Cost-Shifting for Use of an Electronic Document Database Trumped by Parties’ Agreement to Share Costs

Addressing cost-shifting awards under 28 U.S.C. § 1920, the U.S. Court of Appeals for the Federal Circuit held that costs for the use of an electronic document database would have been taxable absent the parties’ cost-sharing agreement.   In re Ricoh Co., Case No. 11-1199, (Fed. Cir., Nov. 23, 2011) (Dyk, J.).  Though not further addressed in this update, the Court also vacated and remanded an award of copying costs because the supporting documentation lacked specificity and affirmed an award of deposition costs that included costs for both videotaping and preparing written transcripts.  

The district court awarded the accused infringer Synopsys, the prevailing party in the underlying patent dispute, approximately $1 million in costs, of which almost one-quarter was for use of the Stratify database.  Rule 54(d)(1) of the Federal Rules of Civil Procedure provides that “costs … should be allowed to the prevailing party.”  The types of costs that can be awarded, however, are limited by 28 U.S.C. § 1920.  On appeal, patent holder argued that the costs for use of the electronic document database were not authorized under § 1920 or, in the alternative, that the parties’ cost-sharing agreement precluded cost-shifting.

The database costs at issue resulted from the use of Stratify, a third-party electronic discovery company that provides document processing, review, production and hosting services.  In the course of discovery, the plaintiff had suggested using Stratify for the production of e-mails from Synopsys’s customers to allow review in native format.  Synopsys later argued that because Stratify was used as the exclusive means for producing e-mails, the full cost of using Stratify should be taxable under § 1920(4), which authorizes “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”  The plaintiff argued that Stratify provided a document review database, as opposed to document production, and that costs associated with Stratify should therefore not be taxable.

The Federal Circuit determined that “costs of producing a document electronically can be recoverable under section 1920(4).”  Reasoning that “Synopsys’s act of making available all of the requested e-mail to Ricoh through Stratify constituted electronic production of the e-mail,” the Court explained that “the basic Stratify costs would be recoverable under section 1920(a), absent an agreement to the contrary.”  The parties, however, had agreed by contract to share the cost of using Stratify, and this agreement precluded cost-shifting.  Applying U.S. Court of Appeals for the Ninth Circuit law, the Federal Circuit held that the cost-sharing agreement was controlling and reversed the award of costs.

Practice Note:   The law of the regional circuit applies in determining if a cost-sharing agreement is controlling.  In this case, citing one U.S. Court of Appeals for the Third Circuit case in accord with 9th Circuit law, the Federal Circuit noted that “[t]here is scant authority from other circuits as to whether a cost-sharing agreement … is controlling as to the ultimate taxation of costs.”  Be sure to check the law in your circuit on this point.