United States: Patent Watch: CBT Flint Partners, LLC v. Return Path, Inc.

Last Updated: December 24 2013
Article by Lawrence M. Sung

To the extent that a party is obligated to produce (or obligated to accept) electronic documents in a particular format or with particular characteristics intact (such as metadata, color, motion, or manipulability), the costs to make duplicates in such a format or with such characteristics preserved are recoverable under [28 U.S.C. § 1920(4)]. But only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.

On December 13, 2013, in CBT Flint Partners, LLC v. Return Path, Inc., the U.S. Court of Appeals for the Federal Circuit (Dyk, O'Malley, Taranto*) reversed-in-part, vacated-in-part and remanded the district court judgment that CBT pay the defendants their costs, which the clerk taxed at $49,824.60 for Return Path and $268,311.12 for Cisco, following the stipulated judgment that the defendants did not infringe U.S. Patents No. 6,192,114 and No. 6,587,550, which related to devices for determining whether a sending party sending an electronic mail communication directed to an intended receiving party is an authorized sending party, and the summary judgment that the asserted claim of the '550 patent was indefinite. The Federal Circuit stated:

Federal Rule of Civil Procedure 54(d)(1) authorizes district courts to award costs to the prevailing party. In turn, 28 U.S.C. § 1920 "enumerates expenses that a federal court may tax as a cost under the discretionary authority found in Rule 54(d)." Thus, section 1920 operates as a limitation on a court's discretion to award costs under Rule 54(d)(1). The scope of that limitation -- specifically, the meaning of section 1920(4) -- is the subject of CBT's appeal. We review the district court's interpretation of section 1920(4) de novo, applying the law of the regional circuit (in this case, the Eleventh Circuit). Subject to a proper interpretation of section 1920(4), we review the district court's award of costs for abuse of discretion.

Before [2008], section 1920(4) covered "[f]ees for exemplification and copies of papers necessarily obtained for use in the case." Congress changed the language [to] encompass electronically stored information as well as information on paper. Section 1920(4) now covers "[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case." [W]e conclude that recoverable costs under section 1920(4) are those costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise. To the extent that a party is obligated to produce (or obligated to accept) electronic documents in a particular format or with particular characteristics intact (such as metadata, color, motion, or manipulability), the costs to make duplicates in such a format or with such characteristics preserved are recoverable as "the costs of making copies . . . necessarily obtained for use in the case." But only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.

In this case, some of the costs taxed against CBT clearly come within section 1920(4), while others clearly fall outside it. To indicate why, and to try to guide the necessary work of locating particular expenses on one side of the line or the other, we review the document production process used in this case. . . . At stage one, an electronic-discovery vendor copied (or "imaged") computer hard drives or other "source media" that contain the requested documents, replicating each source as a whole in its existing state. The vendor then processed the whole-source images to extract individual documents, leaving the documents' original properties intact. At stage two, the extracted documents were organized into a database. They were then indexed, decrypted, and deduplicated, and filtered, analyzed, searched, and reviewed to determine which were responsive to discovery requests and which contained privileged information. These processes resulted in identification of a subset of documents for production. At stage three, the documents selected for production were copied onto memory media, such as hard drives or DVDs, or, in the case of source code, onto a secured computer. Such "production media" were then delivered to the requester CBT or, in the case of source code, made available for review in a secured location. In this case, unlike other cases, the documents were not converted to an "image file" format, such as Tagged Image File Format (TIFF), because Cisco believed that such conversion would be too expensive. . . .

Return Path and Cisco seek to recover under section 1920(4) the costs of a host of their vendors' services that fall under what we have called stage two. Examples are activities that they characterize as project management, keyword searching, "statistical previews," "auditing and logging of files and ensuring compliance with Federal Rules," and "extraction of proprietary data," among others. The costs of those activities are not the costs of making copies. Rather, they are part of the large body of discovery obligations, mostly related to the document-review process, that Congress has not included in section 1920(4). Similarly, the costs incurred in acquiring, installing, and configuring a new data-hosting server at the offices of Cisco's counsel were clearly incurred for the convenience of Cisco and its counsel and are not recoverable. Neither should a party be able to recover the costs of litigation-support tasks such as training in the use of the document-review software, deposition support, or production-and privilege-log creation. Costs of other activities listed on the vendor's invoices here, such as meetings, conference calls, and other communications, also are not costs of "making copies," even when they relate to the copying process.

Although Cisco argues that much of the keyword searching and data analysis performed by the vendor in this case was at CBT's request, that is plainly insufficient to bring an activity within section 1920(4). The provision covers only "making copies." Although the requester's demands can define the number, form, and other characteristics of copies chargeable under section 1920(4), the requester's demands for activities other than making copies does not bring those non-copying activities within the provision. A litigant faced with what it views as overbroad discovery requests or vexatious discovery tactics -- or even unduly fruitless or burdensome negotiations over discovery obligations -- must pursue relief by other means, such as seeking court orders to limit the discovery when the problems arise or seeking reimbursement of costs or fees or payment of penalties afterwards under authority other than section 1920(4).

Applying section 1920(4) to various other stage-two tasks involved in electronic-document production calls for some common-sense judgments guided by a comparison with the paper-document analogue. Thus, decryption of a document stored in encrypted form on an electronic source medium may be necessary to make a final production copy that is viewable by the requester, but we conclude that the cost to decrypt is not recoverable. After the original creators or users of an electronic document have viewed it in readable form, it may have been put into an encrypted form for safekeeping. If so, the process of decryption to restore it to the form in which its creators and users saw it is something that is best understood as preceding copying, not as part of copying. By analogy, if a party chooses to store paper documents in a secure way -- say, to place them in a safe in remote Tuva -- the party's expense in removing them from such security, and getting them to the duplication machine, would not naturally constitute "making copies." Decryption of electronic documents is similar enough that it too should not constitute making copies. Likewise, deduplication is not fairly covered by section 1920(4). Deduplication is the culling of a set of documents to eliminate duplicate copies of the same document, creating a smaller set for production or review. This is either pre- or post-copying activity (depending on when the culling is done), not itself the making of copies. This process may well be valuable to both sides in making post-copying review more efficient, and the parties can agree on who incurs the cost. But it is not a cost of "making copies." . . .

As to stage three, there is no dispute among the parties that the costs of copying responsive documents to production media are recoverable under section 1920(4). We agree. These costs as they relate to the production of source code in this case warrant separate mention. Where legitimate trade-secret concerns entitle a producing party to use a special form of production media (such as making production copies available for review on a secured computer, rather than allowing the requester to take possession of the production copies), the costs of such production media are recoverable under section 1920(4). Covered costs include the costs incurred in providing a secured computer for the time the requester is entitled to access to it, installing on the secured computer whatever review software the requester requires, and copying the source code files to the secured computer. As noted above, costs incurred in planning, preparation, coordination, and communications associated with those tasks are not recoverable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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