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Documents from R&D, clinical affairs, regulatory, and sales and marketing can be in the millions. Throw electronic information into the mix, and the number of documents required for litigation increases exponentially.
When confronted with complaints about the high costs of prescription drugs, pharmaceutical companies point to the expense of bringing a drug to market and the rising costs of defending lawsuits, many of which are frivolous. Pharmaceutical litigation expenses are rising, yet the percentage of cases brought to trial is shrinking, as parties increasingly settle their cases out of court. Why the paradox? Although the vast majority of cases never make it to court, almost all endure the nettlesome phase of litigation known as "discovery"—and the expenses that come along with it.
Discovery is the legal mechanism by which litigants compel each other to provide information, either by deposition testimony, written responses, or document production. For pharmaceutical companies, producing documents for litigation is enormously expensive because of the large volumes of documents they create and maintain.
Documents from R&D, clinical affairs, regulatory, drug safety, and sales and marketing can be in the millions. These documents must be collected and reviewed by lawyers to protect privileged attorney–client communications, patient-identifying information, and trade secrets, a process that can take months or years—and cost a great deal of money.
Because parties to litigation understand that document production is a heavy tax that pharmaceutical litigants must pay, experienced attorneys often use it to leverage settlement. Even when a case has little or no chance of success at trial, a pharmaceutical company may settle simply to avoid costly document production. Still, companies must carefully weigh that decision, as settling cases with little merit can imply undue blame.
To add insult to injury, pharmaceutical companies, especially those engaged in product liability and regulatory litigation, cannot fire back with their own document requests because single-party plaintiffs and the government seldom have any documents. In essence, document requests are a high-caliber weapon that can only be used against pharmaceutical companies.
On December 1, 2006, the situation for pharmaceutical companies got worse. New federal law became effective that addresses the production of e-mail, electronic documents, and other electronic data, collectively referred to as "electronically stored information" (ESI).
At issue are certain amendments to the Federal Rules of Civil Procedure. As the name implies, the Federal Rules are the legal rules by which lawyers must play in federal civil cases. Among other things, the Federal Rules govern document requests and document production, which include ESI.
Lawyers have always had the right to require pharma companies to produce ESI, but the Federal Rules never included specific guidance on the topic. Having a clear road map for dealing with ESI-related issues in federal cases is likely to prove expensive for pharmaceutical litigants.
First, the amended rules require lawyers to "meet and confer" on ESI-related matters early in the litigation and then report their agreements and disagreements to the court at a later conference, where the matters are addressed again. Previously, lawyers dealt with ESI on their own timetable, if they dealt with it at all. Low attention to ESI often meant that ESI went unaddressed, which usually benefited the pharmaceutical litigant.
Under the new rules, ESI will not go unnoticed. Requiring lawyers to meet and confer is the equivalent of asking lawyers to debate and argue. More disagreement is likely to result in the production of more ESI. An article in the October 2006 issue of American Lawyer predicts that the volume of electronic documents produced in each year could double or triple. Costs associated with the production could rise at a similar rate.
Second, the amended Federal Rules provide a framework for determining the format in which ESI is produced. In the past, many companies simply printed e-mails and electronic documents to paper and produced them like other hard copy documents, or made them into PDF or TIFF files. Supporters of the amendment say that the old forms of production are insufficient and tantamount to the destruction of evidence—lawyers use the term "spoliation"—because printing and imaging removes parts of an electronic document and renders it less useable.
Supporters also have issue with the loss of metadata and searchable text caused by printing or imaging. They say metadata, data about an electronic document (e.g., author, date created, date modified) that is generated by the underlying software application and resides in the unseen areas of the native electronic file, may have legal significance in certain cases.
Similarly, a party can search the text of native electronic files, like Microsoft Word documents or e-mail message files, using a computer, but not if the files are printed to paper or converted to digital images. Those in favor of the new rules argue that one-dimensional printouts and images hamper their ability to wade through large volumes of ESI and prepare their case. The goal, they claim, is to bring order to the fight over the production of metadata, searchable text, and related production-format issues. The amendments require that ESI be produced either in its "native" format or that in which it is ordinarily maintained (a .doc file is the native format for a Microsoft Word document, for example), or in a reasonably useable format—which implies that production of native files may not be necessary, but that printouts and bare digital images may not pass muster.
A likely compromise that has already found favor in a number of courts is the production of digital images with corresponding metadata and searchable text. This is preferable to native-file production because a company's outside counsel can redact patient-identifying information, which the company is required by law to protect, and proprietary trade secrets, such as information about other drugs in development.
The rub for pharmaceutical clients is that metadata is often difficult and costly to preserve, collect, and produce. Metadata can be easily and innocently changed or lost in the course of regular business activity. Also, collecting metadata requires information technology experts with high-tech equipment. These experts may bill at higher rates than some attorneys. However, the cost of retaining forensic experts may be less than the sanctions a company may face for failing to preserve ESI and its metadata.
The new amendments to the Federal Rules will likely have other indirect and unwanted consequences for pharmaceutical litigants. The new rules are riddled with vague and subjective phrases, like "reasonably useable," "not reasonably accessible," and "good faith." Various federal jurisdictions will interpret these phrases in many ways, yielding conflicting standards. Federal law in New Jersey, for example, may be very different from federal law in North Carolina.
Similarly, the promulgation of new federal law often triggers state legislation. Look for state legislators to enact laws addressing ESI, but do not expect uniformity among the varying state laws. This means that pharma companies, forced to comply with varying federal and state standards, will incur significantly higher costs.
The new amendments to the Federal Rules are not all bad news for the pharmaceutical industry. First, the Federal Rules acknowledge that collecting some types of ESI is too expensive and burdensome to mandate. The amendments classify such ESI as "not reasonably accessible." Experts hypothesize that backup tapes and databases—areas that requesting parties have traditionally exploited because of the undue burden and expense to the producing party—may be declared off-limits.
Further, the amendments provide a "safe harbor" against sanctions for the loss of ESI through the routine, good-faith operation of an electronic information system. In practice, however, prognosticators doubt this amendment has teeth, as judges have other navigable paths to punish a party. For example, the safe harbor only protects a party from sanctions "under these rules" and does not restrict the court's inherent right to sanction a party.
Finally, the new Federal Rules offer some protection against the inadvertent disclosure of privileged documents, a common result of pharmaceutical companies attempting to comply with fast-track discovery orders. With the amended law, a producing party may "claw back" privileged documents in certain situations.
Despite these bits of good news, pharmaceutical companies are already experiencing the chill of the new rules, as some judges rushed to apply the new law before December 1. Now that the date is officially here, that chill may be a harbinger of a long, cold winter for pharmaceutical litigants, as they feel the costly sting of responding to more numerous and more complicated demands for ESI production.
Jeffrey Brown is a principal with the law firm of Wright, Robinson, Osthimer & Tatum. He can be reached at firstname.lastname@example.org
Mark Yacano is a principal with the law firm of Wright, Robinson, Osthimer & Tatum. He can be reached at email@example.com