A growing number of tech companies are riding the rising flood of corporate email and electronic records by pitching software to sift them -- and meeting resistance from lawyers who want a piece of the action.Lawsuits increasingly rely on electronic documents being produced early on, feeding demand for tools that help archive and retrieve those records, a process known as e-discovery work. Much of that work requires little brainpower or legal training, says Michael Lynch, chief executive of British software company Autonomy Corp., which last year acquired e-discovery company Zantaz for $375 million.
"The old-fashioned way of doing this was having a lot of lawyers doing a lot of simple things," he says. "You would literally have lawyers reading through things saying 'there was chicken for lunch.' You don't need lawyers to know it's a lunch menu."
Among those who have jumped into the field are Hewlett-Packard Co., Xerox Corp., International Business Machines Corp. and EMC Corp., some of whom have bought smaller companies specializing in the work. They say in-house teams using their tools can cut e-discovery costs by half.
But big law firms, facing the loss of lucrative client fees, are crying foul. They question how much of the discovery process can be automated and how much money the tools will really save. They also say companies could end up spending more to fix mistakes. "You need to have some kind of quality control," says Robert Brownstone, a partner with the Silicon Valley law firm Fenwick & West, which consults with companies on how to combine software with lawyer supervision.
One company saving some cash is Comcast Corp. When outside lawyers working for the cable company recently requested thousands of archived documents for a court case, Genny Garrett, who is in charge of managing Comcast's records, found them by doing a search from her desktop computer.
The lawyers "were surprised," she says, that "they didn't have to wander around a warehouse" looking for records, a task that once generated big legal fees.
Comcast uses software from Tower Software, which was acquired this year by H-P. It archives and classifies employee e-mails and other documents as they are created. The system also creates inventories of paper records, Ms. Garrett says, so she can locate and retrieve documents by using computer searches. She says the software has saved thousands of attorney hours over the past few years because Comcast gets about 400 legal-search requests annually, many related to claims that arise when technicians visit customers' homes.
The technology suppliers say their software can save time by automatically setting aside any documents that would be subject to attorney-client privilege. The systems use linguistic technology to scan for certain words, group messages by subject matter and weed out duplicates.
Such systems can be expensive, especially for a large company, says Marty Smith, a lawyer whose consulting firm Metajure advises companies on e-discovery. He says a large client will pay $1 million or more for systems to archive and search electronic records. But the savings from automating the discovery process quickly make up for the cost of such a system, he says.
H-P says using lawyers to search through 100 gigabytes of data would cost about $180,000. But since its software automatically culls irrelevant documents, attorneys in such a case would have to go through only a small portion of that data -- for a cost of about $25,000, it says.
Mark Cochran, an executive vice president and general counsel at software firm McAfee Inc., says his company bought a software system from Autonomy in late 2006. He says that the cost of the system -- which he pegged at "several million dollars" -- was recouped after a few big cases, in which hiring an outside firm for discovery would have cost more than $2 million for each case.
The e-discovery push has accelerated since 2006, when federal courts finalized rules that increased the amount of electronic information that must be produced under tight deadlines. Expecting fast growth in the sector, companies such as Xerox, Symantec Corp. and Iron Mountain Inc. bought smaller software makers to expand their offerings.
"We're trying to get away from the traditional hardware model and into more of a services business," says Chris O'Brien, a vice president of litigation services at Xerox, which in 2006 bought a company in the field called Amici. That same year, IBM bought content-management company Filenet. EMC, which specializes in data-storage systems, launched its own e-discovery product.
The attorneys counter that there are pitfalls to replacing them. Early this year, a federal judge required chip maker Qualcomm Inc. to pay rival Broadcom Corp. more than $8 million after it failed to uncover and share emails relevant to a case.
Mr. Brownstone, the Fenwick lawyer, also tells of one client who declined to have attorneys oversee an email archives search, thinking internal IT staff could do a cheaper automated search. The IT workers disposed of files that, legally, had to be retained, he says. They were recovered, but only after the company paid Fenwick lawyers extra to fix the problem.
Recently, tech companies and lawyers have taken steps to resolve their conflict. Some law firms that handle big business cases -- such as Fenwick and San Francisco's Howard, Rice, Nemerovski, Canady, Falk & Rabkin, among others -- now consult with clients on which e-discovery software to choose and how to use it. Mr. Brownstone says that his firm has a proprietary system that combines software with attorney supervision that can save clients more than 20% of what they normally would pay his firm for an e-discovery project.
At EMC, Andrew Cohen, an in-house lawyer and vice president, has been making sales pitches to law firms. He says that providing tech services to law firms should help EMC win over litigators. Jonathan Martin, who heads H-P's e-discovery marketing, says his employer is close to hiring a lawyer with years of e-discovery experience to reach out to law firms.
Meanwhile, corporate clients say they are happy to see tech vendors develop more legal expertise, because they think it will help outside lawyers come to terms with automation.
"That's ultimately where this business is going," says John Frantz, a vice president and associate general counsel at Verizon Communications Inc., which uses FTI Consulting Inc. for automated e-discovery work. "It costs so much money to have humans do the work."
By: Justin Scheck
Wall Street Journal; August 22, 2008
