There are no Magic Words for Taxation of Processing Costs, but there is the Law

Taxation of cost cases can be dull. However, when the Judge shoots down an argument with a YouTube video in the opinion, you know it’s a party.

The prevailing party in a trademark infringement case between companies that make portable electronic fitness tracking devices sought $88,888.86 in costs and the clerk awarded $54,089.15. The Court ultimately granted $63,660.94 in costs. Fitbug Ltd. v. Fitbit, Inc., 2015 U.S. Dist. LEXIS 62879, *2 (N.D. Cal. May 13, 2015).

The opposing party made a procedural argument against awarding costs based on the fact the declaration filed in support of the Bill of Costs with statutory citations did not include the three words “allowable by law.” The Court rejected this argument, stating:

… the requirement a party say the “three little words,” “allowable by law,” is merely a reminder that the Court expects them to submit costs they believe are taxable, not a set of magic words necessary to receive any costs. Cf. Sarah Vaughan, Three Little Words, on Live at the London House (Mercury Records 1958), available at: https://www.youtube.com/watch?v=9WSZ6IRC-ys

Fitbug Ltd., at *4-5.

With that, Judge Samuel Conti simultaneously invoked one of the greatest jazz singers of the 20^th Century and reminded us that legal arguments do not come out of book of spells. Well played. Fitbug Ltd., at *6.

Taxation of eDiscovery Costs

The Court noted that Section 1920 was enacted in 1853 and did not speak on electronic discovery costs (largely because “new” technology at that time included typewriters and telegraphs). Fitbug Ltd., at *6.

Judge Conti summarized that taxation for “exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case . . .” applies to some electronic discovery expenses. Fitbug Ltd., at *7.

Granting Data Extraction and Processing Costs

The Court allowed $32,282.05 in processing and data extraction costs to be taxed. Fitbug Ltd., at *11. There are many cases where processing costs are denied, so this is a significant award.

The supporting declarations explained that the costs related “to collection, scanning and conversion of documents, and related processes necessary to the eDiscovery process,” and these entries specifically “concern document collection, including scanning and related processes.” Fitbug Ltd., at *8. In a supplemental declaration, the prevailing party explained the costs were necessary to prepare discovery documents for production to the opposing party in the format to which the parties agreed to produce ESI. Fitbug Ltd., at *8-9.

The Court held the processing expenses were properly taxed for complying with the parties’ ESI agreement. Furthermore, the Court also allowed the costs for extracting metadata, because “these too are necessarily incurred, allowable exemplification costs because they were incurred not for the convenience of counsel, but to comply with the parties’ agreement.” Fitbug Ltd., at *10-11.

The Court also held that the cost of converting document formats as required per the parties’ agreement were also taxable. The Court explained the costs were “expressly contemplated by the parties’ agreement and are necessarily incurred exemplification costs.” Fitbug Ltd., at *11-12.

Bow Tie Thoughts

ESI Protocols determined at the Rule 26(f) Conference and codified in a Court Order at the Rule 16(b) Hearing matter. This case highlights that production formats agreed to by the parties can be taxable. However, if the parties had agreed that discovery costs were to be carried by the parties, this case could have turned out very differently.

A lawyer cannot cry “I Cast Ye Costs Out!” as if these were magic words that would prohibit a prevailing party from recovering agreed to costs for the production of ESI. However, a well prepared ESI Protocol that addresses costs could have that very effect.

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Stating Reality: Imaging a Hard Drive Makes a Copy

Taxation of cost cases do not generally have happy endings for recovering eDiscovery costs. The United States Court of Appeals for the Sixth Circuit issued a very important opinion on March 17, 2015 well grounded in the reality of civil litigation and the law where eDiscovery costs were recovered.

It also takes a swing at Race Tires, which is always a welcome read.

The Court of Appeals held that the cost of video deposition synchronization and transcript were properly taxed. Colosi v. Jones Lang LaSalle Ams., Inc., 2015 U.S. App. LEXIS 4184, 2-3 (6th Cir. Ohio 2015). The Trial Court had determined the synchronized video deposition was “reasonably necessary” and the opposing party never explained how the costs were either unreasonable or unnecessary. Id.

