eDiscovery Daily Blog

Federal Court Partially Reverses District Court’s Taxation of Electronic Discovery Costs – eDiscovery Case Law

In CBT Flint Partners, LLC v. Return Path, Inc., No. 2013-1036, 2013 U.S. App. (Fed. Circ. Dec. 13, 2013), the Federal Circuit Court of Appeals reversed in part and vacated in part an earlier decision by the Georgia district court to require the plaintiffs to pay the defendants’ costs relating to the production and duplication of electronically stored information (ESI) offered as eDiscovery, limiting taxation to only those costs which were directly related to copying.

Circuit Judges O’Malley and Taranto heard the appeals case, which was filed by the plaintiff after a district court ruled in favor of the defendants regarding the taxation of costs for eDiscovery. The initial case, a patent infringement lawsuit, was found in favor of the defendants, and the district court determined that the plaintiffs should pay the defendants’ costs, with two defendants asking for nearly $270,000 and nearly $50,000, respectively.

In filing for costs, the first defendant categorized $243,000 of the requested amount as “other” costs, stating that the fees were to cover expenses for the eDiscovery vendor that produced the ESI. The remaining $4,500 was characterized as the costs of making copies of the data. The second defendant did not identify any costs for making copies, and categorized $34,000 of the total cost as expenses for its eDiscovery vendor.

On appeal, Judges O’Malley and Taranto followed the leads of previous cases in the Third Circuit (Race Tires America, Inc. v. Hoosier Racing Tire Corp) and the Fourth Circuit (The Country Vintner of North Carolina, LLC v. E & J Gallo Winery, Inc.) with narrow interpretation of 28 U.S.C. § 1920, which is concerned with defining costs that are and are not recoverable regarding eDiscovery. The applicable law was noted as the scope of section 1920(4), which first defined as recoverable for costs “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Section 1920(4), amended in order to address electronic evidence, now states that recovery costs for ESI are allowed only for “the reasonable costs of actually duplicating those documents, not for the cost of gathering those documents as a prelude to duplication.”

Observation and examination of the defendants’ discovery process found that the first stage performed by the vendor was the closest in scope to the process of making copies, and therefore was recoverable. This stage includes imaging hard drives and other source media, and then processing the resultant images to extract relevant individual documents. Judges O’Malley and Taranto noted that “the statute covers costs for steps, which commonly involve an initial reproduction, that necessarily precede the creation of a final production copy: converting electronic files to non-editable formats . . . and scanning paper documents.”

However, the taxation line was drawn at “costs incurred in preparing to copy,” such as the next stage of the vendor’s process, which involved organizing the extracted documents into a database to be “indexed, decrypted, and de-duplicated, and filtered, analyzed, searched, and reviewed to determine which were responsive to discovery requests and which contained privileged information.” The defendants asked for these costs to be subject to recovery, categorizing them as “project management, keyword searching, ‘statistical previews,’ ‘auditing and logging of files and ensuring compliance with Federal Rules,’ and ‘extraction of proprietary data,’ along with other characterizations. In addition, the defendants requested that the costs of convenience actions such as buying, installing, and configuring a data-host server be relegated to the plaintiffs. The judges dismissed these costs as unrecoverable, but did classify the costs of creating “load files” – scanned images that indicate breaks in documents – as recoverable and subject to taxation.

Finally, Judges O’Malley and Taranto limited recovery costs to only the subset of documents that was actually produced by the defendants’ eDiscovery vendor. The matter was then remanded to the district court, which will consider what format was required for ESI production, and which costs were appropriate to assign to the plaintiff.

So, what do you think? Should the entirety of eDiscovery production costs be subject to taxation and awarded to the prevailing party? Is there a broader interpretation of costs related to copying electronic documents that should be considered? Please share any comments you might have or if you’d like to know more about a particular topic.

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