By Mark P. Henriques, Womble Carlyle Sandridge & Rice, LLP
For middle market companies with small in-house staffs, eDiscovery missteps can be costly and damaging. Implant Direct Manufacturing is a privately held middle market company which makes dental implants. When it was sued for patent infringement, the company failed to implement and monitor a litigation hold. As a result, the jury was told that they could assume that Implant Direct had destroyed evidence that would be helpful to plaintiff's case. The court also awarded costs and attorneys' fees.1 To avoid this same fate, middle market companies must understand and properly implement legal holds.
Understanding Legal Holds
A litigant's duty to preserve potentially relevant evidence arises "as soon as a potential claim is identified," In re Napster, Inc. Copyright Litig., 462 F.Supp.2d 1060, 1067 (N.D.Cal.2006), "once a party reasonably anticipates litigation." Zubulake v. USB Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y.2003). This duty can arise prior to the filing of a complaint. Phillip M. Adams & Assocs., LLC v. Dell, Inc., 621 F.Supp.2d 1173 (N.D.Utah 2009) (finding the duty to preserve evidence arose prior to the filing of the complaint because "computer and component manufacturers were sensitized to the issue [of litigation related to floppy disk controller errors]" at the time and defendant "should have been preserving evidence related to floppy disk controller errors"); Realnetworks, Inc. v. DVD Copy Control Ass'n, Inc., 264 F.R.D. 517, 526–27 (N.D.Cal.2009) (prior to filing of the complaint and shortly before the party's planned announcement of the product later alleged to infringe patents, a party was "on notice that litigation was probable and a potential claim was identifiable because various studios objected to [the accused product's] release and expressed concern that [the product] violated the [Parties'] License Agreement"); Apple Inc. v. Samsung Elecs. Co., Ltd., 888 F.Supp.2d 976, 990 (N.D.Cal.2012) ("As a general matter, there is no question that the duty to preserve relevant evidence may arise even before litigation is formally commenced.")
It is important to prepare for eDiscovery before litigation ensues. Practical Lawyer has prepared a useful checklist of items to consider.2 If you are fortunate enough to only routinely face litigation, you should conduct a litigation hold "fire drill" so participants can understand their roles, the location of potentially relevant company data, and identify area of resistance or non-compliance.
The fundamental objective of a litigation hold is to prevent the destruction of potentially relevant documents. This can be accomplished by sending out traditional "hold in place" notifications or by collecting and preserving potentially relevant documents. A traditional hold is typically issued by counsel to the key players and document custodians who are likely to have possession of or be aware of documents that relate to the lawsuit. The "hold" alerts these individuals that documents should not be destroyed. Because data is increasingly stored in a number of different locations (servers, desktops, laptops, cloud, backup media, thumb drives, smart phones, etc.), there needs to be careful consideration of all possible sources of information relevant to the claim.
Middle market companies need to candidly assess their ability to self-implement a hold. While it may be tempting to send a "mass" e-mail instructing everyone to hold everything, such notices are typically counter-productive. Compliance and monitoring become impractical, and the opposing party may be able to use the overly broad scope of the hold to launch a fishing expedition. Worse, because it is not possible to actually save "everything" (what about voicemails and instant messages?), such holds are open to attack. The better practice is to promptly interview the personnel most likely to have knowledge about the potential legal claims and have them assist counsel in identifying documents, issues, and other "key players." After these interviews, counsel can develop a more selective and manageable hold.
With storage costs continuing to drop, there is a trend toward making copies of data and storing them centrally, perhaps on a legal server or at a law firm, in lieu of trying to hold documents "in place." Duplication avoids the risk of inadvertent deletion by custodians. It is also usually less disruptive than a "hold now, collection later" approach. If the data is also processed, which can be costly, there is also an opportunity to conduct an Early Case Assessment (ECA). While virtually every vendor offers ECA tools, the real value comes from trial counsel's early assessment of the case after reviewing the key documents, interviewing the critical witnesses and researching the primary legal issues.3 Using technology to quickly identify "hot" documents, ECA lets counsel preview the documents that will likely decide the case. This knowledge is invaluable in establishing case strategy, setting expectations, and developing a budget. Immediate collection and processing also allows review teams to begin their work right away, which can be critical for cases involving preliminary injunctions, quick trial dates, or very large document sets.