For anyone who has conducted deposition review, this is good news. I have spent many hours reviewing depositions and video depositions. “Reasonably necessary” is an understatement. Synced video depos allow you to understand the context of the testimony. A simple question and answer in a transcript can look harmless, but if the video shows the deponent turning bright red, biting his lip, and answering the question with his teeth clinched, you know that testimony is important.

From Yeslaw.net

The Court of Appeals further allowed the recovery of costs for imaging a hard drive. The Court stated:

Imaging a hard drive falls squarely within the definition of “copy,” which tellingly lists “image” as a synonym. And the name “imaging” describes the process itself. Imaging creates “an identical copy of the hard drive, including empty sectors.” The image serves as a functional reproduction of the physical storage disk. From the image file, one can access any application file or electronic document on the hard drive with all that document’s original properties and metadata intact. Id. If not actually made or formed in the image of the hard drive, we certainly regard it as such. Thus, a plain reading of the statute authorizes courts to tax the reasonable cost of imaging, provided the image file was necessarily obtained for use in the case.

Colosi, at *6, citing CBT Flint, 737 F.3d at 1328 (quoting The Sedona Conference, The Sedona Conference Glossary: E-Discovery & Digital Information Management 27 (Sherry B. Harris et al. eds., 3d ed. 2010)) and 1329-30.

I think it is extremely significant that the Court held that the imaging a hard drive “making a copy” and falls within the plain meeting of the taxation of costs statute.

The Court further stated that the Race Tires court “ignored § 1920’s text.” Colosi, at *8. The Court explained:

We need not ask whether imaging is the “functional equivalent” of making photocopies in the era before electronic discovery because—consistent with the 2008 amendments—the procedure comes within the ordinary meaning of “making copies of any materials.” While the Third Circuit rightly worried over expanding the scope of § 1920 to include expensive electronic discovery procedures not contemplated by Congress, this concern more appropriately pertains to the context-dependent question of whether the prevailing party necessarily obtained its copies for use in the case.

Colosi, at *8; Taniguchi, 132 S. Ct. at 2002—06 (beginning its interpretation of § 1920 with the ordinary meaning of words before examining statutory context).

The biggest take away from this case is a Court stated a reality of electronic discovery: an image of a hard drive is a copy.

WHOA! A Prevailing Party Recovered $57,873.61 in eDiscovery Costs!

My God, is it true? Did a Prevailing Party recover virtually all of its eDiscovery costs?

The answer is yes, thanks to a case in Colorado.

United States District Judge Christine M. Arguello opened her order denying the Plaintiff’s motion to review the clerk’s taxation of costs with the following:

Because Defendants’ costs related to the electronically stored information (“ESI”) are expenses enumerated in 28 U.S.C. § 1920(4), and Plaintiffs were aware that Defendants would have to retain an outside consultant to retrieve and convert the ESI into a retrievable format, Plaintiffs’ Motion is denied.

Comprehensive Addiction Treatment Ctr. v. Leslea, 2015 U.S. Dist. LEXIS 17878, 1.

Rock on. Let’s review the Court’s reasoning.

The Plaintiff took the position that the Defendants’ eDiscovery cost award be reduced from $57,873.61 to $2,387.03, striking the work of a third-party eDiscovery service provider who performed the “retrieving, restoring, and converting data,” on the grounds the work did not constitute “copying.” Leslea, at *2.

The Court explained the Defendants hired their eDiscovery service provider to retrieve and restore ESI in order to respond to the Plaintiff’s Interrogatories and Requests for Productions. The requested discovery included “correspondence, summaries, emails, reports, and memos” relating to specific subject matter. Leslea, at *4-5. The Court noted that the work was complex and time-intensive, requiring three consecutive tolling agreements. Id.

The Defendants communicated with the Plaintiffs three times on the challenges over ESI, including providing detailed information on the scope of the data, archiving, and retention periods on multiple sources of data (hard drives, back-up tapes, etc). Leslea, at *5. In the second communication, the Defendants explained how the service provider restored 83 back-up tapes; and in the third the service provider’s forensic investigator detailed the difficulties in restoring the subject ESI. Id

The Court noted that the Plaintiffs were aware of the ESI challenges, did not recommend any changes to the scope of discovery, and even filed a new complaint with additional allegations. Leslea, at *5-6.

