e-discovery 2.0

E-Discovery 2.0 Has Moved To A New Home

2008-01-29T11:29:00.001-08:00

After 9 months struggling with the limitations of the simple-but-constraining Blogger platform, I am moving to WordPress. Please reset your RSS feeds to the following URL: http://www.clearwellsystems.com/e-discovery-blog/wp-rss2.php

You can also click here to see my latest posts on HP, ZANTAZ, LegalTech and more.

Top E-Discovery Software Vendors: Responses to Yesterday’s Post

2007-12-18T00:28:00.000-08:00

Yesterday’s post about the top e-discovery software vendors prompted a couple of interesting comments. George Socha posted a response here, disagreeing with my conclusions; and someone else (“top8”, whoever that is) asked whether one should “always listen to the top 5-10 songs on the list…[or] use the top 5 software products, regardless of one’s situation.”

To clarify, I whole-heartedly agree with George that there is no such thing as a “best” e-discovery service provider – as George says, it really does depend on your situation and I can think of many cases where a smaller, less well-known firm is a better choice than a national brand.

But e-discovery software is different for 2 reasons. First, and most importantly, in software there are increasing returns to scale which do not exist for service providers. The more companies that use a particular software product, the better that product becomes. Speaking from personal experience, when you have a large number of demanding customers, they force you to make your product better – and give you the money to do it. That’s why most technology markets are incredibly concentrated: everything from databases (Oracle) to search engines (Google) have a single dominant player. We are still in the early days of the e-discovery software market, but ultimately I expect it will follow suit and consolidate around a very small number of players.

The second difference between e-discovery software and service providers is that enterprises cannot change their software vendors as easily as they can change their service providers. Once software is deployed behind the firewall, it is fiendishly difficult to get it out, requiring enterprises to pick a single product for all cases. By contrast, it is easy to change service providers, so enterprises can pick the most relevant expertise on a case-by-case basis.

To answer the question posed by “top8”, I am not suggesting that everyone should only read Harry Potter, watch American Idol, and (Heaven forbid!) listen to Britney Spears. Those are matters of personal taste where diversity is what makes for a rich, vibrant society. But there are very good reasons why so many corporations rely on Veritas for backup software, Oracle for databases, Symantec/McAfee for anti-virus, IBM for developer tools, and so on. In software, the best products only get better. That’s why, 5 years from now, the list of top e-discovery software vendors will be even shorter.

Top E-Discovery Software Vendors

2007-12-14T16:59:00.000-08:00

There are two independent analyst reports identifying the top e-discovery software vendors.

The first, published in June 2007, is the Socha-Gelbmann Annual Electronic Discovery Survey. The authors, George Socha and Tom Gelbmann, probably know more about e-discovery than anyone else you are likely to meet. As someone who has filled out their 178-page survey, I can tell you it is excruciating in its detail and incredibly rigorous. According to the report, George and Tom contacted nearly 1,000 individuals and collected detailed data from 115 organizations.

The second analyst report is Gartner’s MarketScope, which is published today (December 2007). Its author, Debra Logan, is fast emerging as one of the leading lights of e-discovery and has great instincts about the market. For her report, Debra tells me that surveyed 30 vendors and checked over 90 customer references.

The results from the two reports are as follows:

Socha-Gelbmann Top Software Vendors ⁽¹⁾	Gartner Top Software Vendors ⁽²⁾
Attenex	Attenex
Cataphora	Clearwell
Clearwell	FTI
CT Summation	Guidance
Doculex	Inference
FTI	Iron Mountain/Stratify
Guidance	Kazeon
ISYS Search Software	Kroll
LexisNexis	LexisNexis
Oracle	Seagate/MetaLINCS
Zantaz (now Autonomy)	Orchestria
	PSS Systems
	Recommind
	Symantec
	Xerox
	Zylab

(1) Companies listed as “Top Electronic Discovery Software Providers Based on 7 Criteria” (Table 19 and 20), listed in alphabetical order. (2) Companies awarded ratings of “Positive” or “Strong Positive” (Figure 1), listed in alphabetical order.

Why are the lists so different? Primarily because of two main factors:

Gartner’s list mixes service providers and software companies whereas Socha breaks them out separately. The Socha report has an entirely separate list for service providers.
Socha’s report was completed 6 months earlier than Gartner’s. In that intervening period, several new players entered the e-discovery market. For example, Kazeon was ranked by Gartner earlier this year a “niche player” (lower left quadrant) in the enterprise search market, and has not been in e-discovery long enough to participate in the Socha study (or, if they did participate, they did not have enough e-discovery customers to gain a high ranking).

Conclusions

The first conclusion to draw from these lists is that any vendor not in them is probably not worth considering for e-discovery. If neither Socha nor Gartner ranked them highly, then the vendor either could not provide compelling customer references or has lost competitive bake-offs to someone who is on the list. Either way, they are best avoided.

The second thing that stands out is how different these lists are. Of the 21 vendors identified by Socha and Gartner, only 5 are ranked as top e-discovery software vendors by both of them. Those 5 are Attenex, Clearwell, FTI, Guidance, and LexisNexis. So, if you are an enterprise looking for an e-discovery solution, it is clear who you should call first.

Finally, it is worth noting that both these analyst reports are relatively new. This is the third annual survey for Socha, and the first MarketScope for Gartner. That speaks to the fact that e-discovery software is a new, fast-growing product area. More and more enterprises are adopting e-discovery software solutions, and asking analysts about them, because they offer such a compelling ROI.

Seagate Acquires MetaLINCS For $80 million

2007-12-11T11:24:00.000-08:00

First ZANTAZ, then Stratify, and now MetaLINCS – all within 5 months. The e-discovery space is consolidating fast!

On December 6, Seagate announced its acquisition of MetaLINCS. Financial terms were not disclosed, but my sources tell me that the price is $80 million. Given that MetaLINCS is a 50 person company with fewer than 25 customers , this is a fantastic outcome and I congratulate the MetaLINCS team. My educated guess is that in 2007 MetaLINCS will earn $5 million to $10 million in bookings, making this a healthy multiple of 8-16X. Contrast that to the 5X revenue paid by Iron Mountain for Stratify, and MetaLINCS shareholders clearly got a great deal.

That still leaves the question of why Seagate, a non-entity in e-discovery, would want to pay such a rich price. The answer, according to Seagate, is its desire to grow beyond manufacturing hard drives by having its services group provide a broad range of “solutions”, including archiving, back-up, recovery, and e-discovery. EVault, acquired last year for $185 million, is the backup and recovery part of that equation; MetaLINCS is the e-discovery component; and, say the analysts, don’t be surprised if an archiving acquisition is next.

Does Seagate’s entry into the e-discovery market make any sense? I don’t think so, and here’s why: there is a mismatch between Seagate/MetaLINCS and its target market. Seagate’s services offering will appeal most to mid-market companies which often outsource archiving, backup, and recovery. Seagate admitted as much when it announced the EVault deal. But the mid-market will be the last place to adopt e-discovery software like MetaLINCS; it is the Global 2000 who will move first, as they are the most sophisticated and in the greatest pain. For the limited amount of mid-market e-discovery business that is out there, Seagate/MetaLINCS will compete with every other service provider, from Kroll to Stratify to the hundreds of mom-and-pop shops across the country.

Net net: this acquisition is great for MetaLINCS, is small enough to be immaterial for Seagate, and will likely have no impact on the e-discovery market which will be won and lost in Global 2000 companies that are not interested in a Seagate/MetaLINCS service offering.

First ZANTAZ, then Stratify, and now MetaLINCS. It makes you wonder who will be next.

An Eventful Day

2007-12-10T21:44:00.000-08:00

Thursday, December 6 was a big day for several e-discovery companies. Starting on the home front, it was Clearwell’s 3^rd birthday and we celebrated by announcing our deployment at Bear Stearns. Looking at where we are now, it’s hard to believe that 3 years ago the company consisted of a few guys with an idea. Today, we have over 100 customers who rely on Clearwell for e-discovery, and we are thrilled to count Ruben, Christoph and the team at Bear Stearns among them.

That same day, MetaLINCS announced its acquisition by Seagate (more on that to follow shortly), and Guidance announced the appointment of a new CEO. Victor Limongelli was promoted from President to the top job after what sounds like a comprehensive evaluation of both internal and external candidates by Guidance’s board. I always enjoy my conversations with Victor and applaud Guidance’s decision.

All in all, an eventful day.

ZANTAZ Announces Desktop Legal Hold Solution and Takes on Guidance

2007-12-05T12:05:00.000-08:00

Technology companies are notorious for aggressive marketing, whereby they either announce products that do not exist or wildly exaggerate their capabilities. So when ZANTAZ announced its new Desktop Legal Hold solution alongside an image claiming that it can help you “become your company’s superhero”, I was naturally wary. Reading the press release only heightened my suspicion that ZANTAZ’s marketing department may be running ahead of its product development team. For example:

The release cannot name a single customer using Desktop Legal Hold. The best ZANTAZ could do was quote a retired executive from BASF, who spoke about the potential value from this type of solution (not the actual value realized from this specific solution by a current customer);
ZANTAZ makes a series of wild claims about the solution. My personal favorite: “Desktop Legal Hold automatically overcomes spoliation, obfuscation, misclassification and non-classification of important data” Need I say more?
Desktop Legal Hold is not listed in the “Solutions” or “Products” sections of ZANTAZ’s website. Perhaps I’m missing something, but I can only find it mentioned in the press release.

