White. Paper. Trends in e-discovery: Cloud and Collection. A Market Perspective. June, 2011

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1 White Paper Trends in e-discovery: Cloud and Collection A Market Perspective By Brian Babineau and Katey Wood June, 2011 This ESG White Paper was commissioned by Clearwell Systems and is distributed under license from ESG. 2011, Enterprise Strategy Group, Inc. All Rights Reserved

2 White Paper: Trends in e-discovery 2 Contents Introduction... 3 Research Overview... 3 The Basics... 3 Respondent Demographics... 4 Key Findings: Market Trends... 4 Confirmation: Lawsuits and Regulatory Inquiries are Increasing... 4 Discovery Drift to the Cloud... 4 Source: Enterprise Strategy Group, The Emergence of Social Media... 5 Key Findings: Impact on Identification, Collection, and Preservation... 6 Ready for the Storm?... 6 Analysis... 6 Getting Control of E-Discovery... 6 Hitting a Moving Target... 7 Ongoing Vigilance... 7 The Bigger Truth... 8 All trademark names are property of their respective companies. Information contained in this publication has been obtained by sources The Enterprise Strategy Group (ESG) considers to be reliable but is not warranted by ESG. This publication may contain opinions of ESG, which are subject to change from time to time. This publication is copyrighted by The Enterprise Strategy Group, Inc. Any reproduction or redistribution of this publication, in whole or in part, whether in hard-copy format, electronically, or otherwise to persons not authorized to receive it, without the express consent of the Enterprise Strategy Group, Inc., is in violation of U.S. copyright law and will be subject to an action for civil damages and, if applicable, criminal prosecution. Should you have any questions, please contact ESG Client Relations at (508)

3 Introduction White Paper: Trends in e-discovery 3 E-discovery remains a major (and growing) cost burden for corporate counsel, targeted as the top litigation area for increased spending in 2011 according to Fulbright & Jaworski s 7 th Annual Litigation Trends survey. 1 These climbing costs could easily be attributed to the impact of more digital business and increasing overall corporate data volumes on litigation; yet one would expect them to be offset by the myriad products and technology innovations which emerged over the last decade to reduce the burden of e-discovery by automating and managing more aspects of the process. There is no shortage of solutions on the market, ranging from initial identification and collection through document review, that leverage advancements in areas such as search and indexing, data and concept analytics, and natural language processing to make e-discovery more efficient. These solutions can be deployed in almost any scenario: on-premises, on-premises managed by a third party, and via the cloud to provide plenty of flexibility for almost any size organization or external counsel. Still, despite all of the technology and the options to use it, spending is expected to increase. It is easy to speculate about the causes, given the numerous challenges corporate litigants face in getting a handle on a process they ve more commonly outsourced to third parties. Could customers be failing to utilize all technology solution capabilities? Are they not creating standard processes in conjunction with technology to mitigate expected increases in e-discovery spending? However, a broader perspective on the shifting legal landscape may provide a clearer view of customer adoption trends, and the e-discovery market as a whole. In general, many legal departments are still just starting to realize the serious impact of electronic discovery on litigation, as case precedent and judicial guidelines on e-discovery continue to evolve. In its 2010 Year-End Electronic Discovery and Information Law Update, law firm Gibson, Dunn & Crutcher evaluated 323 judicial opinions involving electronic discovery over a single year, an increase of 60% over Moreover, even as companies (and the courts) begin initiating procedures for better handling and managing e- discovery, IT is constantly changing. For example, ESI data sources where and how data is created as well as where it is stored are changing and proliferating at a rapid pace, broadening the scope of potential evidence for court and often requiring new retrieval methods. Software-as-a-Service or cloud-based applications are now critical to worker collaboration and productivity, as are social media both presenting new data formats stored with third parties, often outside of enterprise custody. In short, even as organizations begin plotting their e- discovery strategy, they are chasing a quickly moving target. A recent research study by Clearwell Systems, a leading provider of e-discovery solutions, not only confirms that many organizations are already dealing with new e-discovery challenges created by evolutions in IT; it indicates where the issues are morphing towards greatest future legal impact for litigants. This paper synthesizes Clearwell s findings with ESG s own research, highlighting the benefits including cost savings and predictability of treating e- discovery as an integrated, fully-fledged business process with greater technology automation. Research Overview The Basics With input from ESG, Clearwell Systems designed a 20-question survey focused on the current and anticipated volume of lawsuits and regulatory inquiries, sources and types of ESI in scope for e-discovery, use of concept search, collection methods, legal hold process, and plans to bring e-discovery in-house between 2011 and To obtain qualified respondents, Clearwell recruited subjects at various legal, compliance, and records management industry trade shows over the course of Any respondents that did not meet the aforementioned criteria, including those working for law firms or law enforcement agencies, were removed from the final result set. It is also important to note that not all qualified respondents answered every question as some did not have 1 Source: Fulbright & Jaworski, 7 th Annual Litigation Trends Survey Report, November Source:

4 White Paper: Trends in e-discovery 4 specific knowledge on a particular topic. All respondents filled out the survey anonymously; however, they could provide basic contact information (name and ) to receive a token incentive for completing the survey. Respondent Demographics Seventy-eight percent of the survey respondents worked for U.S.-based private sector enterprises; the balance of respondents came from U.S. government agencies. Within their companies, respondents were distributed fairly evenly amongst legal, IT, and records management. Forty-five percent held legal roles including General Counsel and e-discovery directors/managers. The balance of respondents was split between records management and IT including those with security and forensic responsibilities. Senior IT executives, including CIOs, represented 4% of the final response set, indicating that leadership in this particular department is actively participating in industry discussions specifically legal and records management that aren t traditionally known for broad technology adoption. Overall, the respondent profile, in ESG s opinion, reflects general market trends where a number of individual departments are trying to learn more about e-discovery-specific technology and how these solutions may connect with tertiary business processes such as archiving and records management. Key Findings: Market Trends Confirmation: Lawsuits and Regulatory Inquiries are Increasing Over 70% of the respondents confirmed that the number of lawsuits and regulatory inquiries increased from 2009 and 2010 a trend most industry followers (including ESG) believe but often have difficulty actually measuring, because organizations are wary to admit it. Nearly half of those surveyed stated that the number of lawsuits increased by up to 20% and approximately 8% reported an increase of 50% or more. When asked what respondents expected in 2011 (compared to 2010), the numbers were nearly identical. While it is hard to predict future legal and regulatory patterns, the results indicate that seven out of ten companies believe these investigations will continue to increase. While respondents were not asked how many of the lawsuits and regulatory inquiries involved e-discovery, the rapid expansion of digital business and unchecked growth of corporate data point to a resulting increase in evidentiary data volumes and e-discovery activities. E-discovery processes and technology will need to scale in parallel if the number of matters involving ESI increase and overall lawsuits and inquiries expand at the rate indicated by a majority of respondents. Discovery Drift to the Cloud The first trend complicating e-discovery is the adoption of cloud or SaaS-based software applications accessed via the Web. Cloud computing saves internal IT departments from having to manage a complex infrastructure, but introduces a new e-discovery challenge: managing application data stored at the SaaS/cloud provider yet still technically owned by the customer. This data is potentially admissible as evidence regardless of where it s stored or who is storing it. Sixty percent of respondents anticipate discovery of cloud-based applications in 2011 double the number of respondents that reported cloud applications in scope over According to recent ESG research, three-quarters of companies are currently using, evaluating, or interested in SaaS-based applications. 3 In fact, 41% of enterprise and 25% of small to mid-size customers are using them already, highlighting that cloud computing is being leveraged by organizations of all sizes not just those with limited IT staff. 3 Source: ESG Research Report, Cloud Computing Adoption Trends, May 2011.