The Court held that the ESI expenses were “reasonably necessary for use in the case” and not done for the mere convenience of the parties. Leslea, at *6. The Court concluded the order as follows:

Indeed, Plaintiffs were aware of the monumental effort to retrieve and convert the data into a retrievable format in response to their Interrogatories and Requests for Production. The costs incurred by Defendants, the prevailing party, in responding to Plaintiffs’ requests are expenses that are shifted to Plaintiffs, the losing party. Indeed, Plaintiffs own litigation choices and aggressive course of discovery necessarily resulted in “heightened” defense costs. Plaintiffs have not demonstrated that these costs are improper. Accordingly, Defendants are entitled to recover their costs in full measure as determined by the Clerk, which it has identified as $57,873.61.

Leslea, at *6-7, citing In re Williams Sec. Litig-WCG Subclass, 558 F.3d at 1150.

Bow Tie Thoughts

Thank you Judge Arguello for understanding a simple truth: eDiscovery requires technology to retrieve information and translate it into reasonable useable forms that are necessary for the case. This technology and expertise costs money. Yes, this case had an expert who explained what was being done during the litigation. Not every case has such powerful facts explaining the why and how of restoring ESI to make it reasonably useable, but this is an epic victory for taxation of eDiscovery costs.

Let’s Play eDiscovery Baseball

We have Geek Judges. I love those Jurists. We also have Judges who love sports. I have a gut feeling it would be fun to go see a baseball game with Magistrate Judge Young B. Kim.

Bagwe v. Sedgwick Claims Mgmt. Servs., is a case where the prevailing party sought eDiscovery costs against an individual plaintiff. The Court took the mound for its analysis of the Defendants’ arguments with the following wind-up:

Defendants take several different swings to recover their costs related to ediscovery. Defendants first swing for the fence and seek $57,858.94 for the entirety of their ediscovery costs. They miss.

Bagwe v. Sedgwick Claims Mgmt. Servs., 2015 U.S. Dist. LEXIS 8809, at *15 (N.D. Ill. Jan. 27, 2015).

Get out the peanuts and crackerjacks, because Judge Kim was just getting warmed up.

As with many eDiscovery cost cases, the Court stated that the Defendants were “vague” about how the sum of $57,858.94 was determined. The Court cited that the costs pertained to obtaining and culling 422.05 Gigabytes of data down to 25 Gigabytes. Bagwe, at *15-16.

The Defendants argued they used “eDiscovery techniques” and were able to identify “even better” data than the prevailing Defendants in the In re Aspartame Antitrust Litigation, 817 F. Supp. 2d 608, 614-15 (E.D. Pa. 2011). Bagwe, at *16.

Defendants unsuccessfully argued that cases such as “Race Tires, Rawal, and Johnson were all wrongly decided” and that the facts of the current case justified cost recovery. Id. The Court answered this argument as follows:

Defendants’ assertion that Race Tires, Rawal, and Johnson were wrongly decided may be brushed aside because they do not offer any reasons why these cases were wrongly decided or why this court should not follow them. They merely urge the court to award all of their e-discovery costs because “[t]he equities demand [Bagwe] be held fully responsible.” But Rule 54 is not a discovery sanction tool.

Bagwe, at *16-17.

The Court continued the baseball metaphor with, “Defendants next swing for a double and argue that if the entire amount cannot be recovered, they are entitled to at least $7,953.90, which represents the cost of “gather[ing] emails with metadata intact . . . by creating forensic images and then extracting the .pst files into .msg files,” which they say amounts to converting the files into a “readable format.” Bagwe, at *17.

The Court stated this argument was again a miss, because the Defendants did not explain how “the act of gathering e-mails that include metadata is different from other types of non-taxable ‘gathering.’” Id. As stated in prior decisions, “gathering, preserving, processing, searching, culling, and extracting of ESI” are not recoverable. Id.

The Court rejected the Plaintiff’s argument that the only recoverable costs were a $67 thumb drive. Bagwe, at *17-18.

The Defendants did get a hit with their final eDiscovery cost argument on “copying.” As the Court explained in its analysis of exemplification in Section 1920:

Costs for “exemplification and the costs of making copies” through photocopying and the conversion of ESI into a readable format are two sides of the same coin: namely, the pre-and-post digital era approach to “copying,” or creating readable documents that may be transmitted to the party requesting the information. The court notes that Section 1920(4) does not employ the phrase “making photocopies,” which is commonly understood to mean making paper copies, but employs the phrase “making copies of any materials,” which is a much broader phrase with more diverse meaning. Accordingly, Defendants are entitled to recover $7,266.40 in ediscovery costs. 