All of this will be re-assuring in the short-term to Guidance, whose Encase product is the leading desktop collection and preservation tool. I doubt customers will be rushing to entrust something as important as their legal holds to ZANTAZ until the product looks more proven, and its capabilities are more clear.

That said, ZANTAZ has clearly signaled its intention to attack Guidance’s core market. ZANTAZ wants to make it easier for its customers to get data into its archives. And it wants a piece of the revenue in this market: from Guidance’s quarterly financials, if you deduct revenue from services and its e-discovery product, it looks like the Encase business is worth $30-35M per year in license revenue. That’s a meaningful prize for ZANTAZ.

It will be interesting to watch how this develops.

Postscript To The Iron Mountain-Stratify Deal

2007-11-26T15:53:00.000-08:00

In the past couple of weeks, I have spoken to several people close to the Iron Mountain-Stratify deal, and it has been interesting to hear their different perspectives.

The one thing they all agree on is that, as a business, Stratify was doing well. From a combination of news reports, Iron Mountain’s statements, and my various sources, I learned that Stratify’s revenue grew from $24M in 2006 to $30M this year. That is below the $40M+ it forecast earlier in the year, but healthy growth all the same. Gross margins are an impressive 60-70%, which is great for a services business, and profit margins are 20-30%. The vast majority of its 110 customers are law firms but – I know from personal experience – it has had some success in the enterprise. Net net: Stratify was in pretty good shape.

But at that point, opinions begin to differ. I heard 2 competing interpretations of the acquisition:

1. It’s a good deal for all sides

This was my initial reaction and the topic of a blog post written on the day the deal was announced. It has since been echoed in the press and by the analyst community. The story goes something like this:

Everyone wins from this deal. Once you factor in assumed stock options and retention packages along with the $158M that goes to existing shareholders, Stratify gets a multiple of 5.5X current year revenue, which is high for a services business. It also gets to operate autonomously under the Iron Mountain umbrella, with (supposedly) minimal interference from back East. For its part, Iron Mountain gets a growing, profitable business which it can grow more quickly, by selling into its installed base, and more profitably, by leveraging its existing sales force.

2. Stratify sold too cheap, too early

Why sell a profitable, growing business, especially one in a rapidly growing market like e-discovery? Given its growth trajectory, won’t an independent Stratify be much more valuable in 2-4 years time than it is today? Why repeat the mistake made by shareholders of VMWare and MySpace, who sold billions in value for a few hundred million?

The answer, say people who hold this view, has nothing to do with Stratify’s business and everything to do with its shareholders. On the one side, Mobius, the venture capital firm which owned 70% of the company, wanted out – the firm is winding down, some of its partners are raising a new fund and wanted an outcome to boost their VC track records. On the other side, the founder was tired after 8 years slugging it out and wanted a payoff. The business is not suitable for a financial buyer (sales are too lumpy and unpredictable, making it hard to take on large amounts of debt), so an acquisition was the only option.

With the benefit of more time to digest the deal, I have come to feel that both views are in fact correct. It’s a good deal for all sides, even though there’s a strong case that Stratify sold too early. Regardless, there’s still a lot for the Stratify team to feel good about – and, following the MySpace example, they can always go back and ask for a pay rise.

Advice For Service Providers: Leverage Technology To Swim Upstream

2007-11-05T20:32:00.000-08:00

As companies use Clearwell’s e-discovery solution on more and more cases, I often find myself speaking to their litigation support service providers. Other than being in the same industry, these service providers have nothing in common: they vary from small shops to large, national companies; from unprofessional cowboys to highly principled professionals. But despite these differences, they all say the same thing: theirs is a very tough industry.

Perhaps everyone says that, but in their case there are good reasons for believing it to be true. It is very hard to differentiate litigation support services, other than by price; law firms make for demanding customers; barriers to entry are low so there’s constant price pressure from new entrants; and, it can take a long time to get paid, given that you are at the end of a long chain (enterprises must first pay law firms who then pay service providers).

That led me to wonder, “What would I do, if I were in their shoes?” The answer is that I would seek to differentiate my service by leveraging technology to swim upstream.

Neither of these ideas (leveraging technology, moving upstream) is original in its own right. Every litigation support service provider leverages technology in some way or other, and many have even built their own in-house review platforms. The larger ones have also sought in one way or another to swim upstream, meaning sell to their customer’s customer (the enterprise) directly rather than to law firms who then sell their services to enterprises.

But what service providers historically have not done is combine the two ideas: i.e., use technology as the means by which they can more easily sell to the enterprise. To paraphrase what the bright, forward-looking CEO of one service provider recently told me: “If I can get technology into the enterprise behind the firewall, then that makes my corporate accounts more “sticky”. It makes it easier for them to export data into my review platform and more likely they will use my services on any given case.” This technology does not have to be developed in-house; service providers can partner and integrate with providers of corporate e-discovery solutions to achieve the same effect.

My respect for litigation support service providers has only increased as I have come to appreciate the severe market pressures under which they operate. So has my excitement for the opportunity before them. Litigation support services is a large, fragmented, growing industry –- a level playing field in which service providers who innovate can see large returns.

Iron Mountain Moves Into E-Discovery, Acquiring Stratify

2007-10-31T22:45:00.000-07:00

After months of rumors that Iron Mountain was going to do “something”, the grandfather of records management announced today that it is acquiring Stratify for $158 million in cash. My best guess is that Stratify will do about $30 million in bookings this year, making the purchase price about 5X revenue – a pretty good multiple for a services business with gross margins of 50-60%.

Iron Mountain’s motivations are not hard to guess. It stores oodles of electronic data for large corporate clients. Whenever those clients have a case, they retrieve a subset of that data and send it off to a service provider like Stratify for processing. Through this acquisition, Iron Mountain now has a chance to up-sell its customers on Stratify and capture that service provider revenue for itself. This will be compelling to customers if (and this is a big “if”) Iron Mountain is able to integrate Stratify with its archive, making it easy to pass data from one to the other. As one Iron Mountain customer at a major Wall Street bank told me, “Iron Mountain is great about getting data in; it’s awful when you want to get data out.” If Stratify can help solve that problem, even if it’s only in the case of litigation, then every Iron Mountain customer will cheer.

Given the obvious potential of this deal to Iron Mountain, the question is less about why they would want to acquire a service provider in general, and more about why Stratify in particular. E-discovery services is a large, fragmented market, and there is no shortage of players to choose from. That said, I think they found Stratify a compelling target for 3 reasons:

Good Technology: Unlike many service providers, Stratify (or Purple Yogi, as it was originally called) started life as a product company. It went through several incarnations: starting out in 2000 to “personalize the internet” for consumers, it soon moved on to knowledge management for corporations, before finally settling on e-discovery services for law firms. To fund all this, it raised over $30 million in venture capital and invested a good chunk of that in product development. The result is a sophisticated product that goes far beyond the review platforms that most other service providers have built.
Right Size: Many acquirers like companies in that $20-30 million in revenue range. On the one hand, they are big enough to provide a solid platform for growth; on the other, they are small enough to be affordable. When Iron Mountain analyzed the market, it will have found the vast majority of targets either too big or too small, leaving it with only a handful of players to consider, like Stratify, Cataphora and H5.
Willing Seller: It is no secret that Stratify’s largest shareholder, the venture capital firm Softbank, is winding down and was looking to sell its stake in the company. That, together with the inevitable fatigue that sets in after 7 years of slugging it out, most likely made Stratify a willing seller.

So, on paper, this is a good deal for both sides. Stratify gets a decent return for many years of work; Iron Mountain gets the chance to capture more revenue from its customer base. My congratulations to the Stratify team – I have huge respect for entrepreneurs who weather the dark days, re-invent their company, and lead it to a successful outcome. I wish them well on their new adventure.

“Web Services” For E-Discovery

2007-10-23T16:36:00.000-07:00

Prior to working in e-discovery, I (Aaref) always thought standards bodies were a waste of time – or, at least, nothing more than an excuse for free travel to exotic locations. But George Socha and Tom Gelbmann’s EDRM project has changed my mind. In the second of a series of posts, our e-discovery guru – Kurt Leafstrand – explains one of many ways in which EDRM will have a big impact on e-discovery in the years to come:

Last week, I once again had the pleasure of participating in the (now biannual) EDRM conference in St. Paul, Minnesota. For those unfamiliar with it, EDRM is a fantastic collaboration between e-discovery software vendors, service providers, and consumers committed to addressing practical problems associated with e-discovery.

Looking back on both formal sessions and informal conversations with many participants, the one key theme that came across loud and clear is that the days of traditional, "throw-it-over-the-wall" (TIOTW) e-discovery are numbered.

