Is cost sanity hopeless for legal departments in light of e-discovery’s crazy projected increases?

Consider this ravening projection of e-discovery costs. In KMWorld, July/Aug. 2010 at 6, “Gartner [the research group] … reported that e-discovery vendor revenue grew 30 percent in 2008, and predicts an annual growth rate of 21 percent through 2013.” Let’s assume that most of “e-discovery vendor revenue” eventually means “law department expenditure.” If litigation accounts for approximately 60 percent of external spend by legal departments and if e-discovery costs comprise, say, one quarter of that, then the Gartner prediction foresees a 20 percent increase each year in that component. That would work out to be a nine percent increase in external spend each year.

For a law department with 10 attorneys and a total legal budget of $4 million inside and $6 million outside, the annual extra burden of e-discovery would be just above $500,000 (9% of $6MM). If that is the general pace, many general counsel will go crazy trying to balance the legal budget.