USA: An Introduction to eDiscovery
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Corporations and law firms today face disruption and unpredictability caused by economic volatility, a lingering global pandemic, increased regulation, an ever-evolving cloud-based data landscape, and continued inequality within the workforce. Detailed below are some of these challenges, as well as what the legal industry can expect in the coming years.
As of May 2022, the inflation rate was over 8% in the United States (US) and Europe—representing the highest inflation rates in decades. The sharp economic recovery after the initial economic shutdown in 2020 drove a surge in demand for services and goods, at a time when supply around the world was at an all-time low. The 2022 Russian invasion of Ukraine then exacerbated this tension, due to sanctions imposed by Western countries on Russia. These factors led to the current sustained inflation rates we’re seeing today, and those rates can be expected to remain high for the foreseeable future in markets where production is not expected to meet demand any time soon (such as the energy and oil industries).
Within the legal industry, specifically, law firms and organisations have not only been impacted by the typical “cost of goods” inflation described above—they have also been impacted by inflation related to labour shortages and rising wages, as well as costs related to regulation and compliance (outlined below).
Global Workforce Shortages
Over the last two years, in the wake of a worldwide pandemic that drastically altered the workforce landscape, droves of employees left their employers in what pundits originally deemed “The Great Resignation,” but which has since evolved to be called everything from “The Great Rethink” to “The Great Reshuffling” to “The Great Renegotiation.” In 2021 alone, more than 38 million people in the United States left their jobs. Since then, it has become clear that many of those employees weren’t actually dropping out of the workforce—they were, in fact, switching jobs or even careers in order to obtain better pay, more flexibility, more fulfilling work, and/or a better work/life balance.
At the same time, the pandemic also escalated early retirement for an older generation, while an overall decrease in population growth is leading to roughly 400,000 fewer young people entering the labour force every year. These three factors are a perfect labour-shortage storm, with fewer experienced workers, fewer young people entering the labour market, and a generation of mid-career employees reevaluating their careers and/or employers.
This trend has severely impacted the legal and eDiscovery industries. Attrition of associates at law firms is at an unprecedented level and the cost of retaining associates has skyrocketed. For example, through the end of 2021, Am Law 100 law firms saw their average associate compensation increase by 12.1% compared to just one year earlier, according to a report by Thomson Reuters and Georgetown Law’s Center on Ethics and the Legal Profession. This trend can be expected to continue over the next few years due to the economic factors described above. For a niche industry like eDiscovery, it can be even more difficult to find and retain experienced talent. For example, almost 52% of eDiscovery consultants cited staffing shortages as their top concern, according to eDiscovery Today’s 2022 State of the Industry Report.
To combat the worker shortage and attrition, employers should expect to not only offer higher compensation, but also include benefits like flexible and remote work arrangements in order to recruit and retain talented employees (even pre-pandemic studies showed that flexible work arrangement benefits are worth about 8% of a salary to younger employees).
An Acceleration of Cloud-Based Data
The impact of the shift to remote working for companies and law firms around the globe has also reshaped the use, format, and storage of data. As many as 81% of organisations say the pandemic accelerated their cloud timelines as they raced to engage with new tools and applications that flooded the market to accommodate the remote workforce. Online collaboration has now become the new normal, with document sharing apps, chat functionalities, and web conferencing becoming the dominant forces that underpin daily work.
While this shift may have resulted in some efficiencies as more informal practices took hold, the explosion of collaborative data technologies has also created significant challenges, especially for data and records management, security, and legal teams.
Again, law firms and legal departments are not exempt from this disruption. As noted above, the legal market was highly impacted by both employee departures and the migration to remote work, relatively foreign to an entrenched in-office culture. The resignation-induced talent drain has likely affected workflows, adding to inefficiencies and duplicative work as corporate and legal knowledge, both in-house and outside, dissipated with the overall disruption of formerly routine processes and responsibilities. It has also certainly impacted eDiscovery processes; legal professionals are still working to master the art of conducting discovery remotely from cloud-based data sources.
As a result, some important enterprise areas are ripe for renewed attention and innovation:
• Information governance models: The disrupted workforce has made information governance efforts more complicated—and more necessary. Remote collaboration and sharing applications mean more data in more places, making it harder for internal teams to create and maintain a cohesive vision of the data landscape to contain and control growing data volumes. Rapid data growth from both authorised and unauthorised tools and new forms of communication (think gifs, memes, and emojis) makes it easier for data to proliferate, morph, and even disappear, which may call for modified or additional policies and procedures. From a data security standpoint, privacy breaches coupled with other security stressors are magnified as siloed data, a perennial problem, pressure-tests existing processes and policies.
• eDiscovery and preservation imperatives: In the implementation of cloud applications, preserving and collecting data in a defensible manner has not been a top priority. More tools enabling informal, dispersed, and fluid content challenge the paradigm of traditional collection and review. Where is a particular kind of data living and who controls it? Who is the custodian or author of content in shared collaborative spaces? With so many new data types, what is now the definition of a “document” or a conversation?
• Employee transitioning: As employees moved offsite or departed during the pandemic, company data may have gone with them—if not through malicious exfiltration, then just because HR and IT, with reduced teams as well, could not keep up with the onboarding and offboarding process. One top concern for organisations is that the lost data or IP could have gone to a competitor.
• Training requirements: With workers at a distance, training on company privacy, security, and preservation policies—which should be intensifying—may be taking a back seat to other business priorities impacted by the pandemic. Also, cultivating a data-sensitive culture is now more difficult with employees often untethered from the norms of company data access and storage and little to no face-to-face interaction with other employees and their own managers.