I am sure you're familiar with the TIOTW approach, that endearing process whereby an enterprise gathers up a muddle of electronic data in all shapes and sizes, ties it up in a big bundle, rolls it in bubble wrap, and catapults it into the waiting arms of a service provider. They unwrap it, chant some incantations and perform other black magic for a few days (or it is weeks?) and throw a bundle back over the wall to their corporate client. In-house counsel takes a look and promptly realizes that the search terms she thought were sure things were completely off the mark, and that she missed a couple of custodians, and then... well, it's back over the wall again.

What’s going to tear the wall down? The EDRM XML schema, the first version of which is unveiled today by Clearwell and a large group of other vendors and customers. This will have the same impact on e-discovery as web services have had on e-commerce, enabling systems to pass data to one another over the internet, just as Travelocity passes information to American Airlines when you use it to make a reservation online.

What difference will this make? Well, I boil it down to 3 main things:

Litigation risk will decline as early case assessment finally becomes a reality in the enterprise—making it feasible to process, analyze, and do first-pass review of documents in-house, and then transfer those documents and tags to service providers and outside counsel without having to start from scratch.
E-discovery timeframes will shorten as enterprises become able to craft comprehensive e-discovery strategies more easily by executing and refining searches closer to the source of the data, and eliminate time-consuming back-and-forth exchanges between enterprises and service providers. And that’s a good thing, with the new FRCP (and coming soon, state rules!) pressure.
E-discovery manageability will improve as enterprise-based e-discovery systems are able to integrate seamlessly with downstream litigation management systems. Previously, you were forced to either channel data into a complex external litigation management system too early -- making it difficult for internal counsel and other constituents to have access to the documents -- or pay for costly and time-consuming custom data conversions to migrate data between document "silos."

What to do with all of those unused CDs gathering dust in your office? I've heard they make great coasters…

If You Think E-Discovery Does Not Matter, Think Again

2007-09-27T15:38:00.000-07:00

In my experience, e-discovery does not make the radar screen of most corporate General Counsels (GCs). Typically, it is one many issues left to others (e.g., Chief of Litigation, Director of Litigation Support) within the GC’s group. That may change after the recent verdict in the case of Broadcom vs. Qualcomm.

See below for the story, as told by Corporate Counsel in their October issue, with additional commentary from me [added in brackets]:

Collateral Damage

After a string of punishing legal defeats, Qualcomm Incorporated has switched general counsel. On August 13 the company announced that Carol Lam would replace Louis Lupin as its legal chief [Sounds like he got fired]. The move came a week after a federal judge issued a scorching order accusing Qualcomm and its outside lawyers of “gross litigation misconduct.” [Sounds like a pretty good reason why he got fired]

Emily Kilpatrick, Qualcomm’s director of corporate communications, says Lupin is leaving for personal reasons [Isn’t that what they always say?]. “He has been an outstanding leader and contributor to Qualcomm’s success over the past 12 years,” according to Kilpatrick. “However, he has decided to step down as general counsel and take a personal leave.” [a decision most likely made at the request of his boss]

Lam, who was hired in February to supervise Qualcomm’s worldwide litigation, will take over as interim GC, according to a company statement. Lam is one of the U.S. Attorneys fired by the U.S. Department of Justice this past winter. [oh, the irony…]

Based in San Diego, Qualcomm licenses semiconductor technology and system software to cell phone makers. For several years it’s been engaged in a pitched battle with rival Broadcom Corporation over who has infringed whose patents.

Qualcomm’s biggest problems have come in a case in San Diego federal district court. In January a jury ruled that the company had violated Broadcom’s patents. But even before the verdict, Qualcomm suffered a major setback as the trial drew to a close. One of the company’s witnesses revealed the existence of email that Broadcom said should have been produced during discovery. [Yet again, email is the smoking gun]

In April general counsel Lupin and one of Qualcomm’s outside attorneys sent letters of apology to the court, saying they failed to do a detailed enough keyword search of the company’s email. [No big deal, right? After all, we are saying sorry]

But that wasn’t enough for Judge Rudi Brewster, who has been hearing the San Diego case. On August 6 he issued a blistering 54-page ruling. He accused Qualcomm not only of failing to turn over more than 200,000 pages of relevant email and electronic documents during discovery, [i.e., this is a case of a deeply flawed e-discovery process, not of a simple missing email] but of engaging in a years-long campaign to deliberately mislead a technological standards body. Brewster ordered Qualcomm to pay Broadcomm’s litigation costs, and voided two of its patents. (David Rosmann, vice president of intellectual property litigation at Broadcom, estimates that its fees could be around $10 million). [The legal costs alone are several times what it would have cost Qualcomm to purchase an e-discovery solution and avoid this whole situation in the first place]

In a statement, Qualcomm said it “respectfully disagrees” with Brewster’s ruling and intends to appeal. “Qualcomm acknowledges the seriousness of the court’s findings and reiterates its previous apology to the court for the errors made during discovery and for the inaccurate testimony of certain of its witnesses,” the statement read. [We said sorry, isn’t that enough for you guys?]

The company’s problems aren’t over, however. Federal magistrate judge Barbara Major is now considering whether to levy sanctions against Qualcomm’s attorneys. [Don’t think you can hide behind your deep-pocketed employer. If you screw up e-discovery, it will be your neck on the line] Major has given “any and all…attorneys who signed discovery responses, signed pleadings and pretrial motions, and/or appeared at trial on behalf of Qualcomm” until September 21 to file a statement explaining why they shouldn’t be penalized. [For the lawyers in question, it’s guilty unless their arguments convince the judge they are innocent]

Data Retention Policies For E-Discovery: More Of A “Red Herring” Than A “Hot Potato”

2007-09-11T13:38:00.000-07:00

For those in regulated industries like financial services, where data retention policies are mandated, every keystroke is tracked and every phone call recorded, the question of how long you should keep data is moot: you keep it for as long as regulations demand.

But for the rest of us in manufacturing, media, technology, government, and elsewhere, it remains an open question. The answer to “what should our email and document retention policy be?” is often a political hot potato, pitting legal and IT’s goal of lower costs against the broader population’s desire to hang on to all their email, just in case they need it later. In fact, the only thing harder than agreeing a retention policy is enforcing it afterwards, as corporate users habitually keep more data than allowed, unless physically prevented from doing so.

The reason this matters is that many people believe creating a data retention policy is a key part of implementing an e-discovery solution. I too used to think this way, viewing retention-policy-creation as a necessary rite of passage for legal, IT, and information security people who want to lower e-discovery costs. After all, if the #1 cause of higher e-discovery costs is too much data, then a policy reducing the amount of data looks like a low cost, no-brainer solution.

But life just does not work that way. Outside of the command-and-control environment of regulated industries, retention policies simply do not work. You cannot fight human nature and force people to delete information they want to keep – especially when Gmail, Yahoo Mail, Hotmail and others are training them to do precisely the opposite (i.e., never delete, keep everything) in their personal email accounts.

So, I have changed my mind: to anyone engaged in implementing an e-discovery solution in a non-regulated industry, I say: forget data retention policies, it is a red herring. Too much data is a fact of life that will only get worse. You can no more get people to delete email and documents than you can stop someone writing them in the first place. Instead, focus on the battle you can win by putting in an e-discovery solution that enables you to do two things:

1. Collect data efficiently, so that you have a reliable (defensible) way of getting the data you need. Implementing an email archive from HP, Symantec or others is a great way of approaching this, as is leveraging forensics tools from Guidance or Access Data.

2. Analyze the data up front, so that you can cull it down to only those documents relevant to the case before a human being has to review them. Clearwell’s e-discovery solution is one approach which has worked for a large number of enterprises.

If your experiences, or conclusions, differ from mine, then feel free to post a comment. I am particularly interested to hear about successful examples of data retention policies at non-regulated companies, since I have yet to see one.

Now, That's Customer Feedback

2007-09-07T14:53:00.001-07:00

To the long list of reasons why e-discovery companies should be good to their customers, we can now add one more: because if you don't, they might blog about you and say nasty things. That's what has happened to Metalincs on this blog which carries the intriguing description of "legal software whistle-blower" in its web page address.

I have no idea who this person is, but their comments about Clearwell's e-discovery solution are well-informed and accurate.

E-Discovery Trends Take Center Stage at ILTA

2007-08-31T00:03:00.000-07:00

This is the first of several guest posts from Kurt Leafstrand, formerly a rocket scientist at MIT and now an e-discovery guru at Clearwell. Kurt was on vacation last week, but couldn't resist spending part of it at an important gathering in Florida. His report:

Last week, 3,000 of the country's top legal technologists gathered in Orlando for the 2007 International Legal Technology Association (ILTA) conference. Lawyers will always be lawyers, so the hotel staff seemed particularly diligent as they secured the electrical cords to the floor of the exhibit hall, and the Starbucks seemed a bit on the cool side. However, the discussions and technology were far from cold, and the show was a great chance to learn from some of the industry's leading practitioners from both corporations and law firms.

