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Law's Information Revolution as Procedural Reform: Predictive Search as a Solution to the 'In Terrorem' Effect of Externalized Discovery Costs

45 Pages Posted: 14 Oct 2013 Last revised: 6 Jul 2015

Bruce H. Kobayashi

George Mason University - School of Law

Date Written: October 9, 2013

Abstract

By allowing parties to proceed on an informed basis, liberal discovery under the Federal Rules of Civil Procedure was intended to support the Rule 1’s idealized goal of securing the "just, speedy, and inexpensive" resolution of civil cases. The large costs of conducting discovery may instead produce the opposite result. The creation of cross-party agency costs and the litigants’ ability to externalize much of the effort and costs of discovery to their adversary can generate litigation that is expensive, slow, and unjust. The problem may be particularly acute in cases involving vast amounts of electronically stored information, where the amount of data and potential for externalized costs of discovery can rise exponentially. This paper examines how the expanded use of technology can serve as de facto procedural reform. Use of advanced technological tools such as predictive search allow the tasks and costs to be allocated in a way that simultaneously yields better incentives, mitigates asymmetric cost and information problems, and reduces cross‐party agency costs. This in turn mitigates both the problems of overdiscovery and the in terrorem effect of discovery costs on pre‐discovery settlements. The result is more information and lower costs, allowing the system of legal discovery to move toward fulfilling the idealized goals of Rule 1.

Keywords: asymmetric information, cost allocation, discovery, economic analysis, ESI, Federal Rules of Civil Procedure, FRCP, innovation, keyword search, legal services, manual search, predictive search, Rule 1, settlements, technology

JEL Classification: D61, D62, D63, D82, K10, K41

Suggested Citation

Kobayashi, Bruce H., Law's Information Revolution as Procedural Reform: Predictive Search as a Solution to the 'In Terrorem' Effect of Externalized Discovery Costs (October 9, 2013). University of Illinois Law Review, Vol. 2014, pp. 1473-1519; George Mason Law & Economics Research Paper No. 13-56. Available at SSRN: https://ssrn.com/abstract=2340068 or http://dx.doi.org/10.2139/ssrn.2340068

Bruce H. Kobayashi (Contact Author)

George Mason University - School of Law ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8034 (Phone)
703-993-8088 (Fax)

HOME PAGE: http://mason.gmu.edu/~bkobayas

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