AI and Its Role in the Legal Industry
This massive migration to cloud-based platforms and tools has submerged the legal industry in ever growing data volumes and fluid data formats, leading to unprecedented challenges in litigation and eDiscovery. Nowhere is this more evident than in the document review process performed during eDiscovery. The industry largely still follows a traditional approach to document review with large groups of lawyers reviewing massive volumes of electronic records. That approach is increasingly costly and impractical today and is quickly becoming completely untenable as data volumes grow and become increasingly complex with each passing year. The impracticality of the traditional approach is not only due to the increased volume and complexity of data, but also due to the labour shortages and higher labour costs outlined above.
Fortunately, artificial intelligence (AI) technology is proving to be one of the most effective tools to tackle these more voluminous and complex datasets. Advancements in AI, built to handle big data, give newer legal technology tools the capability to help automate and expedite the document review process. For example, when an eDiscovery tool combines traditional machine learning statistical predictions with AI-enabled technology like deep learning and natural language processing (NLP), these tools are now able to leverage a language model that understands the meaning of words in the context of others. This means newer AI-based tools can make much more accurate classifications compared to legacy eDiscovery technology, which uses a “bag of words” approach.
In short, with AI-enabled eDiscovery tools, attorneys can work more efficiently, make better and more accurate decisions, and handle today’s larger and more complex eDiscovery data volumes without exploding their budget or missing deadlines. Although lawyers (who are trained to be risk-averse) have traditionally been much slower to adopt emerging technology, this increased efficiency and accuracy in the face of unprecedented data challenges should lead to a faster adoption of AI-based tools in the eDiscovery space than we’ve traditionally seen in the legal industry.
Diversity, Equity, and Inclusion in the Workforce
Going hand-in-hand with the global shift in the balance of power between employees and employers, there has also been a growing emphasis on diversity, equity, and inclusion (DE&I) by employees across many markets. Once again, this also includes the legal industry, which has traditionally struggled with a lack of diversity. However, talented employees (and prospective employees) are now demanding a more equitable and inclusive environment in which to work. At the same time, more corporations are holding outside counsel and service providers accountable by requesting evidence of diversity, equity, and inclusion efforts and results.
Thus, law firms and corporations alike should expect that, going forward, simply tracking and measuring diversity metrics will be the minimum requirement to meet the DE&I expectations of clients and employees. Specifically, companies and firms must be able to demonstrate not only diverse hiring practices, but also diversity and inclusivity across teams, equitable career advancement opportunities within firms and organisations, and clear day-to-day inclusive and supportive programs for diverse employees, communities, and their allies.
This emphasis on more advanced and sophisticated DE&I programs is a benefit to employees, employers and clients. In fact, studies have shown that a more diverse and inclusive workforce contributes to greater innovation and success for employers.
A Stricter Regulatory Environment for M&A Activity
With the changing of presidential administrations in 2020, we saw a shift to a much stricter antitrust environment. Whereas previously, anti-competition policy was centred around whether consolidation would harm consumers, we’re now seeing a shift to assessing a broader range of harm. This shift has lead to stricter scrutiny of merger and acquisition (M&A) activity from the FTC and DOJ (the two government agencies in charge of monitoring those activities).
At the same time, due in part to a rebounding economy, M&A activity began to explode in 2021. Since December 2020, both the FTC and DOJ have made multiple policy changes to help them keep up with the volume of transactions and workload associated with them, while at the same time ramping up to tougher scrutiny of deals.
This dichotomy of stricter scrutiny of M&A activity in conjunction with a historic number of M&A filings has made it harder for businesses and law firms to know what to expect from upcoming mergers and acquisitions, including the likelihood of receiving a Second Request and how regulators will handle that investigation.
Pursuant to the HSR Act, parties of certain proposed acquisitions must report their intentions to the FTC and DOJ prior to consummation. This requirement applies when the value of the acquisition and/or size of the parties, as measured by their sales and assets, meet certain thresholds. After notifying the agencies, parties must wait a specified period, usually 30 days, before they may complete the transaction. During the waiting period, the DOJ or FTC may determine that further inquiry is necessary and may issue a request for additional information and evidence (called a “Second Request”).
Additionally, the soaring data volumes and diverse data sources outlined above pose additional challenges for companies undergoing Second Request investigations, making it increasingly difficult and expensive to meet deadlines and other requirements.
Thus, law firms and organisations that expect to be involved in M&A activity should prepare for that work to be more onerous and unpredictable, with greater agency scrutiny, extenuated timelines, and more investigations that end with litigation.
A Dynamic Global Data Privacy Landscape
Another area where government regulation is expected to continue to increase globally is around data privacy rights and protections for consumers. The EU’s GDPR legislation in 2018 paved the way for data privacy rights, providing a template for governments on how to regulate and protect consumer data privacy. Within a few years, California followed suit, as did a plethora of other governments around the world. This trend is only expected to continue as we move into an increasingly digital world.
In the US in 2021–2022 alone, three more states passed comprehensive GDPR-like laws (Virginia, Colorado, and Connecticut), while at least 24 other states introduced or had data privacy laws somewhere within the state legislative consideration process. And the US federal government also looks to be increasingly active in this area—with the US House Energy and Commerce Committee voting to give the Federal Trade Commission USD1 billion to set up a data privacy bureau. Even China passed a GDPR-like law in 2021, the Personal Information Protection Law, which included not only the risk of huge fines for non-compliance, but also the risk of companies being black-listed by the Chinese government.This focus on data privacy regulation will certainly increase costs for businesses in the coming years, as companies work to stay compliant with a patchwork of global and local data privacy laws and regulations.