E-discovery was the focus of many of the conversations, and several emerging trends were at the forefront:

Courts are taking a more active role in e-discovery: With the changes to rule 26(f) in the FRCP, parties are required to confer early (and agree on!) e-discovery. This has pushed the courts to start issuing guidelines to help remove some of the ambiguity from this process and to help parties reach a faster consensus. In one session, Browning Marean of DLA Piper highlighted as "best thinking" a protocol from the Maryland District Court, which included:

Defining minimum standards for the kind of information to be exchanged
Recommending that each party have an ESI coordinator (this may lead to IT/legal tech being brought into the meet and confer process)
Setting defaults to be applied if parties can't agree

One panelist pointed out that, in spite of all this, "the average litigator is woefully unprepared for the e-discovery aspects of the rule 26(f) conference." With the courts showing early aggressiveness in ensuring that the FRCP changes are actually put into practice, it appears that the already intensive focus on ESI will only increase, so firms and corporations need to get their acts together quickly.

Discovery battles are taking center stage: In what many see as a worrisome trend, e-discovery battles are increasingly common and focus "not on the case and its merits, but on spoliation and sanctions." Because of the error-prone nature of most e-discovery efforts, it often pays to look for "little slips... did some executive accidentally delete his email? Was there a failure to produce?" One astute participant commented that the "interest in sanctions is because electronic data is so treacherous. It's much easier to get it wrong than right."

Two current e-discovery "train wrecks" serve to highlight this:

Intel/AMD: Despite elaborate and costly efforts to comply with preservation orders across 100,000 employees dispersed around the world, Intel found itself having to advise the court of "document retention lapses that have occurred...after the filing of complaint."
Qualcomm/Broadcom: The attorneys who represented Qualcomm in its unsuccessful patent lawsuit against Broadcom found themselves summoned before the court to show cause as to why sanctions shouldn’t be imposed for their failure to produce documents pertinent to the case: approximately 230,000 pages of documents, actually.

How do corporations and firms better manage their risk in light of these trends? One panel of senior partners suggested that parties need to work smarter, not harder, when it comes to e-discovery, and understand that the state of the art is moving toward a highly iterative e-discovery process. In most initial e-discovery requests today, “the signal-to-noise ratio is such that search results are often meaningless.” This new approach will need to be “negotiated throughout the e-discovery process,” but is going to becoming increasingly critical for both sides of the case to work together on in order to assure that they don’t find themselves in the same (costly) boat as Intel and Qualcomm. This trend was especially relevant to ILTA attendees, because the only way to make this iterative process work is through their active participation, assisted by the next generation of e-discovery 2.0 technologies.

E-Discovery Is Taking Off – And Investors Know It

2007-08-20T13:02:00.000-07:00

Regular readers will know this blog is about e-discovery and not about my company, Clearwell. That said, every now and then, the two intersect and it makes sense to write explicitly about Clearwell, since our experience speaks to broader market trends.

That’s the case today, with Clearwell’s announcement of 2 significant milestones. First, the company has crossed the threshold of 100 customers using the product to lower their e-discovery costs. Since the technology bubble burst in 2000, I have been involved with several early stage companies that have brought new products to market, either as founder, CEO, investor, or advisor. All have capable teams; some attacked huge markets; none have seen the rapid customer adoption that we have experienced at Clearwell. Nor were they able, as Clearwell has done, to so quickly break into top tier accounts such as BP, Boeing, Cisco, Del Monte and a host of other household names which I am not at liberty to mention.

The second milestone is that Clearwell has closed its third round of funding for $17M. This is a larger amount than planned, and it happened much more quickly than I anticipated. It was driven by the simple investment philosophy that has powered large investments elsewhere: find a large, growing market and pick the winner, as it will likely be worth more than all the others put together.

I see both milestones as significant for the broader e-discovery space. The fact that a company can introduce a product and, a little over a year later, have over 100 customers using it, says that there is huge latent demand. Clearly, everyone from small hedge funds to mid-sized insurance companies to large departments of the federal government desperately want to lower their e-discovery costs. If history is any guide, this untapped demand will be recognized by a large number of existing players who will all repurpose their existing products towards e-discovery. But, again looking at similar phenomena play out in other markets, the space will likely be won by a “pure-play” vendor unencumbered by the baggage of a legacy business. The investment community recognizes this and is increasingly willing to open its check book in the hope of backing that winner.

No doubt, other young companies will raise money to attack the e-discovery opportunity, and other existing players will continue to dress up their generic search or storage solutions in e-discovery clothing. But over the next 12-24 months, a leader will emerge from the pack and will grow into a significant, standalone company – and the others will either sell for whatever they can get, or try to find a different application for their technology.

Stock Option Back-Dating, Corporate Investigations, And the Remarkable Reyes Verdict

2007-08-10T14:35:00.000-07:00

I don’t know if it’s just in Silicon Valley that the Greg Reyes case has received broad coverage. Wherever you are, it’s worth taking note because this is quite a remarkable verdict. Mr. Reyes, the former CEO of Brocade, was convicted of 10 charges connected to stock option backdating and now faces up to 20 years in prison and millions of dollars in fines. All this despite the fact that:

Mr. Reyes did not personally profit from his actions, since it was only other people’s options that he was back-dating;
There were no “smoking-gun” emails or any clear evidence that he knew he was breaking the law, which is key to overcoming the (plausible) defense that he was just doing what the accountants and lawyers told him he could do; and,
There’s no sign of damage to shareholders, given that Brocade’s stock has been unmoved by the whole thing (i.e., this is no Enron/Worldcom).

All this raises a series of questions. First, why would he (or anyone) do it if he does not benefit himself? The best explanation I have seen is Ben Horowitz’s lengthy post on the topic – to summarize, CEOs did it for the same reason that athletes take steroids – to win. Second, how did the government manage to convict him given the lack of evidence? According to Business Week, they did it by showing Mr. Reyes lied to Brocade’s corporate investigation team in 2004, suggesting he knew that what he had done was wrong (note to self: be careful what you say if an investigator comes knocking on the door). Third, what does this mean for others? Let’s just say, if I were the CEO or CFO of any of the other 200 companies implicated in this scandal, I would be pretty worried right now.

This verdict marks a big shift in the fallout from stock option back-dating. To date, the back-dating scandal has mainly distracted management and led to huge legal and accounting expenses. For example, Monster recently announced its plan to cut jobs in the wake of swelling legal expenses resulting from its investigation. But things are about to get more serious. If a jury is willing to convict Mr. Reyes based on evidence the judge thought was so weak that he almost dismissed the case, then no one is safe, Mr. Jobs.

Symantec’s “E-Discovery Connectors” For Enterprise Vault: What Are They and Why Should You Care?

2007-08-06T08:31:00.000-07:00

Today, Symantec announced 3 connectors for Enterprise Vault, for analytics, review and content collection. According to the announcement, these will “provide tight integration with third-party case management, review, analytics, forensics and desktop collection tools.”

The idea that archives should integrate with third party products is one I whole-heartedly support and have written about before. My company, Clearwell, has been working with Nick, Scott, and the gang at Symantec on this for over a year. They tell us that we were the first to integrate with Enterprise Vault and, to our knowledge, we are the only ones who have deployed fully integrated e-discovery solutions with Enterprise Vault at several enterprises.

Having said all that (and climbing down from my soapbox), I think Symantec’s customers will need to read this announcement very carefully to understand what it means. To give them a helping hand, let me translate it from corporate-marketing-speak into plain English:

Symantec is releasing 3 connectors which enable customers to ingest files from EnCase and export files to Summation and Ringtail. It is also exposing a new application programming interface (API) so that third-party vendors can more easily build their own connectors to Enterprise Vault.

At this point, most people’s eyes glaze over and they ask “who cares”? Surely, only techies get excited about something as esoteric as a new API. But as the recent excitement over FaceBook’s API has shown, opening up a platform – even in a limited way, as Symantec is doing – can unlock tremendous value. For those customers with Discovery Accelerator v.7.5, the new API will have a huge impact for 2 reasons:

It makes integration with Enterprise Vault much easier, so lots more vendors will do it. In their press release, Symantec mentions a handful of companies who are building connectors to the new API and I’m sure more will follow. This increases customer choice, and makes it more likely that Symantec customers will be able to select related products that closely fit their needs;
It enables enterprises to have a smooth workflow across all aspects of e-discovery, from collection/preservation to analysis/review to production/presentation. For example, companies can now collect information in Enterprise Vault, preserve it by placing a litigation hold on key information via Discovery Accelerator, and then seamlessly hand off that information to a third party application (like Clearwell) for review and analysis. This saves a lot of time that would otherwise be wasted on importing/exporting data from different systems, and reduces the risk that something gets lost in the shuffle.

Net net: companies do well by giving customers what they want, and customers want end-to-end e-discovery solutions. Symantec is not the only one to have figured this out; stay tuned for more announcements like this from other archiving vendors.

Everyone (And Their Grandmother) Is Jumping Into E-Discovery

2007-08-02T10:34:00.000-07:00

At some point in his blog last year, David Hornik, a venture capitalist, lamented the fact that VideoEgg, one of his investments, had 38 competitors in the online video market – and those were only the ones that he knew about.

