Strategic Legal Technology

I recently wrote that choosing onshore v. offshore review is an empirical question. Here’s some good reading to help think about answering this. 

In Onshore v Offshore Pivot Point - Part II I said in passing that software might be an even better choice for document review than lawyers, onshore or off. “Of Litigators and Butterflies: The Quest for a Quantum Leap in Large-Scale Document Review” in Pike & Fisher’s Digital Discovery and e-Evidence (July 2006) and available at H5 Technologies’ web site as a PDF is a good analysis of the inherent error in human document review.

Author Nicolas Economou, H5’s CEO, sets forth a mathematical equation for assessing document review error. Though the equation is conceptual for now, he also presents provocative empirical data. A study found that the H5 automated approach correctly identified relevant documents 98% of the time.

Of course, many lawyers will immediately react that this is simply unacceptable - how can we live with a 2% error rate. Those lawyers, however, most likely lack empirical data about the accuracy of their army of lawyers.

The article also reports that “for each relevant document missed by the H5 system, the control review process missed 32 documents. That is, the risk of failing to flag relevant documents for litigator review was 32 times greater under the traditional review process.”

If this is true and can be further substantiated, at what point will lawyers commit malpractice by continuing to rely primarily on human review?

How can law firms understand and take advantage of knowledge management? What are typical KM challenges? 

These are some of the questions I tackle in a recorded webcast, Knowledge Management: Asking the Right Questions, an interview with David Snow, editor of the technology section of law.com. Free registration required. This is a 15-minute, pure audio recording available via Webex. Some of my answers flow from my article, KM - The Right Question (at prismlegal.com), also at llrx.com as Pragmatic Approaches to Knowledge Management.

On Monday, I explained the benefits of information delivery to lawyers using “enterprise RSS.” On Tuesday, the Wall Street Journal reported on a good, concrete example of why law firms need to consider enterprise RSS. 

SEC Financial-Reports Database To Undergo $54 Million Upgrade (WSJ, 9/26/06) reports that the SEC will overhaul EDGAR (the database of public corporate filings) with “interactive data ‘tagging’ that makes it easier for investors, analysts and the agency to find, search for and compare information.” Moreover, the database overhaul “will allow users to receive real-time streaming data using RSS feeds and other automated Web tools to receive the latest corporate data from newly-filed corporate reports.”

For transactional lawyers or for heads of law firm client service teams, automatically receiving notification of client, competitor, or prospect filings could be very valuable (and free!). While enterprise RSS is not the only means to get at this information, it probably will turn out to be the most effective way for BigLaw to manage and deliver this and huge volumes of other information that will, over time, become RSS-enabled.

Lawyers may have to toss a coin to choose caffeine versus constantly updated legal news. Now, it’s easier to have both. 

New tools ease finding and digesting legal updates while sipping coffee. I recently spoke with Todd Berkowitz, an executive with Newsgator, an “enterprise RSS” company that makes software to manage and deliver information. “Enterprise RSS” sounds daunting but the concept is simple. It lets law firms centralize updates from multiple sources such as West, Lexis, and BNA to deliver updates tailored to individual practice groups.

Lawyers get their critical updates in one place – Outlook or portal – rather than as a stream of e-mail or print publications. Blackberry delivery is also an option. Newsgator and other enterprise RSS systems let lawyers customize pre-selected practice group info by adding their own “feeds” from their favorite blogs or other sources. Lawyers can also easily share updates with their colleagues, which sure beats penning names on routing slips.

Berkowitz reports that multiple AmLaw 200 firms have licensed Newsgator software or are considering it. Given that I posted about enterprise RSS in 2005, I’m glad to hear that the product category appears to have traction now.

Unlike legal technology of yore, this does something for lawyers, not to them. Plus it makes life easier for librarians and CIOs. Firms can now monitor which sources are used and what lawyers actually read. This provides data to rationalize source selection and allows further customizing content over time. Now, lawyers who yell loudest about favorite publications won’t necessarily get their way.

Although the capability exists today, Newsgator will soon release a hosted version that makes it easier for firms to feed content to clients. Firms go much deeper substantively than most law departments can, so sharing selected updates with clients can increase client satisfaction and retention.

Delivering information to clients (and even internally) hinges on dealing appropriately with copyright and license constraints. Some publishers are more flexible than others in this regard. Obtaining appropriate rights may cost a bit but will keep lawyers informed and help buy client loyalty.