Litigation hold protocols should be closely coordinated with the company's IT staff. Some holds (such as e-mail preservation) can be triggered quickly and remotely. IT staff may also be able to identify servers or databases that require special preservation protocols.4 Data stored in the cloud is subject to additional preservation concerns.5
The Roles of In-House Counsel, Outside Counsel, and Vendors
Middle market companies typically do not have an attorney or paralegal dedicated to implementation and monitoring of legal holds. As a result, outside counsel is typically involved in crafting the hold and a strategy to monitor compliance. National eDiscovery counsel is a logical option for those middle market companies routinely facing litigation.6
Numerous vendors now offer services around hold monitoring, document collection, document processing, and document review. Newer "per document" or "per custodian" pricing has reduced the cost of many of these services. Some law firms offer complete "hold to production" services, and alternative fee arrangements are also prevalent.
There are a few key points to consider when selecting vendors.7 First, a lawyer, not the vendor, needs to decide the scope of potentially relevant documents. The vendor needs clear direction about what documents need to be collected or preserved. Second, the market is both competitive and confusing. It takes knowledge, time, and experience to understand the different offerings. Third, decide who will be reviewing the documents at the outset, because review is typically the largest component of cost. Some vendor pricing includes review by inexpensive, inexperienced attorneys who review and code large numbers of documents. This is often the cheapest approach, although quality control can be an issue. Alternatively, some law firms use associates for document review. This helps the trial team learn the "nuts and bolts" of the case, but can be cost-productive in cases with large data sets. Finally, some law firms use in-house document review attorneys who charge at rates substantially less than associates. Because these tend to be "career" reviewers, review quality and efficiency may be better.
If time allows, an RFP process can help middle market companies make "apples to apples" comparisons of pricing plans from different vendors. Many vendors are offering fixed or "all-in" pricing, a risk-shifting option that can be particularly attractive to middle market companies with limited legal spend. Knowledgeable eDiscovery counsel can assist in writing and evaluating vendor proposals. Mistakes can lead to sanctions or outright defeat, so selecting a reliable vendor is a critical step in the eDiscovery process.
Predictive Coding (a/k/a Technology Assisted Review "TAR")
The latest buzz in eDiscovery circles is Technology-Assisted Review, or "TAR". TAR offers some hope of cost-containment in an era of ever-expanding data. TAR uses sophisticated analytics to compare a "seed set," which is coded by the attorneys who will be trying the case, with the remaining collected documents. Through an iterative learning process, TAR can achieve reliable results after review of only a fraction of the total document set.8 For lawyers worried about computers making "decisions" about documents, studies consistently show that the accuracy of computer-assisted review surpasses that of fully manual review (unlike computers, document reviewers get tired, distracted, and bored). Organizations compare competing systems to see which is the most accurate.9 Some in-house counsel have reported savings of 80-90% using TAR.10 While TAR was once prohibitively expensive, prices have come down, and TAR can make sense for any case involving more than a few thousand documents.
Information Governance: The Big Picture (and how to sell internally)
One recent study indicated that middle market companies manage 10-50 TB (terabytes) of data.11 This volume presents significant challenges for storage and retrieval. The burgeoning field of Information Governance provides assistance in developing an approach that maximizes access to necessary data while deleting duplicative, outdated or unnecessary information.12
The Information Governance Reference Model (IGRM) provides a helpful visualization of the various components.13 To achieve success, middle market companies need to establish a corporate standard for data management, define uniform retention/destruction guidelines that cross business divisions, and manage data accessibility and disclosure. The focus should be on retaining data that provides true business value, or satisfies regulatory requirements, and deleting the balance.14 Keeping unnecessary data has several costs including: storage, privacy violations, and litigation (processing and reviewing unnecessary documents).
E-Discovery and litigation holds are just one piece of the information governance picture. Other hot-button issues include surrounding privacy and cybersecurity.15 Counsel at a middle-market company is likely to get funding to update document retention and litigation hold protocols if the project is combined with these high exposure items. Including privacy and cybersecurity also offers an opportunity to dialogue with the IT and Knowledge Management officers to develop a more systematic approach to data management that addresses both business and legal needs.
Middle market companies face many of the same eDiscovery challenges as their larger brethren, but they must cope with smaller staffs and less experience. Using experienced outside counsel and reputable eDiscovery vendors can help avoid sanctions. New technology and a focus on information governance provide middle market companies with the chance to address litigation hold protocols and reduce the size of collection sets while streamlining access to, and protection of, critical company data.
- ACC Sample Litigation Hold Notice http://www.acc.com/legalresources/resource.cfm?show=1326859
American Records Management Association, http://www.arma.org