A casual observer could be forgiven for seeing the same thing happening in e-discovery. Barely a day goes by without some company in a completely different market announcing that they too now have an “e-discovery solution”. Debra Logan at Gartner, who is fast emerging as one of the leading lights of the e-discovery world, tells me she is speaking to 30 vendors for her forthcoming research – and could easily have covered twice that number. Brian Babinau, the insightful and witty analyst at Enterprise Strategy Group, jokes that: “nowadays, people either build a social networking product or do e-discovery.”

For example, last week Zimbra, an open source email platform which has nothing to do with e-discovery, announced its new “e-discovery features”, which sound a lot like keyword search. Kazeon, which wins the prize for creating the world’s most complex e-discovery workflow diagram, has added e-discovery as one of its primary “solutions”, while Endeca takes a more measured approach, proposing only that its financial services customers use it for e-discovery. The list goes on and on.

Despite the worsening signal-to-noise ratio, all the activity will ultimately make it easier for customers to figure out which e-discovery solution makes sense for them. There’s more coverage from leading analysts, who can help explain the different products; large vendors such as EMC, Symantec, and HP are gradually educating the market; and the industry is coalescing around the Electronic Discovery Reference Model, which breaks e-discovery down into its key elements and explains how they fit together.

If e-discovery follows the path of online video and other fast-growing categories, lots of companies will continue to throw their hat into the ring. But for every hundred “VideoEggs”, there will only be one YouTube.

Cisco Leads The Way On E-Discovery 2.0

2007-07-25T20:13:00.000-07:00

I have written before about the irony of technology companies failing to use technology to improve their own businesses. As with any rule, there is an exception – and in e-discovery, that exception is Cisco.

This will not be a surprise to anyone familiar with Cisco, since the company has a reputation for innovation that extends well beyond networking. In the 1990s, it was quick to embrace the internet, becoming a poster child for how the web can help streamline a company’s operations. Its M&A group has probably done more to power M&A in the tech sector than anyone else, since it was Cisco which disproved the old adage that technology acquisitions do not work.

So it is with e-discovery in general, and E-Discovery 2.0 in particular. The team at Cisco – Neal, Pallab, Mark, Joel and others – are among the most thoughtful, sophisticated corporate legal departments that you will find. They support the large team of inside/outside counsels who represent the interests of Cisco’s global business, and they do it in a way that saves the company money. I have seen them do more with less than companies a fraction of their size. Neal has been talking about the phenomenon that is E-Discovery 2.0 long before me; in fact, he’s one of the people who have educated me on the topic.

Companies like Cisco, Charles Schwab, Qwest, and Wells Fargo, are “canaries in the coalmine”. That’s why, when one of them says something, people listen.

Autonomy Buys ZANTAZ: True Love Or A Marriage Of Convenience?

2007-07-05T21:54:00.000-07:00

People get married for a million different reasons. Some do it for love; some for a green card; some because their parents tell them to; and others just because it is time to settle down. So it is with corporate mergers, where many different motives come into play. When I heard about Autonomy’s acquisition of ZANTAZ for $375M on July 3, I could not help wondering what had led to their marriage.

In announcing their union, the happy couple explained that the #1 reason is to achieve “significant scale in a number of key financial areas”. A second reason is that combining the companies will lead to cost savings of $25M per year. In other words, according to the companies, it is a love marriage, in a similar vein to Veritas’ acquisition of ZANTAZ’s main competitor, KVS, in 2004. In that case, Veritas paid 10x trailing revenue for an industry leading product to which it then added tremendous value by building out distribution in the US.

In this case though, the evidence does not support a love story. ZANTAZ is already doing $100M in revenue, so adding Autonomy’s $260M in annual sales does not exactly propel it into a different league. If cost savings are the motivation, then why run ZANTAZ as a separate subsidiary instead of integrating it with Autonomy more closely? Two other things also arouse suspicion: timing and price. On timing, I have to ask: who makes a major announcement on July 3 when half the country is on holiday and the other half can only think about fireworks and hot dogs? Either Autonomy/ZANTAZ’s PR departments are incompetent, or they are trying to downplay the whole thing. Second, on price, why is it so low? ZANTAZ sold itself for 3.75X trailing revenue, a fraction of KVS’ multiple and less than the 4-6X revenue that CommVault and Guidance trade at today.

The story makes more sense as a marriage of convenience. Consider what buyer and seller each get from the deal:

Autonomy: It is easy to understand why Autonomy is a willing buyer. As my friend Dave Kellogg likes to say, their core business of enterprise search is caught between a “rock” (known as Google Enterprise Search) and a “hard place” (custom apps leveraging open source components like Lucene and MySQL). Yes, Autonomy continues to have the occasional good quarter, but long term their revenue will likely trend down. In that situation, management only has a couple of options. One is to bulk up, for example, by giving up 11% of the company to increase its revenue by 38%, which is what the ZANTAZ deal does. A second option is to diversify into new, growth markets where Google is unlikely to follow, like email archiving and e-discovery. Again, ZANTAZ fits the bill.

ZANTAZ: In many ways, ZANTAZ is a remarkable company. Having spoken to some of its early investors, management team, and employees, I have huge respect for the way that they weathered the technology downturn early in the decade and built the company back up. The company grew rapidly on the back of big deals for tape restoration into Digital Safe (hosted archive). When ZANTAZ saw the on-site archiving market grow, it added EAS via a smart acquisition. The problem is, having done all that, shareholders had no way of realizing a return. The public market is not interested in the low-margin hosting business that provides the bulk of ZANTAZ’s revenue; for larger companies who want to acquire an archiving product, there are many cheaper, less complicated options. Enter Autonomy who, if nothing else, can provide ZANTAZ’s patient shareholders with liquidity.

Missing from this analysis is any mention of the value Autonomy will add to ZANTAZ’s business, mainly because I cannot think of any. Best case, it leaves ZANTAZ alone, as EMC wisely did with VMWare; worst case, it merges Aungate and the IDOL platform with ZANTAZ and they spend the next few months debating how to reconcile the product roadmaps.

None of this is to say that the marriage will not be successful. As anyone who has seen When Harry Met Sally can tell you, there is no single formula for a successful marriage. I, for one, certainly wish the happy couple well.

The Wonders Of Shrinking A Market

2007-07-02T13:42:00.000-07:00

We love investing in technologies and business models that are able to shrink existing markets. If your company can take $5 of revenue from a competitor for every $1 you earn – let's talk!

- First Round Capital

At first glance, this statement may not make much sense, but I think it is actually quite profound. The idea becomes clearer when you think of it from the perspective of a customer. To paraphrase: if you can save a customer $5 by charging them $1, you have a great business. Yes, you will shrink the market, but you will blow your competition out of the water. Consider some examples:

A small business hungry for leads pays about $1.40 for each call (or unqualified lead) it gets from placing an advertisement in the Yellow Pages, and it has to pay for the ad up front. Compare that to an average cost of 40c per click (or unqualified lead) on Google AdWords – and the 40c is only paid if someone clicks;

When I took a 2 day trip to Guyana in March, it cost my wife 87c a minute to call my hotel using AT&T. Compare that to 28.6c a minute she could pay for the exact same call using Jajah;

It must cost over $50 (I’m guessing) to place a personal ad in a newspaper. Compare that to a zero cost for the same ad on Craig’s List. And based on my experience, Craig’s List is more effective (I know someone who met their fiancée on Craig’s List, but have yet to meet anyone for whom a newspaper worked out);

Many companies doing e-discovery gather data based on custodians, date ranges, and keywords and send it out to service providers like Applied Discovery or Kroll at $2,000 per GB – and then wait weeks for the results. Compare that to paying $200 per GB for a (E-Discovery 2.0) product that enables you to analyze the data in-house – and gives you the results in hours.

All this begs an obvious question: how can someone offer customers the same (or, in many cases, more) value at a fraction of the cost of existing players? That’s where new technology or business models come in. Google and Craig’s List do not spend money on printing and distributing huge volumes of paper; Jajah avoids connection fees and other costs by leveraging VoIP; and, E-Discovery 2.0 products leverage the latest innovations in search, open source, web and storage technologies.

It is ironic that the technology industry is so obsessed by growth, given that its greatest achievement is often shrinking a market.

The Cost of Doing Business

2007-06-19T15:51:00.000-07:00

A couple of weeks back, I was on the receiving end of my company’s first summons. It was a trivial issue that resolved itself within a couple of days. But it gave me some insight into how my customers (typically, large companies) think about these things.

My first reaction was shock (“How could this happen? There must be some mistake”). That feeling was soon eclipsed by outrage (“This is ridiculous, we haven’t done anything wrong”); which was followed by regret (“I wish we had just avoided this situation”); finishing up with irritation (“I can’t believe I have to waste time on this when I have so much real work to do.”)

When I mentioned this reaction to a couple of our customers, they just chortled to themselves and suggested that I get used to it: as your business grows, they said, you can be certain that more of these will follow.

That’s when it struck me: dealing with these issues – and by implication, e-discovery – is by no means unusual; it has become part of the cost of doing business. In the same way that companies pay their taxes or process employee visas, they respond to subpoenas, demand letters, and regulatory inquiries. Whether they themselves are directly implicated in wrongdoing, or they were innocent bystanders who had nothing to do with it, doesn’t make any difference. They have to do the work all the same.

