Top Ten E-Discovery Developments and Trends in 2011

(1)

Electronic Discovery

Porter Wright Morris & Arthur LLP 1

Top Ten E-Discovery Developments

and Trends in 2011

1. EDiscovery Costs Awarded to Prevailing Parties. The Federal

Circuit Court of Appeals and Federal district courts in Pennsylvania and California held last year that certain e‐discovery costs may be awarded to the “prevailing party” pursuant to Rule 54(d) of the Federal Rules of Civil Procedure and 28 U.S.C. § 1920(4). Rule 54(d) provides that costs—other than attorneys’ fees—should be allowed to the prevailing party. The court may award or “tax” the costs listed in § 1920, including “(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case[.]”

The Federal Circuit noted that “[i]n the era of electronic discovery, courts have held that electronic production of documents can constitute ‘exemplification’ or ‘making copies’ under section 1920(4).”

In re Ricoh Company, Ltd. Patent Litigation, 661 F.3d 1361, 1365 (Fed.

Cir. 2011). Accordingly, the “costs of producing a document electronically can be recoverable under section 1920(4).” Id. at 1365‐ 66. The Federal Circuit denied the recovery of such costs, however, because the parties had entered into a cost‐sharing agreement in which they agreed to share the cost of the document database used during discovery. Id.

In deciding whether to award e‐discovery costs to a prevailing party, courts examine whether the costs are reasonable and necessary and sufficiently documented. A court may not award costs if it deems that the costs were incurred for the convenience of counsel rather than out of necessity. Costs have been awarded for the creation of a document database, storage of data, imaging hard drives, key word searches, de‐ duplication, metadata extraction, processing, optical character recognition (OCR), making TIFF files, creation of load files, and scanning and imaging. See, e.g., Race Tires Amer., Inc. v. Hoosier Racing

Tire, Corp., No. 2:07‐cv‐1294, 2011 WL 1748620 (W.D. Pa. May 6,

2011); In re Apartame Antitrust Litig., ___ F.Supp.2d ___, 2011 WL 4793239 (E.D. Pa. Oct. 5, 2011). Costs have been denied for the use of advanced e‐discovery technologies such as visual clustering of a

(2)

Electronic Discovery

document collection. See, e.g., In re Apartame Antitrust Litig., 2011 WL 4793239, at *4.

The willingness of federal courts to award e‐discovery costs to the prevailing party makes it important for litigants to evaluate at the beginning of a case what steps they need to follow to make it more likely to recover their costs at the conclusion of the case if they prevail. Litigants can improve their chances of recovering e‐discovery costs if they develop a reasonable e‐discovery plan that is proportional to what is at stake in the litigation, disclose to the court and the other side what e‐discovery costs they will need to incur and why, and document their e‐discovery costs throughout the case.

2. “ComputerAssisted Review” Gained Traction. The New York

Times and Forbes and other publications reported on “armies of

expensive lawyers” being replaced by “cheaper software” and explained how advances in artificial intelligence are leading to improvements in e‐discovery technology to find and produce documents that are relevant to a case. Under labels such as “computer‐assisted review,” “predictive coding” or “technology‐ assisted review,” e‐discovery software providers have developed review software that uses machine learning algorithms to enable a computer to determine what documents are relevant to a case after being trained by a human reviewer.

In computer‐assisted review, attorneys knowledgeable about the case manually review and analyze a small sample set of potentially relevant electronically stored information (ESI) to decide which documents are relevant to the case. The relevant documents reviewed by the attorneys are then used as a “seed set” to teach the computer what to search for in the larger data set so that the computer can find additional relevant documents through an automated process. Because computer‐assisted review does not require attorneys to review each and every potentially relevant document and can identify fewer non‐relevant documents than keyword searching alone, computer‐assisted review potentially can result in significant cost savings and a more accurate document production.

Federal Magistrate Judge Andrew Peck of the United States District Court for the Southern District of New York has been a proponent of computer‐assisted review (and just recently approved its use in an employment discrimination case filed as a class action). He wrote last year: “In my opinion, computer‐assisted coding should be used in those cases where it will help ‘secure the just, speedy, and inexpensive’ (Fed. R. Civ. P. 1) determination of cases in our e‐discovery world.”

Search, Forward, Law Technology News (Oct. 1, 2011). A research

(3)

Electronic Discovery

much lower effort. Maura R. Grossman & Gordon V. Cormack,

TechnologyAssisted Review in EDiscovery Can Be More Effective and More Efficient Than Exhaustive Manual Review, XVII RICH. J.L. & TECH.

11 (2011).

The increased recognition of computer‐assisted review as a way to find and produce relevant ESI makes it important for litigants to understand how they can leverage new technology to increase efficiencies and reduce costs in document review, and to evaluate which tools make the most sense for their cases.

