What Should You Spend on Discovery?
Exploring the informational return on litigation investments
In most jurisdictions, discovery is usually an essential phase of commercial litigation, and with the exception of the trial itself, it is often one of the most expensive. However few litigants approach their spending on the discovery process as a discretionary variable, but rather as a non-discretionary requirement. But beyond the minimums of procedural requirements, an opportunity exists to better manage the legal spend associated with discovery.
At SettlementAnalytics, our analytic framework sees discovery spending as a variable “investment” with a clear economic objective: to favourably alter the information landscape between the disputants in order to maximise the value of the overall claim asset (or minimise the value of the liability in the case of defendants). Using this approach we can also go further, to examine the optimisation of discovery spending in terms of its “informational return on investment”.
If Knowledge is Power
Knowledge, it is said, is power, and this is never more true than in a legal dispute. The more you know about the potential trial outcome and your opponent’s probable trial expectations, the better able you are to optimize the settlement bargaining outcome. In fact, in litigation, information quite literally has a dollar value. Using an analytic framework founded in information economics and game theory, the distribution of private information between the parties to a lawsuit can be measured in terms of it economic value. In effect, it becomes possible to derive the implied dollar value of the information that might be gained in discovery.
By expressing information in terms of its economic value, litigants can then make more informed decisions about its acquisition. If we think of the entire pre-trial process as information gathering, each phase of this process then becomes an independent investment decision which can be analyzed in terms of its “informational return”. It then becomes possible to ask a most important question: Does the economic value of the information gain justify the investment to obtain it? Employing this approach litigants are empowered to:
- Think of discovery as an investment in information with a specific return objective — not just a cost item
- Think about the informational objective of the discovery process
- View discovery spending as a discretionary variable rather than a requirement
- Optimize the investment in discovery spending in the context of settlement bargaining
- Evaluate discovery investments relative to a threshold investment return.
In addition to helping litigants to manage the information landscape with greater purpose, this more analytic approach to discovery “investing” can also help litigants to:
- Gain greater control over legal spending
- Make more informed decisions in pre-trial
- Have a more informed dialogue with counsel as to the objectives of each phase of pre-trial
Although this approach is particularly relevant to discovery, this is not the only phase of litigation to which it can be applied. This process of more carefully metering the litigation discovery spend can be equally well applied to other parts of the pre-trial process including, motions, expert witnesses, depositions and even litigation analysis.