With this in mind, I feel better prepared for the next summons, whenever it comes. Right now, we are focused on recruiting and training; at some point, if all goes well, we will get to e-discovery.

Open Platforms in E-Discovery

2007-06-13T09:14:00.000-07:00

Most large companies face a dilemma. Should they open up their products and invite others to build features on them, creating a “platform” or ecosystem around themselves? Or would that be inviting the proverbial fox into the hen-house, meaning they should instead prevent others from integrating with their product or leveraging it to create add-on functionality?

In the internet world, there is no doubt about the answer: throw open the doors via easy-to-use APIs (“application programming interfaces”) and let a thousand flowers bloom. That’s what FaceBook did a couple of weeks back with their announcement of the FaceBook Platform, and it has already led to hundreds of new applications for their users. It is what Skype did so effectively, creating a mini-industry around themselves of voicemail, skins, ring-tones, and more. Even eBay, which has jealously guarded its feedback ratings and has habitually crushed smaller companies in its cross-hairs, is embracing the open platform mantra, announcing this week that third-party companies can build features that work with eBay in new ways.

By contrast, telecom companies live in a world of closed standards. Even in the wireless industry, which is arguably the most competitive part of the telecom world, the carriers (Cingular, T-Mobile, Verizon, etc.) exact a heavy toll on any application trying to reach their handsets. As friends in the industry tell me, “There’s a reason why there has never been a billion dollar mobile application company.”

In e-discovery, the large technology vendors like EMC, HP, Symantec, and ZANTAZ face the same choice. Their email archiving products store huge amounts of data. Should they let 3^rd party e-discovery software analyze that data, giving their customers more choice? Or should they slam the door shut, and try to force customers to use their own proprietary e-discovery applications?

The answer, it seems, depends on what they want to be when they grow up. As the market leader, Symantec is confident enough to open its archive (Enterprise Vault) to 3^rd party applications while offering customers its own Discovery Accelerator for litigations holds and some document review. Similarly, perhaps because of its powerful brand, HP focuses on storage optimization with HP RISS and partners with e-discovery software, often with huge savings for its customers. On the other side of the coin, smaller companies like ZANTAZ and Mimosa see themselves as e-discovery companies: they seek to leverage their storage products to get customers to also buy their e-discovery applications.

In the long-run, my feeling is that any archive of any stature will have to adopt open standards. Customers will demand it, and (unlike telecom companies) the archive vendors do not have the market power to resist. Over time, they will also come to appreciate (as HP and Symantec do now) that enabling 3^rd party applications to analyze the data they store is to their advantage, since it creates a powerful, additional incentive to store more information in the archive.

What Web 2.0 Applications Can Teach Enterprise Software

2007-06-03T16:59:00.000-07:00

The other day, I came across the fascinating statistic that over 50% of products returned every year to stores across America have absolutely nothing wrong with them. Apparently, consumers used them for an average of 20 minutes and then gave up, because they were too complicated.

At this point, most customers of traditional enterprise software could be forgiven for thinking: “I wish I could do that.” Enterprise applications are notoriously feature-laden, complicated to use, and difficult to install. They make their users feel stupid, by presenting them with complex pictures that look like amoeba or toolbars with 150 different options. Why does enterprise software seek to punish its customers in this way?

Partly, because customers ask for it. Whether they are buying a dishwasher or an accounting application, people habitually over-estimate their ability to figure out how a complicated product works and, as a result, pay more for features that they never use. Partly, it’s because enterprise software is designed by engineers who think everyone is as technically proficient as they are, and by marketing people who view every additional feature as a new selling point.

By contrast, Web 2.0 applications such as FaceBook, Flickr, StumbleUpon, or Meebo are incredibly easy use. Even an idiot who has never seen these applications before can use them without an instruction manual or a training course. You could say that’s because they are trivially simple applications. But I think it’s primarily because, if they were not so easy to use, people would simply click away and try something else – i.e., they would die.

That to me is the real lesson that Web 2.0 apps can teach enterprise software: make something that is easy to use, easy for someone to install, and easy for them to evaluate. Get people addicted to your application because it’s so good (the average FaceBook user spends 4+ hours a day on the site). No doubt, this is harder to do with enterprise applications because they are inherently more complex. But figure out a way to hide the complexity, packaging all the functionality users need into a design that’s easy to use. This is a key characteristic of e-discovery software applications; it's the genius of salesforce.com's CRM application and Apple's iPod; and, it needs to be a core skill of any company creating enterprise applications today.

What is E-Discovery 2.0?

2007-05-25T19:19:00.001-07:00

In a previous post, I wrote about the forces transforming e-discovery, a phenomenon that has received increasing attention from the press, most recently in this week’s Economist magazine. While everyone agrees that something big has changed, and (generally speaking) on the reasons why, people struggle to put their finger on exactly what e-discovery has become.

That’s why I think the concept of “E-Discovery 2.0” is so helpful. Analogous to Web 2.0, E-Discovery 2.0 is a set of new processes, technologies, and services that enable companies to manage huge volumes of data, lower costs, and meet tight deadlines.

New Processes

When e-discovery meant handing over a few boxes of paper, companies did not need much of a process. But in today’s world, where it involves terabytes of data, teams of reviewers, and precious little time, it is a very different story. To cope with the growing volume and complexity of e-discovery issues, companies have had no choice but to adopt new processes. These include:

Collect and Preserve: Most companies have now established procedures so that, when the need arises, they can collect all data relevant to a case and ensure that it cannot be changed or deleted.

Analyze Up Front: When presented with more work than can be done, a company’s only option is to work smarter, not harder. That means analyzing the collected data up front, to cull it down to only those emails and documents directly relevant to the case at hand.

Collaborate Efficiently: E-Discovery has become a team sport. And whenever you have a team, you need a playbook, or a process, to ensure work is not repeated and that everyone is marching towards the same goal.

New Technologies

If technology created this problem, by making electronic communication so pervasive and voluminous, then it can also solve it. In recent years, several new technologies have arisen that enable companies to store and sift through their data to fulfill e-discovery obligations. The most significant of these trends include:

From tape to disk: As the cost of disk storage has continued to decline, more and more companies are abandoning tapes and instead keeping their data online. Email archiving software optimizes for storage efficiency, allowing companies to keep hundreds of terabytes of data readily available for e-discovery.

From search to analysis: Basic keyword search has evolved into sophisticated analysis technology that mines email meta-data for relevance, links messages together into discussion threads, and groups them by topics. These analysis applications allow users to sift through millions of messages in minutes, to rapidly identify, tag, and export relevant data.

From closed systems to open standards: Until recently, technology providers made no effort to integrate their applications, leaving customers to fend for themselves. But that has started to change. Symantec Enterprise Vault and HP RISS now have open APIs, creating pressure on others to follow suit. George Socha’s Electronic Discovery Reference Model (EDRM), a standards body, has received widespread support, accelerating progress towards creation of an open e-discovery platform.

To anyone working in litigation support, legal, or information security, all this is quite unremarkable. Of course they use technology to address e-discovery. Obviously, there has to be a process. From the company’s perspective, e-discovery has become no different to HR or finance – it is a core competency, part of doing business.

And that, perhaps, is the most remarkable thing about E-Discovery 2.0 – in only a few short years, it has become so widespread and deeply entrenched within the enterprise, that people barely notice it.

Can E-Discovery Really Be That Expensive?

2007-05-20T20:06:00.000-07:00

I tend to have a "Mark Twain perspective" on statistics and apply a healthy grain of salt to any numbers quoted by analysts and industry experts. But when end-users speak, I sit up and listen. That's why I was very interested to read here that Microsoft "spends an average of US$ 20 million for e-discovery per litigation, according to one company exec." (My thanks to George for alterting me to the article)

If true, it is an astounding number - but one that is quite consistent with what we have seen first hand working with other large enterprises ourselves. Once you factor in processing costs (an average of $1,800 per GB), review costs ($200/hour), and the huge volume of information being generated and stored, you can get up to $20 million on a single case surprisingly fast.

The White House And The Problem of A Billion Emails

2007-05-13T12:49:00.000-07:00

The other day, Michael Clark of EDDix sent me a fascinating academic paper (thanks, Michael!) about “information inflation” at its impact on the legal system. I had never really thought of it this way, but there have really only been 3 significant events in the evolution of information:

Writing (c. 5,000 years ago): Pre-historic man started to etch his markings on clay tablets, stone, wax, papyrus, bark, cloth, wood, paper, cave walls and anything else that came to hand.
Printing (c. 1450): Gutenberg’s movable type printing press enabled mass production of information, contributing to (among other things) the Renaissance and the Scientific Revolution.
Digitization (c. late 20th Century): The personal computer, wide area networks, internet, email, have all led to a massive explosion of information in the past 50 years. As the article points out, “close to 100 billion emails are sent daily…In a small business, whereas formerly there was usually 1 four-drawer file cabinet full of paper records, now there is the equivalent of 2,000 four-drawer file cabinets full of such records, all contained in a cubic foot or so in the form of electronically stored information.”