Bagwe, *18-19, referencing Massuda v Panda Express, Inc, 2014 U.S. Dist. LEXIS 4956, at *6.

$7,266.40 is a good base hit in the world of eDiscovery cost recovery.

Bow Tie Thoughts

First things first: I cannot wait for baseball season.

From a philosophic point of view, I agree with the Defendants that there should be greater recovery for eDiscovery costs. However, no one can cite “Josh thinks so,” in a motion and a Court will simply agree with me.

Proving eDiscovery costs were necessary for litigation and required for productions take invoices that explain what steps were taken and why. Even then, expert affidavits would still need to be prepared to explain to the Court why those eDiscovery technologies were used. Even if a party provided a Judge with the educational background on why those technologies were applied to the data, and how processing IS making copies, there is no guarantee such a report would knock the argument out of the ballpark.

Do I think there should be greater cost recover in eDiscovery costs? You bet. I also think Pablo Sandoval should have stayed with the Giants, but that did not happen. I often have the same melancholy feelings about parties not being able to recover hosting or processing costs as the Panda leaving San Francisco.

What Did We Learn About eDiscovery in 2014?

As 2014 draws to a close, it is time to reflect on the cases from this year in eDiscovery. One of the biggest trends I took away from caselaw in 2014, is that more Judges have a greater understanding of eDiscovery, resulting in practical opinions.

Here are the practice areas I found to be the most interesting in 2014, which can be heard in full on my 2014 eDiscovery Year in Review on iTunes or Buzzsprout (Presented by Paragon):

Application of Proportionality Analysis

Judges Questioning Why The Court Was Asked Permission to Use Predictive Coding

We still have Form of Production issues eight years after the 2006 eDiscovery Amendments to the Federal Rules of Civil Procedure

The Importance of Documenting Services for Taxation of Costs

What will 2015 hold for us in the world of electronic discovery? I think we will see proportionality analysis focus on the value of the information sought in relation to the case and not solely just the cost of the discovery. Parties will have to explain how the information is useful, such as how it relates to a claim, opposed to merely saying, “It is expensive.” This will require counsel to focus on the merits of the case and how the requested discovery will help advance the litigation.

I personally hope litigants stop asking Judges for permission to use predictive coding. No one asks, “Can I de-dup the data? Is it ok to use clustering? May I please use conceptual search in addition to keywords?”

The issue with all productions is whether or not the production is adequate. In my view, parties going to war over predictive coding as a means to review electronically stored information is asking the Court to issue an advisory opinion. The time to fight is when the there actually is a dispute because a production is lacking, instead of engaging in arguments of how much a human being can read in an hour compared to a computer algorism.

To learn more on the issues from the past year, please check out my 2014 eDiscovery Year in Review audio podcast on iTunes or Buzzsprout.

I want to thank Paragon for sponsoring the 2014 eDiscovery Year in Review. Please check out their website and recent blog post on the Convergence of eDiscovery and Information Security to learn more about their services.

Did a Judge Say Scanning of a Native File and OCR?

Taxation of cost cases can get funky. One such example is where a party sought costs for discovery to be produced in “OCR” format. The Court went on to state: “The scanning and conversion of native files to the agreed-upon format for production of ESI constitutes ‘making copies of materials’ as pursuant to §1920(4)” and found the OCR costs recoverable. Kuznyetsov v. West Penn Allegheny Health Sys., 2014 U.S. Dist. LEXIS 150503 (W.D. Pa.Oct. 23, 2014).

The Court further held that that cost of 5 cents per page for TIFF-ing was not unreasonable and the cost of 24 cents per page for scanning paper documents to also not be unreasonably high.  Id.

What is strange is seeing the words “native file” and “scanning” and “OCR format” in the same sentence. Native files are already electronically stored information. Business data such as email messages, text messages, Word documents, Excel files, are already searchable. These is no reason to print the ESI to paper, then scan them, and then perform optical character recognition on them. All of that would be extremely strange and drive up costs.

There is a chance the Court was discussing both scanning paper and conversion of native files in the same sentence, without directly saying “paper documents” before “conversion of native files.” Even if that was the case, I would recommend producing native files natively to keep costs down. Only convert privileged or confidential native files to TIFFs or PDFs for redaction.