With budget season at hand, BigLaw should be considering enterprise RSS solutions for 2007. And for those who do, please consider adding my feed, which is http://www.prismlegal.com/wordpress/b2rss2.php. By the way, NewsGator is delivering a set of educational Webinars tomorrow and Wednesday (register here).

Merging large law firms say that they offer clients more and deeper expertise. But do mega-firms effectively tap their collective wisdom? 

Knowledge management professionals and legal technology consultants see how hard it is to identify who knows what in a BigLaw firm. Much KM work these days focuses on systems to find experienced lawyers within the firm.

Beyond “experience location systems” lies a potentially more valuable way to tap collective know-how: an internal predictive market to reach the best collective answer to tough client problems. Business Solutions: How to Decide? Create a Market (Wall Street Journal, 6/19/06, $) describes a relatively new class of software that allows tapping “the collective knowledge of an organization by letting employees bet on future events, such as forecasting sales or betting on the most promising new product.” It’s not a big leap to apply this idea to predict the outcome of litigation, to find the best transaction structure, or to decide on the best argument.

Why do internal markets work?

“To understand why these markets work as well as they do, consider the usual alternatives companies have for aggregating this sort of knowledge: committee meetings, polling, reports or focus groups. Meetings are often dominated by the person with the best arguments or most forceful personality, not necessarily with the best information… While each player may have very little information, collectively, they have a great deal.”

Moreover, the market approach allows far more people with expertise to contribute than other approaches. GE, HP, and Corning have tested the internal market approach.

Granted, predictive markets are still embryonic. And getting lawyers to participate raises challenges. Markets, however, declare winners, which would appeal to most lawyers’ competitive sensibilities. In fact, cash rewards are even an option.

All that said, were I a general counsel facing a bet-the-company case, I’d sure like the collective wisdom of several hundred lawyers thinking about the best solution to my problem. In fact, I might even pay my outside firm a fee to motivate the lawyers not working daily on my case to spend some time to review my situation and participate in the market. Of course, law firms could help persuade a GC this is worthwhile by doing some testing first.

Sound interesting? Then you might want to check out the software vendors the article mentions: Consensus Point, Inc., Inkling, Inc., and NewFutures. And you might also find interesting A Marketplace Trial, an article I wrote (American Lawyer, Fall 2003) about creating a financial derivatives market to help hedge outcomes of high stakes litigation.

I recently proposed a portfolio approach to evaluating law firm IT and KM projects, suggesting a focus on initiatives that increase profits. Two innovative actions by large UK law firm Eversheds help illustrate the idea. 

Eversheds set to transfer 90 staff in IT outsourcing deal in legalweek.com (August 2006) reports that “Eversheds is outsourcing the bulk of its IT function to an external provider…” It also reports that magic circle firms Allen & Overy (A&O) and Linklaters have also secured further back-office outsourcing deals. The Eversheds deal “is understood [to contain] provisions to outsource various core support functions including Eversheds’ helpdesk network, infrastructure teams and its IT training specialists.”

Core IT infrastructure, while critical to a firm’s success and a competitive necessity, is purely a cost . It consumes money and management attention without conferring strategic advantage. So it is doubly interesting to see another Eversheds initiative…

Eversheds to test applicants for online reasoning in legalweek.com (Sep 2006) reports that “Eversheds is to introduce new online reasoning tests for potential trainees as the national giant bids to widen the net in recruiting future lawyers.” The test will cover verbal and numeric reasoning. As a quant jock myself, I like that that lawyers should have some quantitative skills. According to one firm manager, the online test will help students who have not done so well academically. What a concept – grades might not be the only predictor of lawyer performance! The firm expects the test to help hire the right people and therefore avoid costly mistakes.

With this second initiative, the firm is spending on an IT-backed expecting to retain more or better lawyers and reduce hiring mistakes – and that means higher revenue and profits. So are Eversheds’ moves are an outlier or harbinger? I can’t say that Eversheds applied the 4-quadrant analysis I proposed, but in my view, the firm is thinking appropriately about managing the IT portfolio.

In July I wrote a post titled Computers Pick Outside Counsel Better than People Do, reporting on a NY Times article. The article’s broader point was that computers often decide better than do people. Remember, lawyers are people too. 

Maybe We Should Leave That Up to the Computer (NYTimes, 7/18/06) reports that “mathematical models generally make more accurate predictions than humans do.” Computers can best people in medical diagnoses, purchasing decisions, predicting grad school performance. Judgment and expertise are overrated. “Other cherished decision aids, like meeting in person and poring over dossiers, are of equally dubious value when it comes to making more accurate choices, some studies have found…” Beyond better outcomes, models have other advantages: codify and retain knowledge, teach newcomers reasoning processes, and immunity from fatigue.