How can the legal profession cope, given that a lawyer’s job is often to synthesize this mind-boggling amount of data? Fortunately, the authors have a solution:

“A family of computer technology employing new types of search methods and techniques beyond use of mere keywords should now be considered for use in litigation….Litigators can no longer depend on manual review alone. It is too time-consuming and expensive – with cost often exceeding the amounts in dispute.”

To illustrate its point, the paper tells the story of the White House and the problem of a billion emails. During the Clinton administration, the White House agreed to a form of electronic record keeping called ARMS (Automated Records Management System). At the end of each administration, these records are handed over to the National Archives and Records Administration (NARA). The table below shows the number of stored emails NARA has, or expects to receive at the end of each administration.

Now assume that, like previous administrations, the Next President’s administration is subject to a lawsuit that requires e-discovery. The paper calculates:

“Without employing any automated computer process to generate potentially responsive documents, the review effort for this litigation would take 100 people, working 10 hours a day, 7 days a week, 52 weeks a year, over 54 years to complete. And the cost of such a review, at an assumed billing rate of $100/hour, would be $2 billion. Even, however, if present day search methods are used to initially reduce the email universe to 1% of its size (i.e., 10 million documents out of 1 billion), the case would still cost $20 million for a first pass review conducted by 100 people over 28 weeks, without accounting for any additional privilege review.”

This is a great example of why companies and government agencies are adopting e-discovery 2.0 technologies that go far beyond keyword search. In the face of information inflation, what choice do they have?

From Web 2.0 To E-Discovery 2.0

2007-04-19T16:26:00.000-07:00

If there’s one idea that has captivated Silicon Valley in the past 3 years, it is Web 2.0. People may debate its meaning and definition, but the gist of it is clear: a handful of powerful forces have coalesced to make the internet of today fundamentally different to what it was 5 years ago. Opinions vary on which of these forces is most important: the growth of broadband to the home; open source, ajax and other technologies which lower the cost and increase the functionality of web applications; the power of community in a world where more people are on the web. Whichever you choose, there is no doubt that collectively these forces have had a huge impact, powering the growth of now-household names such as Google, MySpace, and YouTube.

I believe that an analogous set of changes is transforming the way companies do e-discovery. Ten years ago, e-discovery was an after-thought – a necessary, but incidental, part of corporate legal expenses. Today, it is a huge line-item in the legal budget, a headache for corporate IT, and the foundation upon which many cases are built.

E-discovery 1.0 was an ad hoc activity; e-discovery 2.0 is a core business process. E-discovery 1.0 was barely noticed; e-discovery 2.0 is driving the news cycle, affecting everyone from Intel to the US Attorney General. In the legal world, e-discovery 2.0 has had every bit as big an impact on enterprises as Web 2.0 has had on the dating lives of teenagers.

What happened? A series of fundamental changes have made e-discovery far more important, expensive, and complex than it was in the 1990s. Chief among these changes are:

1. Email, Not Voicemail: In the past 10 years, companies have switched from voicemail to email as the primary way they communicate. This has created a written record where none previously existed. Just as oral histories eventually die out, every voicemail eventually gets deleted; but emails and the written word live forever. Whatsmore, the convenience and time-efficiency of email makes it addictive, with the result that every meaningful conversation is captured, time-stamped, and attached to a person’s name. Given that many legal cases turn on intent, and proving who knew what when, this makes email a virtual treasure trove for anyone building a case.

2. Electronic Files, Not Paper: Electronic files are fundamentally different to paper documents: they reproduce like rabbits and are far cheaper to store. For example, one laptop is the equivalent of 2,000 boxes of paper; one server corresponds to 8,000-40,000 boxes of paper. The number of servers and laptops holding vast quantities of email is only increasing as the cost of hard disk storage falls, down from $2.04 per GB in 2004 to $0.77 per GB in 2006. Net net: going electronic has vastly increased the amount of data that must be analyzed as part of the discovery process.

3. Sooner, Not Later: Recent changes to the FRCP guidelines have moved e-discovery up in the process, forcing companies to have an e-discovery plan within 99 days of a suit being filed. Since disputes rarely settle that quickly, that means enterprises must now incur the expense of e-discovery on every case, not just the small number that actually make it to court. The result is a massive increase in e-discovery expenses and workload.

Anecdotal evidence of e-discovery 2.0 is everywhere. A few years back, no one would have guessed that every major analyst firm would have people dedicated to tracking e-discovery. Nor would you have expected to find a litigation support manager at every major enterprise.

So what exactly is e-discovery 2.0? Well, I will talk about that in a future post.

eDiscovery In The Blogosphere

2007-04-16T11:05:00.000-07:00

It has now been over a month since I started blogging about Email Intelligence and eDiscovery, and perhaps the most pleasant surprise has been to find that I am not alone. As the chart below shows, there has been an explosion of activity around eDiscovery in the blogosphere since the FRCP Rule changes on December 1, 2006, with the happy result that today there are several voices which are well worth listening to.

To assist you in your travels, I offer a brief (and by no means comprehensive) guide to the blogs which have caught my eye. In general, they fall into 3 categories:

1. Messaging Mavens: For an entertaining look at email in the news, I would suggest Roger Matus’ Death by Email, which has everything from videos to colorful commentary. In a similar vein, Chris Foreman’s Messaging Mogul offers an interesting perspective on relevant technologies, in a way that is refreshingly free of the usual mind-numbing marketing-speak.

2. Legal Eagles: There are many lawyers who blog, often covering arcane topics or issues particular to a specific industry. But the one general, business-oriented legal blog that I would recommend is Andrew Cohen’s blog, which makes a range of complicated legal topics accessible to the general reader.

3. Article Clippers: Finally, there are the folks who helpfully collect interesting articles from around the web into a single place, so you can get a filtered view of the latest eDiscovery stories. Foremost among these is Jeff Fehrman and Bob Krantz’s edd blog online which focuses on eDiscovery and forensics.

I do not pretend to have anything close to a complete list. So if there are others worthy of a mention, please add them as a comment so that I can update my list.

Go Ahead, Sue Me!

2007-04-04T13:53:00.000-07:00

It is a truism to say that it is easier to dispense advice than to follow it, and with good reason. How many venture capital firms practice the financial discipline they preach to their portfolio companies? How many management consulting companies employ the innovative management theories they advocate to their clients? And how many technology companies actually leverage leading-edge technology to solve their own business problems?

The answer, at least based on my experience, is “not very many”. For example, if you look at Silicon Valley’s leading technology companies, the vast majority do not have an e-discovery solution in place. Yes, there are some exceptions but for the most part, when it comes to e-discovery, the likes of eBay, Google, Yahoo, and (until recently) Intel have preferred to muddle through with manual, error-prone, expensive processes.

The justifications are typically the same. Some technology companies argue that they don’t need a legal discovery solution because theirs is not a litigious industry; others say they delete everything off their Exchange servers within three weeks and so don’t have any email to discover; all agree that things like email and document retention policies are needlessly bureaucratic.

The danger of this “we- don’t- need- car- insurance- because- we- will- never- have- an- accident” approach has been brutally exposed in the past few weeks by the painful experience of Intel. In case you missed the press coverage: AMD sued Intel for anti-trust violations. Like any company on the receiving end of a subpoena, Intel was obliged to provide opposing counsel with all email and documents relevant to the case.

If Intel had an e-discovery solution, that would have been a straightforward process. Intel’s IT group would simply identify a group of messages by date range, person, and perhaps keyword within their larger email archive. The legal group would then use an analysis product to cull down the messages to only those relevant to the case. The whole thing would take a few days. But that’s not what happened. Since Intel did not have an e-discovery solution, the company had no simple way to preserve and analyze the relevant data. Intel’s legal department was obliged to inform over a thousand employees that they could no longer delete data at will. Somewhere along the line, the message did not get through and employees kept on deleting. As a result, Intel was forced to go back to the judge with the proverbial “the dog ate my homework” defense, while AMD cried foul.

How much this costs Intel is yet to be determined. But my guess is that they will end up spending more on lawyers to fix the mess than they would have spent on an e-discovery solution that would have avoided the problem to begin with.

While I have given up on venture capitalists and management consultants, I remain optimistic that the technology industry will practice what it preaches and leverage technology to solve its own business problems in e-discovery. As Intel discovered, it is not enough to have smart lawyers on staff. You also need to equip them with an e-discovery solution that allows them to preserve and analyze information relevant to the case.

To do otherwise is an open invitation to your competitors to sue you. Just ask Larry Ellison – or better yet, SAP.

Analyze Email First, Talk Later

2007-03-29T14:10:00.000-07:00

More than perhaps any other type of case that companies deal with, employment disputes often boil down to “he said, she said”. Since witnesses are rarely present, both sides quickly then look to email for supporting evidence. This usually happens behind closed doors giving the innocent bystander no visibility into how the process works. That’s why the case of the Justice Department and the 8 fired US Attorneys is so interesting – it illustrates what happens every day in similar, less high-profile employment disputes.

The questions are always the same:

1. Who made the decision? Initially, the answer given was Kyle Sampson, the Attorney General’s Chief of Staff. But email told a different story, showing that the Attorney General was involved, something that Mr. Sampson later confirmed in Congressional Testimony.