If native files need to be converted to static images such as TIFFs in order to redact confidential information, making the static images searchable with OCR would make sense, because you want to produce information that is searchable, but not with the confidential information also searchable. However, if these native files converted into static images did not need to be redacted, there would be no reason to make them OCR searchable. A producing party could simply produced the “extracted text” from the native files, thus including searchable information for a review database to comply with the Federal Rules of Civil Procedure.

How Apple Successfully Recovered eDiscovery Production Costs

Taxation of cost cases involving eDiscovery often end with the prevailing party not recovering any costs. However, in the true spirit of “think different,” Apple was able to recover $238,102.66 in costs for “the amounts associated with electronic preparation and duplication, not the intellectual effort involved in the production, such as searching or analyzing the documents.” Apple Inc. v. Samsung Elecs. Co., 2014 U.S. Dist. LEXIS 132830, at *88, 91 (N.D. Cal. Sept. 19, 2014). The production work included processing documents, uploads, and document productions. Id.

Apple initially sought $1,486,475.01 in costs for the use of their online hosted repository, which uploaded and produced documents to Samsung, in the amount of $287,555.45 between two law firms, and service providers that collected and processed paper and electronic documents that were uploaded to the repository for $1,198,919.56. This amount was later reduced by $9,509.40, for a new total of $1,476,965.61. Apple, at *87-88.

A declaration provided by one of Apple’s attorneys stated the fees did not contain the intellectual effort involved in producing the discovery, but only the amounts associated with the electronic preparation and duplication. Apple, at *88. Moreover, the fees did not include costs from hosting the data, licensing fees for the software, or vendor consulting time. Id.

In the Northern District of California, Local Rule 54-3(d)(2) allows for eDiscovery costs analogous to “making copies,” but not “intellectual effort.” Id. Moreover, these costs must be connected to discovery produced to the adverse party. Apple, at *89.

The issue for the Court ultimately on what was recoverable was what was actually produced to the opposing party.

Based upon the different motions, the Court stated that Apple had produced 338,860 documents, totaling 2,944,467 pages, each document averaging 8.69 pages; however, Apple, uploaded a total of 2,101,808 documents. Apple, at *90.

The Court surmised that if the “same average page count of 8.69 for all documents that Apple produced, Apple uploaded a total of 18,264,712 pages in this litigation.” Apple, at *91.

The Court explained based on Apple’s estimation that it had “uploaded a total of 18,264,712 pages of which 2,944,467 pages were ultimately produced.” Id. As such, the Court determined that 16.12% of Apple’s eDiscovery costs were spent on productions to Samsung and awarded Apple $238,102.66. Id.

Bow Tie Thoughts

I want to congratulate Apple’s attorneys for successfully recovering over $200,000 in eDiscovery product costs. Many taxation of cost cases do not end with the prevailing party taking anything home.

eDiscovery costs cases can make some lawyers do their best Chevy Chase/Gerald Ford impression of, “It was my understanding no math would be involved.” However, no taxation of cost case has the luxury of not determining how much was spent on a production.

Taxation of cost cases are complicated. While some Court would like costs cases to be as simple as a Rob Schneider saying, “Makin’ Copies,” eDiscovery requires special skills to collect and produce ESI.

Some jurisdictions take a fairly hard view that processing and all of the steps in doing a production are not recoverable, because the process does not result in a “copy.” The local rule in the Northern District is fairly forward thinking comparatively thinking when it comes to recovering costs associated with production ESI.

Another factor making taxation cases complicated is the fact how service providers invoice. Most service providers do not have attorneys on staff giving advice on how to document each step to explain how processing is “necessary for the production.” Documenting how a production is de-NISTed, de-duplicated, or emails excluded by domain name (such as irrelevant news services or sales messages), are all steps that enable a Court to decided whether that step was necessary for production.

My best advice on how to navigate this area of the law is to understand your local rules (or Court of Appeal case law). The next step is to work with your service provider at the beginning of the case on how they invoice to demonstrate how every step they take produce ESI is necessary to the case for the production, and not merely “intellectual efforts.”

Always Document Services to Explain eDiscovery Services for Taxation of Costs

A prevailing party sought $61,548.65 in costs. They got $7,106.65. Kwan Software Eng’G v. Foray Techs., 2014 U.S. Dist. LEXIS 63933, 10-19 (N.D. Cal. May 8, 2014).

