The Seven Sins of E-Discovery: Salvations for Merger Review. Debbie Salzberger, Anne Glover and David Dueck*

Transcription

1 The Seven Sins of E-Discovery: Salvations for Merger Review Debbie Salzberger, Anne Glover and David Dueck* Living through e-discovery projects can be painful at the best of times they are expensive, stressful and a drain on human resources. In the context of a merger review, e- discovery is even more stressful. It is often an unplanned-for expense, extremely timesensitive, involves multi-party coordination, and can have a significant substantive impact on the transaction under review. This paper sets out the most common traps or sins of the e-discovery process in the context of a merger review and offers corresponding practical tips salvations for survival. I. Background: A Primer on the Merger Review Process All mergers exceeding certain thresholds 1 in Canada must be notified to the Competition Bureau ( Bureau ) before the transaction can close. This process is intended to allow the Commissioner of Competition ( Commissioner ) an opportunity to review the transaction and assess its competitive implications. Under the Canadian Competition Act 2, a merger may be blocked by the Commissioner where it is found to prevent or lessen, or is likely to prevent or lesson, competition substantially. 3 Filing a notification with the Bureau triggers an initial 30-day waiting period during which the parties cannot complete the proposed transaction. If leading up to the expiry of that first 30-day period the Bureau requires additional information in order to complete its review, it may issue a Supplementary Information Request ( SIR ) to the parties. 4 Only after a certified complete response to the SIR has been filed by each party will a second 30-day statutory waiting period be triggered. Upon the expiry of this period (or its early termination, at the Commissioner s discretion), the parties are legally entitled to close the transaction unless the Bureau obtains an injunction. In nearly all cases, the SIR will include a requirement to produce documents and records prepared or received by senior officers of the company dating back two to three years relating to the particular products or markets that the Bureau is investigating. This is because internal * Debbie Salzberger and Anne Glover are partners, and David Dueck is an associate, of the Toronto office of Blake, Cassels & Graydon LLP. The views expressed in this article are those of the authors only, and are not necessarily shared or endorsed by Blake, Cassels & Graydon LLP or its partners. 1 These thresholds vary depending on the transaction structure. For example, in the case of an acquisition of assets, the 2015 thresholds require that both (i) the parties to the transaction, together with their affiliates, have assets in Canada or revenues from sales in, from or into Canada in excess of C$400 million and (ii) the value of the assets being acquired, or the gross revenue generated by those assets from sales in or from Canada, is greater than C$86 million. 2 R.S.C., 1985, c. C Ibid., s Competition Bureau, Merger Review Process Guidelines (January 11, 2012), at s. 3.1, online: A SIR is the Canadian equivalent of the second request issued during the merger review process in the United States. In both cases, the parties will be asked to produce documents in response to questions issued by the respective antitrust agencies, and the waiting period will be extended until the parties comply. However, one key difference is that in Canada, unlike the U.S., the merging parties are expected to respond to the entire information request and will generally not leave any specifications unanswered.