2. Why were the people fired? Initially, the answer was “performance reasons”. But internal department e-mail messages show consideration was also given to the views of senators, administration policy priorities, and legislative goals.

3. Was the decision justified? Well, that’s where the evidence stops, and human judgment comes in. Supporters of the decision would say it was perfectly justified, but poorly executed; opponents would argue it is more evidence of politicizing the judiciary.

As in other employment disputes that occur outside of the public eye, email analysis takes the “he said, she said” out of the situation. If you know who made the decision and why, it becomes much easier to decide whether the action was appropriate. The current difficulties at the Justice Department stem as much from the fact that they did not analyze their emails before making public statements, as it does from what they actually did.

FRCP Rule Changes: What’s The Big Deal?

2007-03-25T10:46:00.000-07:00

As any venture capitalist will tell you, there are two forces which open the window to creating huge, new businesses. The first is a technological breakthrough – think internet, the microprocessor, or mapping the human genome. The second is a change in the regulatory environment, such as airline/telecom deregulation, the new subsidies fueling the boom in clean energy – and the new Federal Rules of Civil Procedure (FRCP), which came into effect on December 1, 2006.

In the legal world, the new FRCP guidelines are a HUGE deal: it is the first time they have changed in 38 years, which is perhaps not surprising since they require approval from Congress and the Supreme Court. As you would expect from our greatest legal minds, the Rules themselves are long, complicated, and (for most people) the perfect antidote to insomnia. But from business’ perspective, the net effect of the changes is pretty simple: there will be a lot more e-discovery.

To understand why, consider the average company with revenues over $1B. According to a recent survey, this “average company” is concurrently managing 556 cases. If you assume that 50% of its cases settle before going to court, then before the FRCP rule changes this company would only have been doing e-discovery on 278 cases.

That all changed on December 1, 2006, when Rules 16 and 26 were amended to provide the court early notice of e-discovery issues. Under Rule 16(b), parties must “meet and confer” at least 21 days before the scheduling conference which, in turn, must occur within 120 days of filing a lawsuit. Rule 16(b) further states that the scheduling order must include “provisions for disclosure or discovery of electronically stored information”, while Rule 26(f) requires that parties “discuss any issues relating to preserving discoverable information and to develop a proposed discovery plan.”

The bottom line: companies can no longer leave e-discovery for later in the process. Thanks to the FRCP rule changes, they must now define and share their e-discovery plans at the “meet and confer” which occurs within the first 99 days of a case. Since cases rarely settle that quickly, our “average company” is now obliged to do e-discovery on all 556 of its concurrent cases, not just the 278 that do not settle. For the corporate legal department, that means their e-discovery workload has doubled overnight, with no increase in manpower to cope with the extra work. So companies are forced to reconsider their e-discovery process and look for ways to leverage technology to cope in a post-FRCP-rule-changes world.

In case you were wondering, I did not figure this out for myself. It was first explained to me by the folks over at the Nassau County Attorney's Office, and has since been echoed by many of our corporate customers.

Email, Politics, And The Media

2007-03-16T13:32:00.000-07:00

I will let others better qualified than me comment on the political implications of the recent furore over the firing of several US Attorneys. But one interesting aspect of the story from my perspective has been seeing email front-and-center in the news cycle.

Everyone from CNN to the Washington Post to the Wall Street Journal has led with “email-driven” stories, with headlines like “Rove, Gonzales discussed firings, e-mails show”. On March 14, the Journal (subscription required) provided this chart and reported:

Emails between White House aides and Attorney General Alberto Gonzales's chief of staff show an orchestrated effort to fire several U.S. attorneys, counter to Mr. Gonzales's previous assertions that the firings weren't instigated by the White House.

Today, the Washington Post led with (bold and underlines are added by me):

The Justice Department advocated in early 2005 removing up to 20 percent of the nation's

U.S.

attorneys whom it considered to be "underperforming" but retaining prosecutors who were "loyal Bushies," according to e-mails released by Justice late yesterday.

The three e-mails also show that presidential adviser Karl Rove asked the White House counsel's office in early January 2005 whether it planned to proceed with a proposal to fire all 93 federal prosecutors. Officials said yesterday that Rove was opposed to that idea but wanted to know whether Justice planned to carry it out.

The e-mails provide new details about the early decision-making that led to the firings of eight U.S. attorneys last year, indicating that Justice officials endorsed a larger number of firings than has been disclosed and that Rove expressed an early interest in the debate over the removals.

Setting aside the politics of all this, the press is using email to address two questions: who was involved, and are their public statements accurate? This is very similar to how I see email being used every day in the corporate world. Any legal proceeding or corporate investigation centers on understanding who knew what and when – and email is the place lawyers and investigators go to find that out.

Why? Because the beauty of email is that it is the source of truth, the indisputable statement of record. No need to ask people for incomplete recollections, no need to filter out the spin; just analyze their email and you will find out who did what – and perhaps even get a window into how they decided to do it.

“I Missed The Boat”

2007-03-15T16:57:00.000-07:00

The other day, I heard that a local technology company had a lot of pain around ediscovery. Within hours, one of our board members had contacted the General Counsel who informed us that they had just purchased a product for eDiscovery 3 weeks prior.

That evening over dinner, I summarized the situation by saying to my wife that “I missed the boat.” My 3-year-old son, who was also at the table, immediately started to quiz me: “You missed the boat? The boat left without you? You were late so the boat had to go? There wasn’t room on the boat for you?” For days afterwards, when I left for work, he would ask me: “Are you going on the boat today?”

The thing that really struck me is that we often speak in metaphors, and it is not just 3 year olds who have trouble understanding. One of our customers is a large manufacturing company. On deploying Clearwell to analyze its email, the company discovered a large number of messages with the expression: “The eagle has landed”. That struck them as rather odd, so they investigated and discovered a group of employees were illegally selling company equipment on the grey market and every time they made a sale, they would let those involved know by sending out an email saying “The eagle has landed.” Viewed alone, the expression looks innocent enough; once viewed in the context of emails flowing back and forth, it was clearly a statement of guilt.

Examples like this illustrate why simple keyword search is not enough. Companies need more sophisticated tools which, among other things, group emails into topic areas and link them into discussion threads, to surface coded expressions and analyze them in context. To rely on keyword search alone would be like someone at Proctor and Gamble seeking to analyze point-of-sale data from Walmart with a pocket calculator.

Of course, that doesn’t help me explain missing the boat to my son. So over the weekend, we took him on the ferry between San Francisco and Sausalito – just so he knows I don’t miss the boat every time.

I think, therefore I blog

2007-03-09T21:31:00.000-08:00

I first became aware of blogs in 2003, when they were explained to me by a venture capitalist who now works at Six Apart. Since then, I have become addicted to over two dozen blogs, which give me news and insight into several topics of interest such as technology trends, web applications, search, and venture capital. But it was not until now, 2007, that I have been tempted to put pen to paper (or keyboard to web page) and write a blog myself.

Why now? Not so much because, as one of my colleagues mischievously suggested, blogging would be a cathartic exercise that keeps me out of trouble (i.e., whatever he is up to). My desire to write a blog stems from having something to say – about technology and how it impacts everyday life for so many of the people I meet.

As a starting point, I look at email and how it has changed the workplace. In the mid-‘90s, when working at BCG, voicemail was my primary messaging platform, I regularly got memos in my (physical) mailbox, and many evenings were spent standing over the fax machine; today, I rarely leave voicemails, never send faxes, and have forgotten what a memo looks like – everything runs through email. Thanks to EMC, HP, Microsoft, Symantec and others, there are lots of ways to store those email messages and attachments. The result is a rich, treasure-trove of information in which every scrap of data is time-stamped and attached to a person’s name.

How interesting it would be to unlock the value of this information. How fascinating to glean lessons from watching how information flows between people. This was the genesis of Clearwell, and email intelligence – essentially, business intelligence for email.

This growth in email and document stores has also complicated life for enterprises. Just ask Morgan Stanley, who was fined over $1B for failing to produce emails relevant to a court case, or Intel, which recently got in trouble for the same thing. Ask Apple who spent 26,500 hours sifting through over 1 million emails and documents in response to a stock option investigation, or Mercury Interactive which had to analyze 2 million emails and documents.

As the CEO of Clearwell, I sit at the intersection of all these trends: the growth of email, which has changed how we communicate; the pain companies feel in analyzing their growing stores of email and documents for legal discovery; and, the fascination that we all have for what can be learned from analyzing the hundreds of messages we send and receive every day. In this blog, I will share my thoughts on these topics – and related subjects that catch my eye.

Since I am just starting out, I should also warn readers about what this blog will NOT be. There will be:

No banal accounts of every day life, such as what I see from my window (a parking lot) or what time the mailman arrives (no idea);

No soap-opera style, breathless accounts of servers straining in the middle of the night; and,

No mindless re-posting of PR propaganda or blind recitation of news stories.

For models of what I have in mind, I look to Dave Kellogg’s excellent blog on topics relating to Marklogic (thank you, Dave, for your encouragement) and John Battelle’s blog on search, perhaps the first blog that I read on a daily basis. I hope I can interest my readers as they have interested me.