United States District Judge Susan Illston is very good at eDiscovery disputes. This case highlights the importance of not just knowing how to conduct eDiscovery services, but how to invoice for them.

The non-prevailing party challenged eight eDiscovery invoices on the grounds the prevailing party sought 1) eDiscovery costs that went beyond the costs associated with the actual production of the documents; and 2) failed to provide sufficient detail of its e-discovery costs to allow the Court to determine what are actual copying costs and what are non-taxable intellectual efforts. Kwan Software Eng’G, at *13.

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#182205315 / gettyimages.com

The “Document Processing” invoice included fees for conversion from native files to TIFFs; “Bates stamping” each page (which is down by the processing engine, not someone actually stamping); and exporting the associated metadata. Kwan Software Eng’G, at *14. These fees are generally recoverable, but the Court stated that there was insufficient information to determine whether the costs were taxable. Id. Moreover, the prevailing party produced only 229,000 pages of discovery (assuming each TIFF is being counted as a page), but the invoices showed 344,445 pages had been processed (again, assuming TIFFs as pages and not files). Id.

The Court stated that the charges included documents that were not produced, thus not used in the litigation. As such, the Court only awarded costs of $6,870, which represented a charge of $0.03 per document for bates stamping and TIFF conversion for 229,000 documents. Kwan Software Eng’G, at *14-15.

The Court further denied costs for data hosting and management, because those costs are not recoverable. The Court also denied costs for production hard drive not actually produced to the opposing party (which otherwise would have been recoverable if actually produced). Kwan Software Eng’G, at *15-16.

Judge Illston also denied the producing party’s project management costs, because it was “unclear from the invoices whether the project management fees were actually related to document processing as opposed to other non-taxable activities.” Kwan Software Eng’G, at *16.

Bow Tie Thoughts

Judges cannot award costs to prevailing parties if there is not sufficient documentation to explain how the services were necessary for the litigation in producing discovery. This requires service providers to go into detail in their invoicing to explain each step of the workflow.

Consider the project management costs. Those could be recoverable, if there is sufficient information to explain how it was part of processing that went to actual copying, opposed to just intellectual efforts.

eDiscovery requires a specialized skill set and knowledge. Processing is not something done in a vacuum, but takes knowledge of how the application works and understanding what is needed in the case to be done effectively. A party cannot simply invoice “processed data for production” and hope a Judge will opine why those actions were necessary for the case. This takes documentation to educate the Judge on why the actions were done in order to produce the discovery in the litigation.

Hosting ESI is Not “Making Copies” for Cost Recovery

Judge Young B Kim posed an interesting question for a party seeking costs for the hosting of ESI to review: Applying these principles [Race Tires, Rawal, & Johnson] to the specific question of online hosting costs, this court finds that these costs may be recoverable only if hosting amounted to “copying” of ESI for production. Massuda v. Panda Express, Inc., 2014 U.S. Dist. LEXIS 4956, at *21 (D. Ill. 2014).

The issue: does hosting ESI equal “making copies”?

Sadly, you do not need a fortune cookie to see the Court would reject the hosting argument.

The Court held no, but not in a way to block any future arguments for cost recovery. The Court reviewed the Defendant’s hosting invoices and stated they “did not demonstrate that the Relativity services included some form of conversion of data akin to “making copies” for use in this case. Without evidence of this critical nature, this court has no authority to award the hosting costs in this case.” Massuda, at *21 [emphasis added].

The service provider’s invoices said the three boxes of documents were hosted for “Document Search and Retrieval” and “Monthly Relativity Disk Storage.” The attorneys explained that the review application allowed them to “organize, manage and review documents.” Id. 

The Court further noted that “§ 1920(4), for better or worse, is not concerned with attorney efficiency or convenience,” in response to the defense argument that the hosting was “reasonable and necessary” because they had little time to process the documents. Massuda at *21-22. As such, the Court denied the hosting cost of $3,087.92. Massuda at *22.

Bow Tie Thoughts

In my opinion, one of the biggest obstacles to recovering eDiscovery costs is explaining the use of the technology. I strongly believe that making a mirror image of a hard drive IS making a copy of ESI.  However, this has to be explained by an expert.