3. The President Directed Government Agencies to Update Records Management Policies and Practices. At the end of

November 2011, the President signed a Presidential Memorandum that called for records management reform within the Government. The Presidential Memorandum stated: “Greater reliance on electronic communication and systems has radically increased the volume and diversity of information that agencies must manage. With proper planning, technology can make these records less burdensome to manage and easier to use and share. But if records management policies and practices are not updated for a digital age, the surge in information could overwhelm agency systems, leading to higher costs and lost records.” Accordingly, the Presidential Memorandum directed each agency head to prepare a report describing current plans for improving records management programs, outlining current obstacles to sound, cost‐effective records management policies, and cataloguing potential reforms and improvements.

This action by the White House highlighted the increased focus last year on information governance and the need for businesses to have strong records management policies in place. The Sedona Conference®_{, for example, commented on the costs and risks of storing}

information: “Many organizations worldwide have become electronic data hoarders. While the retention of paper‐based information had tangible physical consequences and costs, it has become relatively inexpensive and more expedient to expand storage capacity rather than to apply records management lifecycle discipline to ESI. There are numerous direct and indirect costs and risks associated with unbridled accumulation and retention of data.” See International

Principles on Discovery, Disclosure & Data Protection.

Moreover, ARMA International and the Electronic Discovery Reference Model (EDRM) published a jointly developed white paper entitled How

the Information Governance Model (IGRM) Complements ARMA International’s Generally Accepted Recordkeeping Principles (GARP). In

(4)

Electronic Discovery

governance policy, procedures, and infrastructure, and that effective e‐ discovery management is dependent on effective information governance across all stakeholders—IT, records management, legal, and business operations.

The increased focus on information governance should prompt businesses to consider what steps they can take before litigation arises to reduce the volume of potentially relevant ESI that may need to be reviewed in discovery. Records management policies that are outdated or not followed can result in extensive e‐discovery costs during litigation that could have been minimized or avoided entirely with proper planning and execution.

4. Email Is Not The Top Source of ESI Produced in Discovery. In

Symantec’s second annual Information Retention and eDiscovery Survey, legal and IT personnel from 2,000 organizations indicated that email is no longer the primary source of ESI produced in response to e‐ discovery requests. Email came in third place (58%) behind loose files/documents (67%) and database/application data (61%). The fact that email was just ahead of SharePoint (51%), instant messages/texts (44%), and social media (41%) in the survey illustrated the emergence of other sources of ESI that may need to be preserved, collected, reviewed, and produced during discovery.

Social media, in particular, keeps growing in importance as a source for discoverable ESI. The Financial Industry Regulatory Authority (FINRA), for example, has issued rules requiring the retention of social media information relating to a broker‐dealer’s business. The National Labor Relations Board (NLRB) has found social media policies implemented by employers to be unlawful where they potentially prohibit the kinds of activity protected by federal labor laws, such as the discussion of wages or working conditions among employees, thus opening up the difficult issue of whether an organization has possession, custody, or control of relevant social media content posted by its employees, and whether the organization has a duty to preserve such social media content.

(5)

Electronic Discovery

passwords, user names and log in‐names for any and all MySpace and Facebook accounts” to the defendant and not to take steps to delete or alter existing information and posts on the plaintiff’s Facebook and MySpace accounts. Another Pennsylvania trial court, however, denied the defendants’ motion to compel access to the plaintiff’s social networking website profiles because the defendants’ request was not the result of viewing the public portion of the plaintiff’s profiles and, therefore, the defendants failed to show any reasonable basis for believing that the plaintiff’s profiles contained information relevant to the case. See Arcq v. Fields, No. 2008‐2430 (Pa. Com. Pl. Dec. 8, 2011). In Katiroll Company, Inc. v. Kati Roll and Platters, Inc., No. 10‐3620, 2011 WL 3583408 (D.N.J. Aug. 3, 2011), one of the individual defendants failed to preserve his Facebook pages in their original state. The court held that the defendant had control over his Facebook pages and had a duty to preserve his Facebook pages but that his failure to preserve his profile picture was unintentional. Accordingly, the court simply ordered the defendant to re‐post his profile picture depicting an allegedly infringing trade dress for a brief time so that the plaintiff could print whatever posts it thought were relevant. In Lester

v. Allied Concrete Co., Case No. CL09‐223 (Va. Cir. Ct. Sep. 1, 2011), and Lester v. Allied Concrete Co., Case Nos. CL08‐150,, CL09‐223 (Va. Cir. Ct.