2 documents prepared by the merging parties in the ordinary course of business provide key insights for assessing the competitive landscape. Often such documents will set out how the parties view the market, their major competitors and their own market position. Unlike submissions to the Bureau in the context of a transaction (which may be discounted as advocacy documents), internal documents prepared in the ordinary course of business carry significant weight because they are considered to be an authentic reflection of the parties true beliefs about the relevant market. The greater the number of: (1) employees that may hold potentially responsive documents; (2) potentially responsive records; and (3) electronic storage locations, the more costly, time-consuming and substantively uncertain the review will be. Moreover, documents and records that evidence significant competitive rivalry between the merging parties, limited remaining competition post-merger, expectations of post-merger pricing power or other anti-competitive effects can be the deal s downfall. II. Seven Sins and Salvations for SIRs There are seven sins that can substantively impact the SIR process. These are described below, together with practical tips for turning sins into salvations. SIR Sin #1: Careless Creation Antitrust authorities will often look to internal documents created by the merging parties in order get an idea of how the parties themselves view the effect of the merger on competition. Therefore, documents suggesting that the merger may lessen competition could extend an investigation or become the foundation for a challenge to the proposed transaction. These risks are real and need to be factored into the overall transaction strategy. Two recent examples clearly illustrate the potential damage that internal documents can cause. In 2011, the Commissioner brought an application challenging the completed acquisition by Tervita Corporation ( Tervita, formerly CCS Corporation) of Complete Environmental Inc. ( Complete ) and its Babkirk hazardous waste landfill site. The Commissioner argued that the transaction would prevent competition substantially because Complete or another purchaser would likely have begun operating Babkirk as a secure landfill site in competition with Tervita if the transaction had not occurred. In support of this position, the Commissioner pointed to internal Tervita documents showing that Tervita anticipated it would lose significant revenue, through lower volumes and tipping fees, once Babkirk opened as a Secure Landfill and that it was also concerned that this loss of revenue could be compounded by a price war with Babkirk. 5 The Competition Tribunal ( Tribunal ) accepted the Commissioner s argument, 6 and the Federal Court of Appeal 7 and Supreme Court of Canada upheld its determination that the merger would prevent competition. 8 Likewise, in United States of America v. Bazaarvoice, Inc., 9 the U.S. District Court found Bazaarvoice to have violated section 7 of the Clayton Act, which prohibits transactions that have 5 Canada (Commissioner of Competition) v. CCS Corp., CT (Notice of Application at para. 22). 6 Canada (Commissioner of Competition) v. CCS Corp., [2012] C.C.T.D. No. 14, 2012 Comp. Trib. 14 (Comp. Trib.). 7 Tervita Corp. v. Canada (Commissioner of Competition), 2013 F.C.A. 28, [2013] F.C.J. No Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3. Note that the Supreme Court ultimately overturned the decisions of the Competition Tribunal and Federal Court of Appeal on other grounds. 9 United States of America v. Bazaarvoice, Inc., No. 13-cv WHO, Mem Op. & J. (D.C. Jan. 8, 2014), online:

3 the effect of lessening competition substantially or that tend to create a monopoly, by purchasing its closest competitor, PowerReviews Inc. 10 In making its case, the U.S. Department of Justice relied on internal business documents implying that senior executives believed the acquisition would remove their most significant competitive threat and limit price competition. 11 For instance, a Bazaarvoice co-founder stated in one document that the transaction would, [e]liminat[e] [Bazaarvoice s] primary competitor and provide relief from... price erosion. 12 Bazaarvoice s CEO wrote that it had [l]iterally, no other competitors, and he predicted [p]ricing accretion due to [the] combination of Bazaarvoice and PowerReviews. 13 Furthermore, the U.S. District Court observed that anticompetitive rationales infused virtually every pre-acquisition document describing the benefits of purchasing PowerReviews. 14 As a result, Bazaarvoice was forced to argue at trial that its own executives were actually mistaken. 15 Ultimately, Bazaarvoice agreed to a settlement requiring it to divest all of the assets of PowerReviews Inc. that it had acquired as a result of the transaction. 16 SIR Salvation #1: Recognize the risks of careless document creation. SIR Sin #2: Contempt for Compliance Competition compliance training is a simple and effective way to limit the creation of documents that may be misunderstood or are inaccurate. Training should emphasize that careful attention must be given to all day-to-day business documents or correspondence, including s and text messages. Documents should avoid speculating about the competitive impact of actions and they should avoid using boastful, vague or suggestive language. Furthermore, documents should not contain guilty-sounding words and should not mischaracterize lawful conduct as potentially being improper or unethical. Participants in compliance training should include, at a minimum, all employees at the company that have responsibility for marketing, sales and product development. That said, the wider the audience the more successful the training program will be in instilling a culture of compliance. Training should be refreshed annually and new employees should always be briefed on the company s compliance policy as part of their orientation. In addition to an ongoing compliance training protocol, once a transaction is in the planning stages, it is important to revisit compliance principles. For example, competition authorities and expert witnesses have used anonymous online postings on discussion boards, s from management to stock analysts, and testimony from depositions in order to support an argument 10 Ibid., at Complaint, United States of America v. Bazaarvoice Inc., No. C , (United States District Court for the Northern District of California San Francisco Division, 2013) online: 12 Bazaarvoice, supra note 2, at para Ibid., at para Ibid., at para Bazaarvoice, Press Release, Statement of Bazaarvoice on Yesterday's Filing of an Antitrust Action Against it by the Department of Justice, (January 2013) online: releases/statement-of-bazaarvoice-on-yesterdays-filing-of-an-antitrust-action-against-it-by-the-department-of- Justice.html. 16 Melissa Lipman, Bazaarvoice Settles With DOJ in $168M Merger Challenge, Law 360 (April 24, 2014), online:

4 that a merger is anticompetitive. 17 In addition, parties are often required to include documents prepared by investment banks and other third parties in merger control filings, and there is a risk that these documents may contain inaccurate language about the market position and overall competitiveness of the target business. 18 Reviewing such information in draft and ensuring that all statements properly reflect the competitive landscape can prevent unnecessary future problems. SIR Salvation #2: Ensure employees are given competition law compliance training before and throughout the merger process. SIR Sin #3: Pointless Paper Even if the scope of the information requested by the Bureau is fairly narrow, the burden of complying with a SIR can be extremely onerous if the corporate culture is one of poor document management. Good document management and retention policies will go a long way to limit the volume of documents that need to be collected, searched and then reviewed. For example, a document retention policy should be put in place and implemented, setting out how long documents are to be retained. Retaining documents that are no longer useful, or that no longer need to be retained, can increase costs both at the collection and document review stages. A data map of where all documents are located should be created so that the company knows where the various types of documents are located. Without this type of map, time and money will be spent figuring out where documents are located, and more documents will be collected than otherwise necessary in an effort to ensure everything is collected. If shared drives are used, a file system within them should be set up so that different types of documents can be well-organized. Having a shared drive where all employees simply dump all versions of documents is in fact any e-discovery lawyer s worst fear. It effectively results in entire share drives having to be collected. All of the above will help to decrease the number of documents collected and that ultimately need to be reviewed. Perhaps even more unwieldy than documents are s many employees receive over 500 s a day. Companies need to think of ways to limit this. For example, implementing a need to know policy and discouraging excessive cc - and bcc -ing for s whenever possible will help. A culture of considered electronic circulation is an essential component of any document management strategy. Furthermore, the creation of hard copies of documents (when electronic copies already exist) and the retention of work-related files and s on personal devices and home computers can create significant complications in the collections process; these complications need to be recognized and managed. SIR Salvation #3: Ensure appropriate document management and retention policies are in place. 17 See the expert report of Kevin M. Murphy, Ph.D in FTC v. Whole Foods Mkt., 548 F.3d 1028, at and 118, where both a posting by the CEO of Whole Foods on the Yahoo! Finance message board regarding the degree of competition between Whole Foods and the target, Wild Oats Markets, Inc. and a stock analyst s quote were used as evidence. 18 Brian A. Facey and Cassandra Brown, Competition and Antitrust Laws in Canada: Mergers, Joint Ventures and Competitor Collaborations (Markham: Lexis Nexis Canada Inc., 2013), at 76.

