By Jason Rantanen
CBT Flint Partners, LLC v. Return Path, Inc. (Fed. Cir. 2013)
Panel: Dyk, O'Malley (concurring-in-part and dissenting-in-part), Taranto (author)
This is an important pair of opinions that anyone interested in the fee-shifting proposals currently pending before Congress should read. Two aspects are worth noting. First, the court rejects the argument that Congress's 2008 amendment to section 1920(4) implemented a dramatic change in terms of e-discovery costs. Second, it implements a granular framework for analyzing e-discovery cost requests that requires complex and careful line-drawing. In addition, both the majority and dissent address the policy concerns implicated in this area.
CBT sued Cisco Ironport Systems and Return Path (who I'll refer to collectively as Cisco, since most of the costs incurred here were sought by Cicso) for patent infringement. Following claim construction, CBT stipulated to noninfringement and Cisco obtained summary judgment of indefiniteness on one asserted claim. Cisco moved to recover its costs under 28 U.S.C. § 1920, including $243,453.02 in fees it paid to a company that handled electronic discovery. The district court granted Cisco's request. On appeal, the Federal Circuit reversed summary judgment of indefiniteness, construed the claim in question, and remanded for further proceedings. The district court subsequently granted summary judgment of noninfringement to Cisco, which the Federal Circuit summarily affirmed.
After granting Cisco's motion for summary judgment of noninfringement, the district court again awarded Cisco the fees it paid to an e-discovery vendor.
The district court's reasoning: The district court's award of costs was implicitly based on 28 U.S.C. § 1920(4), which states:
A judge or clerk of any court of the United States may tax as costs the following:…(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;
The Federal Circuit described the district court's reasoning as follows:
Based on a “careful review” of the vendor’s invoices to Cisco, the court characterized the services rendered as “highly technical” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.” The court concluded that the fees Cisco sought to recover were “the 21st Century equivalent of making copies” (although Cisco had not categorized them as such) and held them to be recoverable….In awarding Cisco the requested amounts, the court said that the “enormous burden and expense of electronic discovery are well known” and that “[t]axation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.”
Slip Op. at 3 (internal citations omitted). On appeal, the Federal Circuit reversed in part, vacated in part, and remanded the matter to the district court for further proceedings.
The Narrow Scope of Section 1920: In 2008, Congress amended section 1920(4) to remove a specific reference to "papers." While the Eleventh Circuit (whose law applied in this case) has not addressed section 1920(4) as amended, its prior caselaw had interpreted section 1920 as being limited to the "reasonable costs of actually duplicating documents, not  the costs of gathering those documents as a prelude to duplication." The Federal Circuit concluded that the amendment did not change that interpretation:
[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 asmetadata, 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.” 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.
Slip Op. at 10.
Three stages of e-discovery: To analyze whether the costs fell into the category of producing duplicates versus preparatory or ancillary activites, the court divided the e-discovery process into three stages: imaging and extraction (where source media is copied as a whole and individual documents are extracted), database creation and document identification (where extracted documents are organized into a database and searched), and production copying (where the documents selected for production are copied onto memory media).
Comment: The opinion specifically refers to this as "the document production process used in this case." However, these stages are common enough that the court's framework can be applied to most cases involving e-discovery.
However, while they provide a framework, these categories do not answer the question of whether costs may be awarded for the respective activies. Rather, the court's opinion envisions a careful line-drawing process, in which the specific activities and their context plays a substantial role in determining whether individual costs may be awarded. For example, in some circumstances, costs for extraction can be recoverable under section 1920 "where they are, in fact, necessary to make copies of information required to be produced and not incurred just to make copies for the convenience of the producing party." Slip Op. at 13. However, "if metadata can be preserved without first using imaging and extraction techniques, then those steps are outside section 1920(4)." Id. at 13-14. The opinion contains numerous examples of hypotheticals and considerations to take into account, while noting that it is "an inquiry that the district court should perform in the first instance." Id. at 15.
Comment: One thing to keep in mind with this opinion: the flexibility that the majority perceived in Eleventh Circuit law here is not uniform across the circuits. The court's opinion specifically recognizes that its approach to stage one costs is at odds with the Third and Fourth Circuits. This variation should be kept in mind when applying this opinion.
Judge O'Malley's Separate Opinion: Writing separately, Judge O'Malley agreed with most of the majority's discussion but disagreed with respect to one category: the pre-duplication expenses that the majority described as "stage one costs." In her view, the majority's approach, which allows some of these costs to be awarded, improperly broadens the scope of section 1920(4), is inconsistent with the Eleventh Circuit's prior approach to section 1920(4), and creates an unnecessary circuit split.
References to the Sedona Conference: The opinion references the The Sedona Conference Glossary: E-Discovery & Digital Information Management (Sherry B. Harris et al. eds., 3rd ed. 2010) numerous times. As I've written before, this is a worthwhile program to consider becoming involved in.
In addition, the Sedona Conference has put together an all-star program on patent litigation reform called "Patent Litigation Best Practices: A Matter for Congress or for Bench and Bar?" that will be held on January 22, 2014. The scheduled panelists include Judge O'Malley.