Oct. 21, 2011), the court ordered monetary sanctions against the plaintiff’s counsel and the plaintiff for destroying information from the plaintiff’s Facebook page. Following the attorney’s instruction, the attorney’s paralegal told the plaintiff to “clean up” his Facebook page because “we do NOT want blow ups of other pics at trial so please, please clean up your face book and myspace!” The plaintiff subsequently deleted 16 photographs, deactivated his Facebook account, and claimed he did not have one in response to the defendants’ discovery request.

(6)

Electronic Discovery

The increased use and awareness of social media and other new types of ESI makes it important for litigants to evaluate all the potentially relevant sources of ESI and make sure they consider whether they may need to preserve, collect, review, and produce relevant information from any of those sources.

5. Amazon Customers Experienced Cloud Computing Service Outage. In Spring 2011, customers of Amazon’s cloud‐based web

service experienced an extended outage, causing some websites to go down and some concerns over the possible loss of historical data. This outage served as an important reminder to businesses that their use of third‐party vendors to store information “in the cloud” can create potential legal problems if they need to retrieve that information during discovery. Although businesses do not have possession over information they have stored in a public cloud, they likely would be required to preserve and produce such information to another party in litigation under the Federal Rules of Civil Procedure.

Businesses should review vendor contracts for cloud computing services with an eye to how their e‐discovery obligations would be met. Where possible, businesses should negotiate vendor contracts that at a minimum have provisions addressing how litigation holds will be handled (including the preservation of metadata and identification of custodians) and charged, and spelling out precisely where information will be stored and the form in which it will be stored, how quickly information can be retrieved and the form in which it will be retrieved, what costs are associated with the identification, preservation, and collection of information and who is responsible for those costs, and who is responsible for any loss of information.

6. Congress Heard Testimony on EDiscovery Reform. On

December 13, 2011, the House Judiciary Subcommittee on the Constitution held a hearing on “The Costs and Burdens of Civil Discovery.” Witnesses who testified at the hearing addressed whether the Federal Rules of Civil Procedure need to be revised to reduce the costs and burdens of e‐discovery. The Subcommittee members appeared to support the idea of letting the U.S. Judicial Conference’s Advisory Committee on Rules of Civil Procedure (Advisory Committee) complete its work on examining the possibility of enacting a new rule that would address the preservation obligations of litigants. Many businesses view a national preservation rule as an essential step toward lowering the cost of litigation.

(7)

Electronic Discovery

approach to the events that trigger a duty to preserve. This research further showed, however, that there is no uniform case law on the scope, location, or age of information that litigants must preserve. There also are significant differences among the circuits and district courts on what conduct can lead to sanctions for failure to preserve. In connection with this research, the Discovery Subcommittee developed three initial drafts of rules to illustrate three possible rulemaking approaches. The first approach included specific provisions setting forth the trigger, scope, and duration of the duty to preserve. The second approach also proposed addressing the trigger, scope, and duration of the duty to preserve, but only in more general terms. The third approach instead focused on sanctions only and the types of sanctions that could be imposed for failing to preserve discoverable information.

During the Mini‐Conference, many participants described the costly problem of over‐preservation of potentially discoverable information. While businesses generally understand when the duty to preserve is triggered, there is uncertainty regarding what they need to preserve. Because of the risk of sanctions, businesses often preserve information for cases that are never filed or preserve more information than is ever requested during a case. Discussion of these issues generated disagreement about what action, if any, should be taken to address preservation under the Federal Rules of Civil Procedure. Accordingly, the Discovery Subcommittee has not reached a conclusion on whether rule amendments would be an effective way of resolving concerns about preservation and sanctions or what amendment proposals would be helpful.

In November 2011, the Discovery Subcommittee reported to the Advisory Committee and presented a draft of Rule 37 sanctions and remedial‐measure provisions for consideration as a possible approach to developing an amended rule. The Discovery Subcommittee will report to the Advisory Committee again in March 2012.

7. Federal Circuit Announced an EDiscovery Model Order for Patent Cases. Although it looks like national civil rule reform is still a

(8)

Electronic Discovery

rather than on unlimited fishing expeditions.” Chief Judge Rader further suggested that the Model Order serve as a starting point for district courts to enforce “responsible, targeted use of e‐discovery” in patent cases.

Among other things, the Model Order provides that the parties must propound specific email production requests. Email production requests shall be phased to happen after certain core discovery (e.g., initial disclosures, basic documentation about the patents, prior art, accused instrumentalities, relevant finances, etc.) is exchanged. Email production requests are limited initially to five custodians per producing party and five search terms per custodian. Moreover, there can be cost shifting for “disproportionate ESI production requests” pursuant to Rule 26 of the Federal Rules of Civil Procedure. A party’s non‐responsiveness or dilatory discovery tactics will be cost‐shifting considerations. Further, the inadvertent production of privileged or work product protected ESI is not a waiver in the pending case or in any other federal or state proceedings pursuant to Federal Rule of Evidence 502(d).