5 White Paper: Trends in e-discovery 5 Figure 1 highlights those applications most commonly being delivered via SaaS today according to ESG survey respondents currently using or evaluating SaaS options. Not surprisingly, and collaboration solutions are amongst the top three as suppliers such as Microsoft (BPOS/Office 365 offerings) and IBM (Lotus Live) optimize their platforms to be delivered via SaaS. These application types also happen to be some of the more common data sources identified during initial phases of a matter as having potential relevant ESI. Figure 1. Applications Organizations Have Deployed or Expect to Deploy via the SaaS Model What specific applications has your organization currently deployed or does it expect to deploy via the SaaS model? (Percent of respondents, N=335, multiple responses accepted) CRM (Customer Relationship Management) Collaboration / file sharing Project management Data protection (backup/recovery, data archive, etc.) Sales force automation Security (anti-spam, anti-virus, etc.) Human resources Internet / marketing Accounting / financial Business analytics Industry-specific applications Content management / document management Legal (e-discovery, case management, etc.) 9% 25% 24% 24% 23% 22% 22% 21% 21% 20% 18% 18% 30% 35% Source: Enterprise Strategy Group, Clearwell s survey confirms that organizations both use cloud-based applications and expect them to be involved in e-discovery moving forward. In fact, several respondents have already undertaken identification and collection tasks within their SaaS application portfolios. Overall, 60% of respondents anticipate discovery of cloud-based applications in 2011 double the number of respondents that reported cloud applications in scope over Among cloud-based applications anticipated in 2011 e-discovery, was still a strong driver overall with a combined 83% for cloud (54%) and archives (29%). The rise of cloud archiving in itself could signal that enterprises are better-preparing themselves for future ease-of-retrieval of one of the most common e-discovery format types ( ), rather than collecting reactively from on-premises servers. But the medium and format of business communication is also changing with the cloud even away from . The largest single cloud application forecast for 2011 discovery, according to Clearwell s study, wasn t at all, but collaboration suites like Microsoft SharePoint (cited by 61% of respondents). SharePoint 2010 adoption and the growth of hosted options (BPOS/Office 365) are undeniably a factor here. It s likely that an increase in the use of instant messaging and other hosted communications is also a contributing factor. The Emergence of Social Media 0% 10% 20% 30% 40% Social media represents its own issues concerning e-discovery as applications such as LinkedIn, Facebook, and Twitter, amongst others, are increasingly used for business purposes, from business devices, and during business

6 White Paper: Trends in e-discovery 6 hours. Access to these applications is so pervasive one just needs a mobile device to create content that the volume of their data is growing exponentially. The threat is the combination of sensitive information and capabilities for mass broadcast to a wide audience that make it a great source of controversy and, ultimately, evidence. Moreover, from an IT perspective, social media can be difficult to police internally or even know if and how employees are using it. Both the popularity and risk of these applications, as evident in Clearwell s research, are impacting legal departments. Twenty-seven percent of respondents had to manage social media applications as part of e-discovery in 2010 and 58% expect to in This significant increase parallels the anticipation of discovery of cloud-based applications, which survey respondents also expected to double from 2010 to Getting into more specific detail, when asked what social media was expected for 2011 discovery, Facebook was cited by 79% of respondents, beating out both Twitter (64%) and the more business-oriented LinkedIn (55%). Key Findings: Impact on Identification, Collection, and Preservation Ready for the Storm? Cloud adoption and social network content generation in the enterprise have serious implications for e-discovery. Employees are creating content outside the control of corporate IT governance, often not in compliance with corporate policy (if one exists). Moreover, data stored by third parties must still be produced by litigants even though it may no longer live on servers in the enterprise s direct custody or control. Understandably, this can present challenges when companies actually have to identify, collect, and preserve information stored in the cloud. While cloud providers typically promote cost-effective data import and usage for getting data into the cloud, to encourage client buy-in and stickiness, methods and timeframes for getting data back out through large-scale retrieval or migration aren t necessarily as simple or negotiated ahead of time. Facebook introduced self-service export in the form of a downloadable snapshot of user data this year, but push-button collection from other cloud providers and even e-discovery tools is still largely nascent or unsupported, leaving litigants feeling less than totally prepared for the looming threat. Moreover, even Facebook s download option does not include deleted data, which could be crucial to an investigation. Only a quarter of Clearwell s survey-takers felt their organization was very or mostly prepared for responding to inquiries that encompass cloud-based applications; the largest group felt somewhat prepared at 40%, while 36% were not prepared at all. When asked why they were unprepared to respond to in scope requests, 39% stated they d had no prior need. The most alarming response came from 37% of respondents who reported that their organization had no defined policy for discovery of cloud-based applications at all. Analysis Getting Control of E-Discovery The rising tide of litigation and regulatory inquiries cited by respondents may be triggering more comprehensive approaches to e-discovery among litigants. Nearly all respondents (93%) intend to bring some portion of e- discovery in-house over the next yea and many plan to in-source multiple phases of the process. Over half report plans to introduce legal hold management (62%), identification and collection (56%), and processing/analysis (52%). A third plan to add review and production as well (note that multiple responses were possible for this question). Moreover, the narrow gap in the numbers between adoption of legal hold, identification and collection, and processing/analysis shows customers are planning to in-source several e- discovery functions at once, either through multiple tools or a unified Nearly all respondents (93%) intended to bring some portion of e-discovery in-house over the next year.

