Data Analytics Gaining Ground, But Bold Promises Need Validation

July 20, 2015, 3:51 PM

Every year, lawyers file litigation claims said to be worth hundreds of billions of dollars, and yet few lawyers have embraced data analytics to guide their litigation decisions in the way that bond traders or other industries rely on such tools.

That could be changing: A raft of new software and technology companies, including a few that are working directly with law firms, are mining the vast amounts of data available on litigation trends in both complex and simple cases to bring analytic tools to the legal industry. Experts believe these tools may be poised for serious growth in coming years and could inject new competition among law firms.

“We’re right in this transition where people are learning how to use this,” said Dan Katz, a professor at Illinois Tech’s Chicago Kent College of Law and a co-founder of consulting firm LexPredict, which offers consulting on legal analytics to law firms and corporate legal teams.

Katz argues many analytics tools have yet to find wider acceptance because they haven’t had third-party validation. Validation would involve software companies opening their products to third parties to run a set of cases with known outcomes through their analytics programs and then comparing the predicted results against the actual case results.

It would be the “the clinical trial equivalent for this area,” he said, noting that electronic discovery and document review technologies experienced this maturation in the mid- to late 2000s.

A few products already are gaining wider acceptance: Lex Machina, for instance, lists on its website more than two dozen large law firms that use its product for patent and IP litigation. It’s a database in which millions of IP litigation documents have been processed into structured data, so they can be easily analyzed.

“These tools are useful when you’re trying to make particular decisions about a case,” said Michael Simons, a partner at Akin Gump who uses Lex Machina. He said he uses these tools to obtain statistics on how a particular judge or a particular district tends to rule on motions whether it be to transfer venue, discovery-related or for summary judgment.

Some of the sales pitches for these products are exaggerated: “Saying they can predict the outcome of a case might be a little bit of a stretch,” he said.

There are also limits to what data is available and its potential impact: It’s unlikely any tool will ever be able to totally calculate ideal settlement amounts, since some of this data falls outside the public domain and will always be kept confidential.

Having better data also could discourage settlements, said Darren Donnelly, a partner at Fenwick & West.

“Uncertainty is one of those things that promotes settlement,” he said, and part of the goal in using better data analytics is to reduce uncertainty.

Still, Robert Parnell, founder and CEO of SettlementAnalytics, argued there’s an “enormous pool of assets … being priced in settlement negotiations on little more than a whim and a hunch” and said there’s an “alarming regularity” to human error inherent in the process.

“Uncertainty is one of those things that promotes settlement.”

His company, which sells a “proprietary quantitative” model of litigation and settlement, points to a 2008 study in the Journal of Empirical Legal Studies – where the first listed author works for an analytics company – to support its claim that there is widespread human error in settlement negotiations.

The study looked at 2,000 civil cases in California, and found plaintiffs erred in 61.2 percent of cases and defendants erred in 24.3 percent of cases, where error meant rejecting a settlement offer only to obtain an equal or worse trial outcome.

Rick Frenkel, a partner at Latham & Watkins who also serves on Lex Machina’s board of advisors, recalled using analytics tools in a recent case when planning to file a motion to bifurcate certain types of damages. He was able to find data showing judges in that district had ruled favorably on similar motions.

“These have become indispensable tools for navigating the beginning stages of litigation,” Frenkel said.

Such tools are also helping corporate legal departments evaluate their outside counsel and make decisions on how to pursue a case and which law firm to hire.

Frenkel said he’s already seeing corporations come to the table with more of their own research and information related to a case, unlike in days past when a corporation might rely fully on the outside counsel to handle the matter.

“Now it’s much more of a collaboration. Clients are on top of things as much as outside attorneys are,” he said.

Law firms are also developing their own proprietary tools such as Littler Mendelson’s Littler CaseSmart, which allows corporate clients to study litigation trends across the firm’s client portfolio to determine the most efficient way to resolve cases. It also allows companies to adjust policies and practices to proactively avoid litigation.

Littler partner Scott Forman said the CaseSmart program “does decrease the client’s need for extended legal services,” and thus the firm’s billable hours. But he argued it also gives Littler an opportunity to interact with a corporate client’s C-level executives. The firm is calculating that it can offset any decline in billable hours by growing its overall market share.

Available since 2010, the product continues to introduce efficiencies to the firm’s clients, Forman said.

“The role of the law firm is to be a partner for its clients,” said Forman. “The law firms like Littler that get [this] … will continue to grow in market share and wallet share.”

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