing technology then it stands to reason they will gravitate toward law firms that are able to speak their language.  Law firms are in the business of taking large amounts of information and being able to understand it in order to represent their respective clients.  Technocratic firms that understand the need for this efficiency will find a receptive audience in clients looking for ways to control costs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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