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May a Prevailing Litigant Recover All E-Discovery Costs?

May a prevailing litigant recover all its e-discovery costs from an opponent?  No, according to several federal circuit court decisions and an opinion from the United States District Court for the Northern District of Illinois.  The prevailing party may only recover costs incurred to convert native ESI (electronically stored information) to image files (such as TIFF files) and the costs to scan hard copy documents into electronic format.

Federal Rule of Civil Procedure 54(d) and 28 U.S.C. § 1920 Permit Only Limited Recovery of E-Discovery Costs 

Image of DollarThe plaintiffs in In re: Text Messaging Antitrust Litigation, Case No. 1:08 C. 7082, MDL No. 1997 (N.D. Ill. Sept. 2, 2014) sued the major wireless telephone companies alleging price fixing related to text messaging.  After prevailing on summary judgment, the cellular service providers sought over $700,000 in electronic discovery costs pursuant to Fed. R. Civ. Proc. 54(d) which permits courts to award “taxable” costs to a successful litigant.  However, as Judge Matthew F. Kennelly pointed out when he considered the companies’ request for e-discovery costs, Rule 54(d) is circumscribed by statute and case law.  Specifically, taxable costs are limited to “minor, incidental expenses” as set out in 28 U.S.C. § 1920 which permits recovery of only a few types of costs, such as filing fees, witness fees, charges for transcripts, and “fees for exemplification and the costs of making copies of any materials . . . for use in the case.”

Only Charges for Making Copies are Recoverable–Not Pre-Copying Costs

Noting the absence of definitive precedent from the Seventh Circuit Court of Appeals, Judge Kennelly took guidance from a Third Circuit case, Racing Tires Am. Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3rd Cir. 2012). Racing Tires held that only costs to convert native files into image files and costs to scan hard copy documents into electronic documents were recoverable.  The court in Racing Tires refused to award costs associated with ESI review and processing noting that before electronic document discovery, courts did not award pre-copying costs such as those incurred to locate, collect review and screen files.

Charges for OCR and Deduplication May Not be Recoverable

Despite allowing costs to create image files, Judge Kennelly refused to award costs incurred for OCR (Optical Character Recognition–creating searchable text files from document images) and costs incurred to create load files (text and image files used to load documents in e-discovery software).  Judge Kennelly believed that such costs were akin to processing and enhancement of electronic documents and not taxable “copy” charges permitted under 18 U.S.C. § 1920(4).

Worth noting, however, are differing views regarding reimbursement of load file costs. Some courts permit reimbursement for such charges.  For instance, the Federal Circuit in CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320, 1332 (Fed. Cir. 2013),  applying Eleventh Circuit law, concluded that costs associated with the creation of load files are reimbursable because load files often contain information, such as metadata, that “that is effectively part of the requested and produced documents.” However, despite permitting recovery of load file costs, the CBT court declined recovery of “deduping” costs (charges to remove duplicate files from a document collection) or charges to decrypt files.  The court concluded that those costs were “part of the large body of discovery obligations, mostly related to the document-review process, that Congress has not included in section 1920.”

Costs to Image Computer Hard Drives Recoverable in at Least One Circuit

In the Sixth Circuit, costs to image computer hard drives may also be recoverable. In Colosi v.  Jones Lang LaSalle Americas, Inc., 781 F.3d 293 (6th Cir. 2015), the court disagreed with the Racing Tire analysis as “overly restrictive.” Racing Tires declined to award costs for copying computer hard drives because it did not consider them “copying costs.” The Sixth Circuit held that costs to image computer hard drives are recoverable because “[i]maging 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.'”

E-Discovery Software Costs Generally Not Recoverable

Most courts agree that e-discovery software costs are not recoverable by prevailing parties.  As Judge Kennelley noted in the Text Messaging litigation, “purchasing software is an archetypal example of a step toward preparing to copy something, not the cost of copying itself” and is therefore not a taxable cost under Fed. R. Civ. Proc. 54(d).

Posted on September 10, 2014 in Costs and Cost Shifting, Court Rules, E-Discovery

About the Author

Chad Main is an attorney and the founder of Percipient. Prior to founding Percipient, Chad worked as a litigator in Los Angeles and Chicago. He is a member of the Seventh Circuit Electronic Discovery Pilot Program Committee and may be reached at cmain@percipient.co.