At least one magistrate judge has adopted the Model Order in a patent infringement case over the plaintiff’s objections. DCG Systems, Inc. v.

Checkpoint Technologies, LLC, 2011 WL 5244356 (N.D. Cal. Nov. 2,

(9)

Electronic Discovery

Among other courts of note, the Southern District of New York announced a new Pilot Project Regarding Case Management Techniques for Complex Civil Cases that includes a requirement for parties to prepare a Joint Electronic Discovery Submission. The joint submission includes a checklist of e‐discovery issues to be addressed at the Rule 26(f) conference. The Delaware Court of Chancery adopted Guidelines for Preservation of Electronically Stored Information, and the District of Delaware adopted default standards for the discovery of ESI.

8. Law Firm and EDiscovery Vendors Sued for EDiscovery Malpractice. A client sued its former law firm and three e‐discovery

vendors for the production of approximately 3,900 privileged documents to the Government out of 250,000 electronic documents produced. The former client alleged that the law firm negligently supervised the document review process. The filing of the lawsuit underscored the importance of having strong e‐discovery workflow processes and quality controls in place as well as closely supervising the work of document reviewers and vendors.

9. A Federal Court Called for Criminal Rules Addressing E Discovery. While e‐discovery issues have increasingly arisen in

criminal cases, one federal court last year noted the lack of relevant criminal rules addressing e‐discovery and called on the Advisory Committee on Criminal Rules to address the production of ESI in criminal matters “at the earliest opportunity.” The court stated: “Despite the due process and liberty interests inherent in criminal actions, the Federal Rules of Criminal Procedure omit a key area in dealing with discovery that has been a common place aspect of civil practice since 2006. This Court has been asked to address the manner in which the Government . . . is to produce discoverable material, particularly certain ESI where the Federal Rules of Criminal Procedures are silent as to that issue.” See United States v. Briggs, No. 10CR184S, 2011 WL 4017886, at *1 (W.D.N.Y. 2011). The court relied on its inherent authority and the production requirements found in Rule 34 of the Federal Rules of Civil Procedure to order the Government to re‐produce ESI in a PDF format suitable for searching or in native format, at the Government’s choice. (Interestingly, the Joint Electronic Technology Working Group of federal criminal practitioners just recently published its “Recommendations for ESI Discovery in Federal Criminal Cases.”)

10. The Sedona Conference®_{Published International Principles}

on Discovery, Disclosure & Data Protection. The Sedona

Conference®_{published the International Principles on Discovery,}

Disclosure & Data Protection (International Principles) through its

(10)

Electronic Discovery

Management, Discovery and Disclosure. The Sedona Conference®

launched Working Group 6 in 2005 to bring the most experienced attorneys, judges, privacy and compliance officers, technology‐thought leaders, and academics from around the world to discuss the management, discovery, and disclosure of ESI involved in cross‐border disputes. The publication of the International Principles came in light of a number of recent U.S. court decisions ordering the disclosure of information in U.S. litigation despite the existence of foreign privacy laws that otherwise would have prohibited such disclosure. See, e.g.,

EnQuip Technologies Group, Inc. v. Tycon Technoglass, S.R.L., 2010‐

Ohio‐28, 2010 WL 53151 (Jan. 8, 2010).

The International Principles contain best practices and

recommendations for addressing the preservation and discovery of “protected data” in U.S. litigation. Protected data broadly includes any information that must be safeguarded pursuant to federal, state, or foreign laws, or through other privacy obligations. Although focused primarily on the relationship between U.S. preservation and discovery obligations and the European Union Directive 95/46/EC, the

International Principles are designed to apply whenever data

protection laws or other privacy obligations conflict with U.S. preservation and discovery obligations. The International Principles also contain a model protective order for use with protected data as well as a cross‐border data safeguarding process and transfer protocol to document the steps taken to comply with applicable privacy laws. The International Principles encourage parties to examine whether their discovery requests and obligations present a conflict with any data protection laws. If a conflict exists, The Sedona Conference®

maintains that the parties should try to avoid or minimize the conflict by limiting the scope of discovery, engaging in phased discovery, or limiting the production of protected data and metadata. The parties also should agree to a protective order or stipulation limiting the use and disclosure of protected data and to a plan setting forth the methodology by which protected data will be preserved, processed, transferred, and produced.

The International Principles can serve as a valuable resource for litigants who need to address how their U.S. preservation and discovery obligations may intersect with their data protection obligations in other countries, particularly as the Article 29 Working Party pushes forward with the European Union’s new data protection rules.