United States: Cost Of Creating Produced Duplicates Are Included Under 28 U.S.C. § 1920(4), But Preparatory Or Ancillary Costs Associated With Duplication Are Not

In CBT Flint Partners, LLC v. Return Path, Inc., No. 13-1036 (Fed. Cir. Dec. 13, 2013), the Federal Circuit held that the district court erred in its interpretation of the statutory provision governing the taxation of costs, 28 U.S.C. § 1920(4). The Court thus reversed-in-part, vacated-in-part, and remanded the case. CBT Flint Partners, LLC ("CBT") sued Return Path, Inc. ("Return Path") and Cisco IronPort Systems, LLC ("Cisco") for infringement of U.S. Patent Nos. 6,192,114 ("the '114 patent") and 6,587,550 ("the '550 patent"). After claim construction, CBT stipulated to noninfringement of the '114 patent and the district court granted SJ of indefiniteness of the asserted claim of the '550 patent. Cisco then moved to recover its costs under 28 U.S.C. § 1920, including $243,453.02 that it paid to an electronic-discovery vendor, and the district court granted the motion.

The Federal Circuit reversed the district court's SJ of indefiniteness, construed the claim in question, and remanded for further proceedings. The Court vacated the district court's order on costs because Cisco was no longer a prevailing party. On remand, the district court granted SJ of noninfringement of the '550 patent and then entered an amended final judgment deciding that Return Path and Cisco were entitled to recover their costs, which included costs for copies and electronic-discovery vendors. The district court denied CBT's motion to review the taxation of costs, and CBT appealed.

"[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. . . . 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." Slip op. at 9-10.

On appeal, the Federal Circuit applied Eleventh Circuit law and held that only some of the costs taxed against CBT clearly fell within § 1920(4), which 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." Slip op. at 5 (alteration in original) (quoting 28 U.S.C. § 1920(4)). The Court concluded 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," butthat "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." Id. at 9-10.

The Court stated that the document production at hand could be separated into three distinct stages: (1) copying by an electronic-discovery vendor of computer hard drives or other "source media" containing the requested documents; (2) organization of the documents into a database where they were indexed, decrypted, de-duplicated, filtered, analyzed, searched, and reviewed; and (3) copying of the documents selected for production onto memory media without conversion to an "image file" format.

With respect to stage one, the Court stated that steps of creating an image of the original source and then applying special techniques to extract documents while preserving metadata are fairly considered costs of making copies of the requested documents. The Court held that such steps were included in § 1920(4) where they were necessary to make copies of information required to be produced and not just to make copies for the convenience of the producing party. The Court noted that it did not matter that an electronic-discovery vendor performed the steps. The Court concluded that application of the analysis to the specific bills of cost in this case required an inquiry that the district court should perform in the first instance.

Regarding the second stage, the Court held that they were largely not the costs of making copies but rather were part of the large body of discovery obligations that Congress had not included in § 1920(4). The Court determined, however, that the creation of "load files" was covered to the extent they contain information required by the requested production. The Court concluded that other stage-two activities called for similar analysis and that "[j]udgment calls in the nature of line-drawing are required." Id. at 18.

Turning to the third stage, the Court stated that there was no dispute among the parties that the costs of copying responsive documents to production media are recoverable under § 1920(4), and held that it agreed. The Court noted with regard to source code that "[w]here legitimate trade-secret concerns entitle a producing party to use a special form of production media . . . , the costs of such production media are recoverable under section 1920(4)." Id. at 19.

The Court noted that its general approach was "consistent with the analysis of other circuits that have interpreted section 1920(4) to allow for only limited recovery of the costs of electronic-document production," but that its application "apparently differs from two circuits in one way—regarding the stage-one costs of imaging source media and extracting documents in a way that preserves metadata." Id. The Court reasoned, "It seems to us that there is no good reason, as a default matter, to distinguish copying one part of an electronic document (i.e., the part that is visible when printed) from copying other parts (i.e., parts not immediately visible) when both parts are requested." Id. at 20.

The Court held that the district court erred in interpreting § 1920, and thus reversed-in-part and vacated-in-part the district court's fee award and remanded for further proceedings. The Court also reversed the district court's award of fees to Return Path for prior art searches.

Judge O'Malley concurred-in-part and dissented-in-part. Judge O'Malley disagreed with the "portion of the majority opinion that authorizes, as 'costs,' an award of the pre-duplication expenses the majority describes as stage one costs." O'Malley Concurrence-in-Part and Dissent-in-Part at 2. Judge O'Malley stated, "While I appreciate the policy goals driving the majority's desire to shift the costs incurred under stage one to the party requesting discovery, I believe the majority improperly expands § 1920(4) to achieve those goals." Id.

Judges: Dyk, O'Malley (concurring-in-part and dissenting-in-part), Taranto (author)

[Appealed from N.D. Ga., Judge Thrash]

This article previously appeared in Last Month at the Federal Circuit, January, 2014

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