5 SIR Sin #4: Passing over Privilege Privileged documents may be withheld from production to the Bureau, 19 which can be of critical importance where numerous responsive documents have been prepared for or by legal counsel in the course of due diligence and in the preparation of regulatory filings. This often happens when deals involve substantive competitive overlaps. Such documents are protected as privileged where they involve solicitor-client communications for the purpose of obtaining legal advice or were created for the dominant purpose of preparing for impending litigation. However, inadvertent disclosure of these documents to the Bureau can result in a waiver of privilege. In order to avoid the inadvertent waiver of privilege, policies should be put in place to facilitate the quick and accurate identification of privileged documents. Firstly, all documents containing communications and legal advice from counsel or prepared for pending litigation should be marked as PRIVILEGED & CONFIDENTIAL. This should be emphasized throughout compliance training with employees so that this becomes part of the company s corporate culture. Secondly, complete and accurate lists of both internal and external counsel should be on hand so that those names can be run on the documents collected to identify potentially privileged documents quickly and easily. Privilege applies to legal advice provided by in-house counsel, but not to business advice. In-house counsel should therefore develop the habit of clearly indicating when they are giving legal advice that is subject to privilege protection (e.g., by marking it PRIVILEGED & CONFIDENTIAL or maintaining such communications in separate files) so that it can easily be demarcated from business advice. If it is necessary to include both legal and business advice in the same document, these sections should be clearly separated in order to make it much easier to redact the legal advice from the document. It should be emphasized to employees that the term PRIVILEGED & CONFIDENTIAL should only be applied to documents that actually contain privileged communications. If the term is not used properly and used on documents that are not actually privileged, it will make the marking less useful and lead to increased costs as counsel will not be able to rely on it in any useful way. If these steps are consistently taken, filters can be applied to the names of legal counsel and to key terms (e.g. privileged ) in order to quickly identify those documents that might be subject to privilege. These can then be reviewed separately to confirm that they should be removed from the document production. SIR Salvation #4: Put systems in place so that privileged documents can be quickly and efficiently identified. SIR Sin #5: Disdain for Dialogue Prior to issuing a SIR, the Bureau will typically provide a draft SIR to the parties and will allocate up to two days for pre-issuance dialogue regarding the SIR. 20 This can be an excellent opportunity to clarify the intended scope of certain questions (called specifications) in the SIR, identifying key technical issues or potential hurdles, and/or reducing the number of employees 19 Ibid., at Merger Review Process Guidelines, supra note 4, at s. 3.2.

6 (custodians) from whom documents will be collected. For example, if there are employees that look like they should have a unique set of responsive documents but don t because of internal reporting protocols or allocations of responsibility, notifying the Bureau could lead to the Bureau agreeing that these employees documents do not have to be collected as part of the SIR process. This alone will reduce the time and cost associated with complying with the SIR. Dialogue also helps ensure that the parties understand what the Bureau is looking for in the specifications. A discussion on what the Bureau is looking for in each specification allows the search and production of documents to be as targeted and efficient as possible. And, if the information being requested in a specification simply does not exist, this type of dialogue can result in the removal of the entire specification. The Bureau often also asks parties for data. The Bureau does not know how the company keeps data or what databases are used. Having an open conversation with the Bureau about what data the Bureau is actually looking for, what data the company actually has, how the data is stored and how it can be collected can save time and money. Consistent with this theme, the Bureau recently issued new Guidelines for the Production of Electronically Stored Information 21 ( ESI Guidelines ). In the ESI Guidelines, the Bureau recommends that the parties, together with their technical staff or third-party service provider, speak with the Bureau case officers and technical staff prior to collecting and producing documents in order to discuss various technical details. Engaging in these sorts of discussions with the Bureau is always a good idea. It ensures that time and money is not wasted collecting and producing documents in a manner that is not useable by the Bureau. It also ensures that the production provided by the parties complies technically with the SIR and starts the 30-day time period so the transaction can be closed. SIR Salvation #5: Engaging in dialogue with the Bureau can simplify and provide clarity to the SIR. SIR Sin #6: Trashing Technology When responding to a SIR, there are a variety of electronic tools that parties may utilize in order to make this process more efficient. The right tools for a case will be fact-dependent and vary from case to case, but taking the time to find the right electronic tools can save a substantial amount of time and money. Before a SIR is actually released, parties should begin considering their potential options and develop a review strategy so that they can hit the ground running as soon as the SIR is issued. Experienced counsel will have expertise in dealing with a number of different options and will be able to provide guidance on the pros and cons of each approach. Examples of electronic tools available include: threading; Clustering of documents by content or similarity; Predictive coding; 21 Competition Bureau, Production of Electronically Stored Information (April 28, 2015) [ESI Guidelines], available online:

7 Keyword searching; suppression technology. As well, the more information that the parties have on the documents collected, the more likely smart decisions can be made to increase the pace of any review (and reduce costs). For instance, information on what domains s have been sent from can be very useful in some cases. For example, if 3,000 s have been sent from the domain nhl.com (and the case does not involve hockey in any way) it is possible that those documents can quickly be removed from the review. SIR Salvation #6: Use the appropriate electronic tools to help save time and money. SIR Sin #7: Going Rogue From the very beginning of the SIR process, it is important to keep a detailed record of all of the steps taken and why those steps were taken. It may be important to remember this information at some point in the future if the Bureau has questions on the process implemented. For example, if certain custodians were removed from the process, it is important to record why this step was taken. If search terms were modified, again, it is important to keep a record of this decision and why it was made. As well, depending on the process adopted and the tools used, it is important to ensure quality control checks are undertaken to ensure the process is defensible. For example, if keyword searching is used, it is key that a percentage of the documents that did not hit on the search terms are reviewed to ensure that relevant documents have not been missed. As well, if certain sets of documents are going to be removed without a full review, the documents should be sampled to ensure they are actually not responsive. SIR Salvation #7: Maintain a road map. Record the basis for all decisions made during the review process and conduct quality control checks along the way. III. Looking Forward: Lessons from Sedona A key issue on the horizon is to what extent the principle of proportionality should play a role in determining the relevance of information when responding to SIRs and other information requests issued by the Bureau. Under section 116(2) of the Competition Act, a party need not supply information in a pre-merger notification filing or in response to a SIR where that information could not on any reasonable basis be considered relevant to an assessment of the competitive effects of a transaction. 22 A direct link between relevance and proportionality was recognized by the Tribunal in The Commissioner of Competition v. Reliance Comfort Limited Partnership. 23 In this matter, the Tribunal referred to the large amount of information one of the parties might be required to produce and stated, without expressing a view, one way or another on the relevancy of such information, the Tribunal reminds counsel of the principle of proportionality, which informs the relevance inquiry. 24 It remains to be seen whether the 22 Competition Act, supra note 2 at s. 116(2). 23 The Commissioner of Competition v Reliance Comfort Limited Partnership, 2013 Comp Trib 18 (Scheduling Order). 24 Ibid., at para 8.

8 Tribunal s recognition of a link between relevance and proportionality will affect how the Bureau interprets compliance information requests and SIRs going forward. The principle of proportionality has taken hold across Canada. The Rules of Court in every jurisdiction in Canada contain a provision emphasizing the overriding importance of maintaining proportionality within legal proceedings. The Sedona Canada Principles Addressing Electronic Discovery ( Sedona Principles ) are being revised and the February 2015 Public Comment version contains a new five-part test for proportionality. 25 The principle states that in any proceeding, the parties should ensure that steps taken in the discovery process are proportionate, taking into account: (i) (ii) (iii) (iv) (v) the nature and scope of the litigation; the importance and complexity of the issues and interests at stake and the amounts in controversy; the relevance of the available electronically stored information; the importance of the electronically stored information to the Court s adjudication in a given case; and the costs, burden and delay that the discovery of the electronically stored information may impose on the parties. On September 5, 2014, the Ontario Superior Court of Justice released its decision in Palmerston Grain v. Royal Bank of Canada. 26 In a strongly worded decision, the Court held that parties are required to comply with the Sedona Principles and that failing to do so is a breach of the Ontario Rules of Civil Procedure, effectively making the Sedona Principles mandatory for Ontario cases dealing with electronic information. Going forward, the key question will be to what extent these principles will influence the Bureau s approach to assessing relevance and proportionality when issuing information requests, and hopefully these principles will continue to influence dialogue with the Bureau on these issues in the future. IV. Conclusion This paper offers several key takeaways that will assist in managing the scope, cost, timeline and ultimate outcome of the merger review process. The seven key takeaways are the following: SIR Salvation #1: Recognize the risks of careless document creation. SIR Salvation #2: Ensure employees are given competition law compliance training before and throughout the merger process. 25 The Sedona Canada Principles Addressing Electronic Discovery, Second Edition (February 2015 Public Comment). 26 [2014] O.J. No

9 SIR Salvation #3: Ensure appropriate document management and retention policies are in place. SIR Salvation #4: Put systems in place so that privileged documents can be quickly and efficiently identified. SIR Salvation #5: Engaging in dialogue with the Bureau can simplify and provide clarity to the SIR. SIR Salvation #6: Use the appropriate electronic tools to help save time and money. SIR Salvation #7: Maintain a road map. Record the basis for all decisions made during the review process and conduct quality control checks along the way.