Of course, not everyone believes this and the article reports the skeptics’ views. So, should some legal decisions be delegated to models? In thinking about this, consider the following:

• Some of the online legal services I list here are, in a sense, models that provide users with answers.
• I have written how formal risk analysis using decision trees can enhance decision-making in litigation. While not the algorithmic approach the Times article means, this approach moves away from “gut feel” to a more quantifiable and easily communicated view of a case.
• My friend and mentor David Johnson (a professor at NY Law School) already experimented years ago (when he was a partner at Wilmer Cutler) with neural nets and genetic algorithms to determine whether a worker is an independent contractor or employee. A 20-factor test drives this; if the reported cases were properly translated into a large enough and well-structured data set (ok, a big if), then perhaps an algorithmic approach would work.
• Lawyers (well, at least the forward thinking ones) are increasingly relying on “smart search engines” to reduce the cost of reviewing e-discovery documents.
• Many documents are already created automatically by a wide range of “document assembly” tools. Two years ago articles reported on Cisco’s “Click-Accept” automated approach to contracting (see my post, Contract Management).

BigLaw CIOs do not need to budget for this in 2007 but it’s interesting to think about how our legal system would change if more decisions were computer-based.

9/18/06 Update: Add to the list above selecting a jurors in voir dire using a computer; see Computer Voir Dire, National Law Journal, 9/6/06.

9/19/06 Update: Dennis Kennedy has an interesting post referencing this: Computer-based Legal Decision-making in 2006 raises the question of whether “justice is something fuzzier, yet more comforting than pure accuracy.”

In my prior post, I summarized two recent articles about discovery document review: DuPont’s going offshore and BigLaw’s move to contract lawyers. Which is better - onshore or offshore review? 

The choice is purely an empirical question, meaning a decision driven by hard data: the cost to review each document, adjusted for accuracy. You can argue over how best to measure cost and accuracy, but it’s hard to see how else to decide. (I assume that ethical issues, if any, of going offshore can be resolved. I also leave for another day whether software is not an even better approach than lawyers, onshore or off.)

So the rational general counsel should ask firms for statistically reliable cost and accuracy measures. Firms not already tracking these are probably not effectively managing the review process.

Lawyers often don’t consider alternatives and, when they do, seem to debate endlessly. But why argue when you can measure? Sure, going offshore may require more supervision; maybe even travel costs to send US lawyers overseas to supervise. But finding contract lawyers and paying agencies is not cheap. I could go on about many costs. The point is, stop debating and start measuring.

If inside counsel lack the data or analytic horsepower, then retain legal technology or other consultants or borrow financial analysts from other corporate departments. With the millions of pages to review and enormous costs, production- and factory-like discipline is essential. What are we waiting for?

The current costly approach to e-discovery document review is not sustainable. I’ve often suggested that offshore lawyers are a cost reducing option. At last, we have a public instance of offshore review - and a big one. At the same time, we have new insight into the use of contract lawyers in BigLaw. So which will win - the offshore option or ongoing armies of costly contract lawyers? 

Let’s Offshore The Lawyers in Business Week (9/18/06) reports that DuPont is offshoring document review. It reports that on “the outskirts of Manila, 30 Filipino attorneys, including three who have passed U.S. bar exams, are seated elbow-to-elbow with 50 other staff at long tables crammed with PCs. Working in three shifts seven days a week, they read, analyze, and annotate digital images” of documents. DuPont hopes to save 40% to 60% by going offshore and “figures 70% of the labor in a typical insurance or liability case can be outsourced.” Moreover, “DuPont hopes it can slash the discovery process in insurance cases to three months from an average of 18 months.”

So finally, a public example of offshore document review. The article acknowledges that this is a test of sorts for DuPont and OfficeTiger, which provides the service. But now the way is paved for others to try, absent a problem.

At the same time, the cover story of the current issue of American Lawyer (Sep 2006) describes in detail how large US law firms increasingly rely on contract lawyers for document review. Temporary Solution reports that the sheer volume of electronic evidence requires armies of lawyers. Some points that stood out for me:
- The working condition of many contract lawyers is not good.
- Firms are turning a tidy profit on contract lawyers.
- BigLaw management is, at least in some instances, troubled by reliance on so many temps.
- Not all contract lawyers have passed the bar.
- Some firms have created (well, maybe re-established is a better word) a new lower class of lawyers for document review.

