Costs of Keyword Searching, Data Analysis, Not Recoverable, Federal Circuit Rules

To what extent can the costs of e-discovery be recovered by a prevailing party in federal court? The U.S. Federal Circuit Court of Appeals has just issued an opinion that provides a detailed analysis of that question, concluding that the answer hinges on which costs fall within a 21st Century definition of “copying.”

In CBT Flint Partners, LLC v. Return Path, Inc., the Federal Circuit considered the extent to which e-discovery costs fall under 28 USC § 1920, the federal statute that lists the costs that can be recovered in federal litigation. The only provision of that statute that would apply to e-discovery, the circuit concluded, is one that allows recovery of copying costs. Thus, e-discovery costs are recoverable only to the extent they fall within the statutory meaning of copying.

[W]e conclude that recoverable costs … 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. … 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.

That means that the costs of imaging hard drives and source media and processing those images would be recoverable in most cases, the court said. Also recoverable would be the costs of creating load files and copying responsive documents to production media. But the costs of decryption, deduplication, keyword searching, data analysis and project management are not recoverable, the court concluded.

What Constitutes ‘Copying’

The decision stems from a patent dispute in which CBT Flint Partners sued Return Path and Cisco IronPort Systems for patent infringement. After the district court decided the case against CBT, it ordered CBT to pay the defendants’ costs, including $243,453.02 Cisco had paid to an e-discovery vendor. These e-discovery costs were recoverable, the district court ruled, as “the 21st Century equivalent of making copies.”

The district court’s decision was appealed, remanded and appealed again, but eventually the district court entered an amended final judgment, and again it awarded Cisco its e-discovery costs, declining CBT’s request that it reconsider its prior award of costs.

On appeal, the Federal Circuit said that it would base its analysis on the law of the 11th Circuit, from which the case originated. It noted that, in 2008, Congress amended Section 1920(4) so that it no longer applied only to paper copies but to “the costs of making copies of any materials where the copies are necessarily obtained for use in the case,” including electronically stored information.

But the statute’s amendment left unanswered the question of what constitutes “making copies.” The intent behind the law, the Federal Circuit found, was to allow for the taxing of costs only “in a very limited way” and was not to cover all of the costs associated with new courtroom technologies. For this reason, the circuit court held that the statute allowed recovery only of those costs “necessary to duplicate an electronic document in as faithful and complete a manner as required.”

In this case, some of the e-discovery costs sought by Cisco were recoverable and some were not, the Federal Circuit said. To explain its analysis, the court broke the process down into three stages.

Stage One: Imaging and Processing

In stage one, the e-discovery vendor copied (or “imaged”) computer hard drives and other source media that contained the requested documents, the opinion recounted. The vendor then processed the whole-source images to extract individual documents, retaining the documents’ original properties.

In cases in which a party is required (by agreement, rule or court order) to convert ESI to a uniform production format or to produce documents with metadata intact, then special forensic techniques are required to extract documents and preserve metadata. The costs of that process “are fairly considered costs of making copies,” the circuit court found.

At present, enough expertise and specialized equipment often are required that many parties entrust these tasks to an electronic-discovery vendor. Whoever performs them, however, the steps described are all fairly included in section 1920(4) 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.

However, if the party is not bound by any requirement specifying the format or other characteristics of the produced documents, then the costs of imaging may not be covered, but only the lesser costs of copying from the source media to the production media, the court added.

Stage Two: Search and Analysis

In stage two, the documents were organized into a database, where they were indexed and deduplicated, and then analyzed, searched and reviewed to determine which were responsive and which contained privileged information.

“The costs of these activities are not the costs of making copies,” the court held. Rather, they are among the many discovery obligations that Congress has not included within Section 1920.

The court rejected Cisco’s argument that it should recover its costs for those portions of its keyword searching and data analysis that it performed at CBT’s request. “Although the requester’s demands can define the number, form, and other characteristics of copies chargeable under section 1920(4),” the court explained, “the requester’s demands for activities other than making copies does not bring those non-copying activities within the provision.”

Other costs not covered at this stage, according to the court:

  • Acquiring, installing and configuring a new data-hosting server at the offices of Cisco’s counsel.
  • Litigation-support tasks such as training in the use of the document review software, deposition support, or production and privilege log creation.
  • Decryption of documents stored on electronic source media.
  • Deduplication to eliminate duplicate copies.

One cost at this stage that is recoverable is for the creation of load files, at least “to the extent that those files contain information required by the requested production.”

Stage Three: Production

At stage three, the documents selected for production were copied onto memory media and delivered to the requesting party. In this case, they were not converted to TIFF or another image format.

There was no dispute among the parties that these costs should be recoverable, the court said, and it agreed. However, the court added a special note about costs relating to the production of source code.

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.

The court concluded its opinion by characterizing its approach to cost recovery as consistent with the analysis of the other circuits that have considered the question. It noted, however, that the 3rd and 4th Circuits disagree on recovery of stage one costs for imaging source media and preserving metadata. Neither of those circuits allows recovery of these costs. The court stated that it considered its approach “the better application” of the law.

In a partial dissent, Circuit Judge O’Malley said that he would allow recovery of costs only for the stage three creation of the final single copy produced to the requesting party, “including scanning to the extent necessary, converting documents to a uniform production format, copying the converted files to production media, the creation and copying of load files, and the cost of the production media itself.”


About Bob Ambrogi

Bob is known internationally for his expertise in the Internet and legal technology. He held the top editorial positions at the two leading national U.S. legal newspapers, the National Law Journal and Lawyers USA. A long-time advisor to Catalyst, Bob now divides his time between law practice and media consulting. He writes two blogs, LawSites and MediaLaw, co-authors's Legal Blog Watch, and co-hosts the weekly legal-affairs podcast Lawyer2Lawyer. A 1980 graduate of Boston College Law School, Bob is a life member of the Massachusetts Bar Foundation and an active member of the Massachusetts Bar Association, which honored him in 1994 with its President's Award.