Service provider invoicing is almost always not written by an attorney who also is an eDiscovery expert (however, many do exist). A judge looking at an invoice that simply says “data hosting” understandably might think the application is an online warehouse. This could not be further from the truth, given the steps taken to collect the ESI, process it, and then host it in a system that has conceptual search tools, data clustering, de-duplification, and the many advantages of predictive coding.

It is my hope that attorneys educate their service providers on what the local discovery judges want to see in an invoice in a cost case. Alternatively, service providers should start thinking about this issue, so invoices for processing and hosting will contain enough information for a judge to grant a cost motion.

One last point: the Court noted that § 1920(4) “is not concerned with attorney efficiency or convenience.” However, Federal Rule of Civil Procedure Rule 1 is concerned with the “just, speedy, and inexpensive determination of every action.” I hope that the principles of Rule 1 would trump any rule NOT concerned with efficiency that drives down costs, instead of inefficiencies that drive up costs. In my view, denying costs for processing for native review and instead awarding costs for conversion to static images, which is usually an increase in processing costs, violates Rule 1 by creating an incentive to not conduct a case in a “just, speedy, and inexpensive” manner.

You Might Want a Glass of Wine: No Costs for Native File Processing

It is sad when good arguments fail. Taxation of cost cases frequently deny processing costs of native files, unless there is conversion to a static image. Conversion of native files to static images can significantly increase processing costs, opposed to keeping native files in their original format.

It is fitting that a taxation of cost case involved wine, because an attorney will want a glass of wine if unsuccessful on a cost motion.

In Country Vintner of N.C. v. E. & J. Gallo Winery, the Court summarized Gallo’s arguments as follows:

Gallo argues that its ESI-processing charges are taxable as fees for “making copies” under § 1920(4) because ESI has “unique features”: ESI is “more easily and thoroughly changeable than paper documents,” it contains metadata, and it often has searchable text. Opening Br. 23, 26-27. Gallo contends that converting native files to PDF and TIFF formats “produce[ d] static, two-dimensional images that, by themselves, [we]re incomplete copies of dynamic, multi-dimensional ESI”; other “processing . . . was necessary to copy all integral features of the ESI.” Id. at 28 (emphasis in original). Gallo argues that it had to remove ESI from container files, extract and index text to make it searchable, copy metadata, and load the data onto a “review platform” to allow “the native files and their associated metadata [to] be viewed and their text [to] be searched as if the native files were being opened in the software applications that created them.” Id. at 28-29. Gallo concedes that this process was far more involved than that necessary to copy paper documents but argues that just as copying a table or dress requires a different approach than copying a paper document, copying ESI also requires a different approach. Id. at 26.

Country Vintner of N.C. v. E. & J. Gallo Winery, 2013 U.S. App. LEXIS 8629, 25-27 (4th Cir. 2013).

Gallo made a very good argument, like a bold cabernet, with a hint of carmel and oak. Unfortunately, the Court poured it down the drain like it was vinegar.

Country Vinter claimed Gallo distorted “the plain meaning of the statute” and “misconstrue[d] the act of processing.” Moreover, Country Vinter argued processing was “not required in order to produce copies to Country Vintner, only to assist Gallo with its review.” Country Vintner of N.C., at *27.

Country Vintner disputed the argument that Gallo “had no choice but to process the ESI . . . in order to comply with its discovery obligations,” because “Country Vintner never demanded that Gallo produce processed ESI replete with metadata and searchable text.” Id.

The Court took a wine tasting tour of Race Tires America, Inc. v. Hoosier Racing Tire Corp and when eDiscovery processing could be recoverable.

The Court summarized Race Tires as follows:

In Race Tires America, Inc., the Third Circuit held that, “of the numerous services [that] [electronic discovery] vendors [had] performed” in that case, “only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved ‘copying'” within the meaning of § 1920(4). Race Tires Am. Inc., 674 F.3d at 171. The court reasoned that [s]ection 1920(4) does not state that all steps that lead up to the production of copies of materials are taxable. It does not authorize taxation merely because today’s technology requires technical expertise not ordinarily possessed by the typical legal professional. It does not say that activities that encourage cost savings may be taxed. Section 1920(4) authorizes awarding only the cost of making copies. Id. at 169 (footnote omitted). The court recognized that “extensive ‘processing'” may be “essential to make a comprehensive and intelligible production” of ESI. Id. Hard drives may need to be imaged, the imaged drives may need to be searched to identify relevant files, relevant files may need to be screened for privileged or otherwise protected information, file formats may need to be converted, and ultimately files may need to be transferred to different media for production. Id. Nonetheless, the court reasoned, “that does not mean that the services leading up to the actual production constitute ‘making copies.'” Id. The process employed in the pre-digital era to produce documents in complex litigation similarly involved a number of steps essential to the ultimate act of production. First, the paper files had to be located. The files then had to be collected, or a document reviewer  had to travel to where the files were located. The documents, or duplicates of the documents, were then reviewed to determine those that may have been relevant. The files designated as potentially relevant had to be screened for privileged or otherwise protected material. Ultimately, a large volume of documents would have been processed to produce a smaller set of relevant documents. None of the steps that preceded the actual act of making copies in the pre-digital era would have been considered taxable. And that is because Congress did not authorize taxation of charges necessarily incurred to discharge discovery obligations. It allowed only for the taxation of the costs of making copies. Id. The Third Circuit further reasoned that the Supreme Court has “accorded a narrow reading to the cost statute in other contexts,” and “[n]either the degree of expertise necessary to perform the work nor the identity of the party performing the work of ‘making copies’ is a factor that can be gleaned from § 1920(4).” Id. at 169, 171. “Nor may the courts invoke equitable concerns . . . to justify an award of costs for services that Congress has not made taxable.” Id. at 170.

Country Vintner of N.C., at *27-29.

Despite rejecting Gallo’s processing cost argument, the Court stated the following in footnote 19:

We are mindful that converting ESI from editable to non-editable formats, or copying ESI in its native format, often encompasses the copying of metadata. If, for instance, a case directly or indirectly required production of ESI-unique information such as metadata, we assume, without deciding, that taxable costs would include any technical processes necessary to copy ESI in a format that includes such information. This case does not fall within those limited circumstances.

Country Vintner of N.C., at *30, fn 19.

Based on the above, the Court upheld the District Court’s holding that the only recoverable costs for “making copies” under § 1920(4) were the conversion of native files to TIFF and PDF formats, and the transfer of files onto CDs. Country Vintner of N.C., at *32.

Bow Tie Thoughts

I think the legal definition of “making copies” only applying to converting native files to static images is wrong legally and technically. I believe one of these cases can be successful if the moving party understands the issue and has an expert who can explain how data is “copied” in eDiscovery processing to a judge knowledgeable about eDiscovery workflow.

A copy of ESI is made by the very act of data collection and processing the data for a review platform. After conducting review, data is often processed again from the producing party to the requesting party, due to privilege or the simple fact the parties have different review platforms. Moreover, producing “metadata” or searchable text is not “extensive processing”; it is normal processing.

To put it bluntly, a request for production of electronically stored information not to include metadata or searchable text is like asking for a paper production without ink on the pages.

Let’s consider the following:

The taxation of cost statute states:

Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;

28 USCS § 1920(4).

Federal Rule of Civil Procedure Rule 34(a)(1)(A) permits a party to request electronically stored information that is “stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form.” The requesting party can state its form of production. In the event no form is stated, the ESI must be produced in the form it is “ordinarily maintained or in a reasonably usable form or forms.” Federal Rule of Civil Procedure Rule 34(b)(2)(E). Electronically stored information is ordinarily maintained in its native applications with metadata.

The defensible “collection” of ESI produces a copy of the data. This data is then “processed” to be loaded into a review platform for discovery review.

Many Court opinions recognize the need for substantive or embedded metadata. Moreover, many opinions recognize that a production as non-searchable static images is not in a reasonably useable form (see Jannx Med. Sys. v. Methodist Hosps., Inc., 2010 U.S. Dist. LEXIS 122574 (N.D. Ind. Nov. 17, 2010)). Additionally, metadata is needed to leverage the search technology that can organize communications based on time and other analytical tools vital to understand electronically stored information.

The fact that the Federal Rules of Civil Procedure create a default for ESI to be produced as it is ordinarily maintained should not be a prohibition on later recovering processing costs. Each step in the process of collecting data and processing it for a review platform and ultimately production is a technological necessity to make a copy. Simply put, requiring native files to be be converted into static images for taxation of costs drives up the production costs. Worse yet, producing static images dramatically reduces the data’s utility in any review platform. This is contrary to Federal Rule of Civil Procedure Rule 1’s mandate to control costs, creating a cost incentive for inefficiency.