So, by chance, in the same week, two articles in two prominent publications describe two paths: onshore and offshore. In my next post, I propose how to decide which approach is better.

At many law firms, it’s budget time of year. IT and KM managers need to make their best cases for proposed spending. 

If your boss asks about ROI, consider showing this: “Superstar Economics” & Laterals: Take II by Adam Smith, Esq. It explains why hiring lateral partners may not pay off. How many COOs or managing partners ask about the ROI of laterals? I’ve seen many firms invest huge sums in laterals (and new offices for that matter) with little assurance of return. In comparison, they shun a modicum of risk on tech or KM. Good analysis and apt analogies, however, may not be good politics!

On a more positive note, proponents of new spending can focus on projects that add to the bottom line and present their ideas as an “investment portfolio” rather than a bunch of costs. In my recent KM - The Right Question post, I proposed a framework for evaluating investment alternatives and suggested focusing on technologies, processes, and staff that add to the firm’s revenue and profits. Examples include social network analysis, business intelligence software, proposal generators, and workforce allocation systems. I’ve reproduced here the sample analysis.

In June I wrote about the emerging position of EED attorneys in law firms. Corporations are also creating such positions. 

Discovery Trailblazers in InsideCounsel (Aug 2006) reports that many large companies are looking for someone to manage e-discovery. One motivation is cost control: “An e-discovery manager works directly with vendors, ensuring that the company gets the best possible rates.” Though vendor pricing is important, I suspect that even bigger savings lie in actively managing how outside counsel conducts the entire discovery process. After all, large law firms are not reknown for their project management skills.

“It’s also important to have someone bridge the communication barriers between legal and IT. Without a translator in place, e-discovery can go painfully wrong.” Clearly something went wrong for Morgan Stanley in the Coleman case (the $1.4b judgment is on appeal); having someone inhouse to shepard document collection and establish a records management policy is a good idea.

The article reports compensation for this emerging position ranges from $100,000 to $300,000. If I were a GC, I would not want someone at $100k (which buys about two-thirds of a first year associate in NYC); I think $175k is a more realistic minimum, especially given the demand for the right qualifications.

Long-time legal technology consultant Ross Kodner has started a blog. 

Ross Ipsa Loquitur Blog is a clever name for Ross’ blog, which covers a range of legal tech issues. Early posts include good advice on practice applications, pointers to peripherials, an ILTA update, and sneak preview of Ross’ new online CLE offering. Welcome to the blawgosphere!

In this roundup, items on outsourcing, e-discovery, alternative billing, practice group management, and law firm IT infrastructure. 

Outsourcing
A case in point in Business Line (from The Hindu in India) reports on Pangea3’s success in recruiting top-flight Indian legal professionals to its legal offshoring business.

E-Discovery (EED)
Does Your EDD Provider Make House Calls? in law.com (8/15/06) discusses the growing impact of EU privacy and company IP concerns on processing data in discovery.

Alternative Billing
Many legal technology consultants and managers wait for the day of alternative billing to drive efficiency. See David Maister’s article on a new law firm (Exemplar) in the College of Law Practice Management publication on Innovation. (PDF). See also an interesting Wall Street Journal article on 8/21/06, Consultant Lets Clients Use ‘Gut’ To Set Final Fee ($), which describes how a management consulting firm successfully uses an alternative billing structure. Trium “states a figure and takes on a project if the sum is acceptable. After the project is done, dissatisfied clients can pay as little as half the quoted amount. Happy customers pay up to 35% more than the quote.”

Practice Group Management
How Do You Differentiate Your Practice Group From The Masses? by Susan Raridon Lambreth in Law Practice Today (August 2006) is another excellent article in a series on practice group management by Lambreth. This article spells out why the line “we’re high quality lawyers” is worn out. She explains ways of genuinely distinguishing a practice group, including using technology for service delivery.

Law Firm IT Infrastructure
Six Steps to a Global Network for Law Firms at law.com (8/16/05) is an article by Karen Asner, the administrative partner of White & Case in NYC, about how the firm has created a unified global computer system and support structure. She stresses the importance of a “long-term investment in creating a seamless unified network,” carefully controlled access for clients, buying off-the-shelf rather than building, and providing the right mix of help desk support. She concludes that “studies show that the average law firm dedicates 6 to 7 percent of their gross revenue to technology spending – at White & Case we average just 2.9 percent.” I suspect many BigLaw CIOs wonder at how the firm manages to keep it’s IT spending ratio so low!