The Ninth Circuit recently published an opinion in consolidated antitrust class actions regarding DVD rentals and sales. In re Online DVD-Rental Antitrust Litig., No. 11-18034 (9th Cir. Feb. 27, 2015). The first half of the opinion affirms summary judgment for the defendants, finding that the plaintiffs did not raise triable issues of fact as to whether they suffered antitrust injuries. It is a well-reasoned opinion applying principles of antitrust injury in a straightforward manner. This article, however, focuses on the second half of the opinion, which addresses taxable costs in federal court. In that second part of the opinion, the Ninth Circuit spent approximately 20 pages addressing taxable costs, primarily in the context of e-discovery. While the topic may seem mundane at first glance, the opinion provides very useful information to practitioners who want to seek certain e-discovery expenses as taxable costs in litigation.
Defense counsel and their clients don’t often have a way to recover substantial litigation expenses, particularly in class actions. Plaintiffs often use e-discovery as leverage in large cases, knowing the expenses are substantial but that individual named class representatives don’t face a similar cost. Thus, e-discovery often is a ratchet that only increases costs in one direction. In DVD-Rental, Netflix sought and originally obtained an award of more than $700,000 in taxable costs. While the Ninth Circuit reduced that total award and remanded for additional evaluation by the district court, it confirmed that successful defendants may recover certain e-discovery costs.
Back To Basics: 28 U.S.C. § 1920 And Recovering Costs For Copies Necessarily Obtained For Use In A Case.
Before diving too deeply into the opinion, I want to review taxable costs under federal law. Those are creatures of statute, and the statute is fairly restrictive. As e-discovery has become more prevalent and expensive, however, parties have looked to recover some of the expenses of e-discovery by relying on this category of allowable costs: “Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in a case.” 28 U.S.C. § 1920(4) (emphasis added). That provision originally encompassed photocopies, so courts often consider whether e-discovery activities are analogous to photocopying hardcopy materials when evaluating fee requests. And DVD-Rental showed the Ninth Circuit’s focus on the highlighted clause in the statute.
DVD-Rental emphasizes many times that parties seeking e-discovery expenses as costs must provide specific information about the services the e-discovery vendor provided to establish those services fit within the statute. The descriptions of tasks and services must have “sufficient specificity, particularity, and clarity” to establish that data collected or processed were “necessarily obtained for use in the case.” [Slip Op. at 27] In broad strokes, this means that invoices or declarations from an e-discovery vendor with generic descriptions like “data collection,” “data processing,” or “electronic discovery services” will not suffice. Just as lawyers decades ago had to abandon invoices with generic statements such as “legal services rendered” and a dollar total, e-discovery vendors will need to provide sufficient detail if parties want to recover those expenses as taxable costs.
Certain Costs Associated Exclusively With Modern Discovery—Like Optical Character Recognition—May Be Recoverable.
The court’s first tip of the hat to modern discovery’s complexities is acknowledging that “copying” data isn’t the same as photocopying paper. Current practice may involve optical character recognition (“OCR”) (making material text-searchable), providing metadata, and converting materials to non-editable formats (so a reviewer can’t alter a produced email, for example). The parties may agree to such production, a trial court may order it, or one party may demand it. “When copies are made in a fashion necessary to comply with obligations such as these, costs are taxable so long as the copies are also ‘necessarily obtained for use in the case.’” [Slip Op. at 27] While it is encouraging to see the court recognize that OCR, sequentially numbering data, or providing metadata are recoverable costs in the modern era, don’t leave it to chance. Memorialize an agreement with your opponent about producing data in such formats to enhance your ability to recover the costs.
Specific Expenses The Court Addressed.
The Vendor’s Expertise Typically is not Recoverable.
Often, an e-discovery vendor does much more than mechanically gather and process data. The vendor may provide guidance and expertise about the best ways to harvest data, de-duplicate data, recreate archived data, etc. A party won’t be able to recover that type of “intellectual effort involved in [data] production” under § 1920(4), though. [See Slip Op. at 36 (quotations omitted)] Work with your vendor to ensure that its invoices segregate this type of intellectual effort from the more mechanical (and recoverable) aspects of data production. Absent that type of specificity, the court likely will deny the request.
Creating a Database to Review Data may not be Recoverable.
Netflix and its vendor indicated that uploading documents was necessary to create a new database so Netflix’s counsel could select documents for production. That included reviewing for privilege. The Ninth Circuit believes that reflected the process that Netflix and its vendor wanted to use; it did not indicate that reviewing an uploaded copy in a new database was necessary for use in the case.
Admittedly, this seems like a very narrow view. Even in the days of hardcopy-only review, no one would want the legal team handling the original documents—the risk of tearing pages, spilling coffee, or misplacing papers was too great. You made a Bates-numbered set for the team to work with. Nonetheless, uploading data for review likely isn’t recoverable in the Ninth Circuit.
Filtering or “Keywording” may not be Recoverable.
The next challenged expense related to “keywording” activities. That is the process of filtering data (e.g., emails, Word documents) to identify those containing key words; those without the key words typically are deemed non-responsive. The court concluded that was akin to a lawyer reviewing documents to identify which were responsive to discovery requests. Accordingly, using automated software filtering processes to identify the documents to produce was not a taxable cost.
Enhanced Processing for Production Sets is Recoverable.
The next cost was a flat $10,000 charge for copying nearly 80 gigabytes of data—the equivalent of tens of millions of pages of documents—for production (not merely review). Some of those tasks would be recoverable, such as OCR, conversion to TIFF, and other activities essential to making copies that were necessary to the case. Anything beyond those activities in the $10,000 charge, however, could not be recovered.
The Key Takeaways For Practitioners.
The Ninth Circuit gave clear guidance that costs attributable to OCR, converting documents to TIFF, and “endorsing” activities—all of which the plaintiffs had requested—were recoverable. “Endorsing” activities include tasks such as sequentially numbering every image produced (also known as “Bates numbering”). This especially is the case when the parties agree to such production formats, the trial court orders them, or a party’s requests for production demand it. Other points include:
Your vendor must provide specific task descriptions on its invoices. What exactly did the vendor do and how do we know that expense related to copies “necessarily obtained for use in the case”? Task-based work descriptions may be necessary.
Your vendor should track what proportion of data collected you actually produced. For example, if you produced 27 gigabytes of 100 gigabytes collected, you have a stronger case for recovering 27% of bulk costs. You should still be able to recover all of your OCR, etc., costs associated with the 27 gigabytes you produced in all events.
James Smith is a partner in the Phoenix office of Bryan Cave LLP. He is a member of the Class & Derivative Actions Client Service Group.