7 White Paper: Trends in e-discovery 7 platform. With proper integration, deployment, and procedural preparation, this investment approach could promote a business process that is more holistic and optimized than the ad hoc use of isolated point tools in a manual response. In examining specific adoption plans, the critical mass around legal hold automation is likely in part a reaction to recent judicial concerns and sanctions over the duty to preserve and the risk of spoliation. Legal hold notification in particular is ripe for automation since the process is inefficient when performed manually over a large number of custodians, easily automated, and typically tracked and documented more reliably with technology. Sixty percent of respondents reported their current primary method of managing legal hold was manual tracking through spreadsheets, with the next closest answer (custom in-house applications) at 26%. The smaller number of respondents bringing attorney review and production in-house is also no surprise: attorney review is still most commonly performed externally by law firms on their own preferred technology platforms or used by them on a hosted basis through service providers. Corporate customers long shopping lists show organizational momentum in adopting a broader and more comprehensive process. Organizations which treat and manage e-discovery as a singular event and fail to put broad policies (or at least an internal task force to evaluate policies) in place are continuously subject to the reactive and potentially unpredictable expenses that happen every time a matter involving ESI hits. Clearwell s survey clearly indicates that companies are starting to recognize the desperate need for e-discovery automation, and are moving past the initial hurdles of making it a fully-fledged and integrated business process. Hitting a Moving Target Broader analysis suggests that companies must consider the bigger picture for their litigation needs, including dynamic and evolving IT trends, and factor them into decisions about e-discovery technology investments. There will always be new challenges for identifying, preserving, and retrieving ESI Clearwell survey respondents specifically expressed doubts about preparation and readiness for dealing with new data types and locations in cloud applications and social media. Adopting e-discovery tools based on the requirements of one pressing case alone can be a limited long-term gain if the tool (or tools) has limited or no support for the challenges of future investigations, such as emerging evidence sources in cloud applications or social media. Worse, an organization making the investment must ask if these capabilities are on a roadmap, and trust vendors to conform to future requirements and standards if they re not. Moreover, can the tool be used to support more than just one task (collection, legal hold management, etc.) in litigation response as a customer s needs expand, potentially encompassing more of the process? Myopic purchasing to solve today s case or to automate one aspect of the electronic discovery process doesn t equate to real preparation or offer the benefits of a broader process companies that don t take the longer view may end up spending more later as future requirements evolve. Ongoing Vigilance As enterprises invest in e-discovery and take on more of the process themselves, they may also examine the benefits of more proactive planning for information management and retrieval to cut costs and timeframes for investigations. For example, a number of respondents have already deployed cloud archives for (although whether these can support e-discovery is not specified). Archiving (both cloud and on-premises) is also available for social media and some cloud applications. However, implementing an effective strategy relies on knowing how users are using social media and the management policy that best suits the organization. Another lesson learned may be that enterprises should factor in the cost of retrieval and other e-discovery and compliance processes when considering new workforce productivity applications and technologies. While cloud adoption is gaining momentum in the enterprise for its cost benefits and limited up-front investment, cloud providers vary considerably in service delivery and contractual obligations to customers, including retrieval and mass export of data. Serial litigants may want to address the eventuality of litigation and regulatory investigations early in the process when choosing and negotiating particular solutions.

8 The Bigger Truth White Paper: Trends in e-discovery 8 Technology innovation is a double-edged sword in the e-discovery industry. On the positive side, companies now have access to a plethora of solutions to help assist with many related tasks in litigation response. The downside is more evident in general IT trends: new mobile and global users are increasingly promiscuous in their adoption of new devices, while cloud based computing is gaining adoption at a healthy pace. Ongoing data proliferation, variation, and sprawl will ensure that e-discovery remains a moving target for most organizations. Companies cannot expect an ad hoc e-discovery solution investment to magically bring expenses under immediate control. Today s frantic purchase may not address tomorrow s challenges. Organizations are better-served by understanding their users patterns of technology adoption and the potential costs and effort involved in e- discovery. This could and should lead to a new e-discovery technology investment mindset, one where solution flexibility, ongoing vendor R&D efforts, and more comprehensive process automation become critical investment decision criteria in selecting tools to support a more fully-fledged e-discovery business process.

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