Tax Court Approves Predictive Coding for First-Pass Document Review

Invariably, the logical answer to coping up with Big Data with regards to eDiscovery is Predictive Coding. While definitions of predictive coding vary, but a common form includes uploading electronic documents to a server followed by taking representative samples, and ‘Seed Sets’ are created by attorneys who are familiar with the legal issues of the case. Attorneys, then, review the seed sets and code each document for responsiveness or other attributes, such as privilege or confidentiality. Utilizing a re-iterative approach, predictive coding software is tweaked and adjusted regarding how the computer will analyze future documents.

Recently, a U.S. Tax Court gave permission to use predictive coding in Dynamo Holdings, Ltd. vs. Commissioner, 143 T.C. No. 9 (September, 17, 2014) case, whereby permitting a taxpayer to use predictive coding as a first-pass review of a large set of documents, despite the. Apparently, the big idea is to reduce costs. While respondents in this case asserted predictive coding to be an ‘unproven technology’, the court completely disagreed justifying this by citing several precedents along with an expert testimony. Predictive coding contains two important elements known as ‘Recall’ and ‘Precision’ – I have detailed these concepts in my earlier post.  Inspite of this, the court’s opinion is important for taxpayers faced with requests for a substantial amount of ESI, and has the potential to reduce costs that may easily run into millions of dollars.

This reaffirms one thing for sure – IT, which was once considered a necessary evil, is now evolving to form a symbiotic relationship with the legal industry, and with other industries alike. Manual document review is certainly going to be obsolete in the near future – if not already! Analytics, predictive coding, machine learning products and technologies providing us with business intelligence (BI) to make informed decisions. For example, Microsoft’s newest products such as Delve, along with host of BI tools provide meanings to your data, while SharePoint e-Discovery center adheres to the regulatory compliance and standards. With this said, predictive coding technology is essentially replacing manual work, and tech savvy attorneys seem to have a ball with one!

The important aspect in this regard lies with determining the optimal values for ‘recall’ and ‘precision’ within the predictive coding software!

What’s Wrong with Outsourcing? Really?

A company’s existence is directly linked to its profit-making capabilities. This includes employing the most gifted workforce, running optimized operations, having excellent quality controls in place, just to name a few. There is an invisible force, however, constantly acting behind this entire process - the force of 'laws of economics' - principles of demand and supply.

The word ‘globalization’ is not a new buzz word anymore. However, its relation to economics is where the dilemma of outsourcing and offshoring lies. Gone are the days when corporations had loyal employees working for them, the technological advancement has disrupted not only how we work but how we think – Yes! We think Google, Facebook, LinkedIn, Twitter, and for the most part have become dependent upon technology.

So, what impact does technology have on driving profits for a company? Look around you – things have changed, human behavior has changed, our thinking process has changed – we have become victims to this unstoppable monster.  As the Greek philosopher, Heraclitus, rightly said “There is nothing permanent except change”. As a result, companies who adapt to the changing environment remain at the forefront, and those who resist potentially may bear the grunt. In any case, the objective remains to make profits for shareholders.

We all are aware of the exponential growth of technological innovations and big data. What should companies do to maximize their profits in this dynamic environment? Outsourcing seems to be the logical solution. The single biggest advantage is reduction in existing costs. Consider a simple scenario related to e-Discovery industry:

Company A is looking to hire Document Review Attorney for its e-Discovery project. What could possibly be the lowest per hour rate for a first pass review? How does 20 dollars per hour sounds! In today’s economy, believe it or not, you will find qualified, experienced, and certified individuals who would be willing to work. In the US, this rate is certainly peanuts for an attorney, but in India, Pakistan, Philippines, and Bangladesh, for example, 20 dollars per hour would fetch a luxury lifestyle.

With the advent of cloud computing, developing countries now have access to all the latest technologies, learning tools, methodologies, norms, usages etc. Workforce has truly become global and cloud computing is driving costs further down. As buyers influx the marketplace searching for low priced efficient technologies, sellers lower their costs to remain competitive. Consequently, companies may not afford or attract high paid workers. To bridge the gap, various outsourcing models fit the puzzle, providing same services at a drastically reduced price. Companies now have access to equally qualified workforce available in the cloud. To top it off, Ivy League universities now offer Bachelors and Masters level degrees online. So, for example, I could obtain an MBA degree from an Ivy League business school, while residing anywhere in the world, and provide expertise on a project via the cloud.

Having said that, profitability, principles of demand and supply, and cloud computing technologies are factors exerting pressures on US companies to find alternative ways to increase profitability. Microsoft and Amazon provide secure state-of-the-art data storage centers, and with SaaS, PaaS, and IaaS technologies, allowing for data security. A good example is of WordPress – majority of their employees are virtual. Similarly, Microsoft with its launch of Office 365 and allied products is evidently cloud based, and a qualified professional could administer, manage, and support Office 365 from anywhere in the world!

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