Earlier this year, the Supreme Court ruled in a copyright infringement case that e-discovery expenses can’t be recovered by prevailing parties according to the federal statute that allows costs to be “taxed” against losers. In throwing out a $12.8 million award of costs to Oracle, the recipient of a $50 million jury verdict against Rimini Street, the court foreclosed in its March 4 opinion by Justice Kavanaugh on the ability of victorious parties to recover the costs that are often among the most significant in U.S. litigation.
Though it largely slid under the radar, the decision is significant. It, in theory, closes for good a more than decade-long chapter of indecision and confusion over the thorny questions of whether prevailing litigants can make their opponents pay their e-discovery fees—and if so, which ones. In Oracle, the court ruled categorically: the federal cost-taxing statute, 28 U. S. C. §1920, “do(es) not authorize an award for expenses such as… e-discovery expenses.”
The ruling stands to put to end a precarious coin-flip scenario that has played out across federal courts for many years, where victorious litigants have collectively moved for recovery of hundreds of millions of dollars of e-discovery costs not knowing whether they’d be allowed. For unsuccessful plaintiffs, faced with the salt-in-the-wound prospect not just of losing, but having to foot potentially massive bills to repay the other side’s discovery costs, this arrangement has been particularly fraught.
The long-running uncertainty around taxation of e-discovery costs resulted from a combination of factors that are only now being resolved: circuit splits and conflicting decisions within circuits, lack of guidance from the highest court in the land, the unwillingness of Congress to amend the dubious language of the statute, and, perhaps most problematically, lack of awareness across the judiciary of emerging cost-taxing case law and of the mechanics of e-discovery in general.
It is this last element that likely leaves the door open for opportunistic litigants looking to get their opponents to pay up, even as the Supreme Court has seemingly put that option to bed for good. Even in the days since Oracle, at least one court has said that discovery costs related to file conversion and data processing are recoverable. And, of course, guidance from the Supreme Court on this issue has been ignored in the past, most recently in the wake of Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1997 (2012), where, in ruling against a prevailing defendant seeking document translation expenses, the court said taxable costs are “limited by statute and modest in scope.”
In Oracle, the Supreme Court once again, as it did in Taniguchi, considered how—and how narrowly—to apply the language of 28 U.S.C. § 1920, the federal cost-taxing statute that works in tandem with the “prevailing party” rule, Federal Rule of Civil Procedure 54. (It also considered which litigation costs could be awarded under the Copyright Act, which gives district courts the discretion to award “full costs” to copyright litigants.)
An ill-conceived mess of words, 28 U.S.C. § 1920 was amended by Congress in 2008 to allow courts to tax a range of costs, including, in pertinent part “(4) fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” That language was updated from “fees for exemplification and copies of papers” in an attempt to account for the coming deluge of electronically stored information that has since become intractable to even the most common legal disputes.
But what actually constitutes “exemplification and copies” in the context of modern discovery practice has largely been a matter of guesswork by judges and shrewd framing by parties attempting to recover costs. In recent years, courts have generally fallen into one of two camps.
Those favoring a narrow view of the statute have allowed costs only for file conversion, document scanning and other activities that can be construed as duplicating information that will ultimately be used as evidence (see e.g. Race Tires America, Inc. v. Hoosier Racing Tire, Corp., 674 F.3d 158 (3d Cir. 2012)).
Those adopting a broader scope—led by the Ninth Circuit, out of which the Oracle case derives—have allowed costs for a wide range of activities, including keyword searching, data processing, data culling, OCRing and, in some instances, technical work related to retrieval, collection and preservation of information. (see, e.g., Comprehensive Addiction Treatment Center, Inc., et al. v. Daria Leslea, et al., No. 11-cv-03417 (D. Colo., Feb. 13, 2015). These courts have generally taken the view that the prospect of allowing e-discovery costs to be taxed against losing parties acts, in theory, as a deterrent against overly broad or otherwise disproportionate discovery demands.
The Oracle case, a decade-long legal battle over alleged misuse of 93 Oracle patents, puts into perspective the enormity of e-discovery expenses and, though such an analysis is absent from Justice Kavanaugh’s opinion, the potential impact of forcing parties to bear their own discovery costs with limited avenues for recovery. About $4.7 million of the $12.8 million in costs Oracle incurred during discovery went toward vendor-related fees to produce more than a million pages. Though that figure pales in comparison to the $28.5 million in fees Oracle paid its attorneys, it represents almost a tenth of the $50 million jury award—and the largest bucket of non-recoverable litigation expenses.
On e-discovery cost-taxing, the Supreme Court’s decision is definitive.
But it doesn’t resolve the far more stubborn problem: There are still 94 federal district courts that by and large have no grasp of this issue, are not technically competent to assess highly complex discovery minutiae, and will most likely not take note of Oracle unless it is called to their attention.
Litigants should act accordingly. Requesting parties concerned about being on the wrong side of a large discovery invoice should ask only for what is necessary and proportional. Cost-sharing and shifting agreements should be wielded enthusiastically. And, above all, prevailing parties standing to gain large sums recovering e-discovery costs should dig into the case law, find supporting examples, and demand it all.
If there’s anything to be learned over the last 10 years, it’s that there’s no downside in rolling the dice, because when it comes to e-discovery, the judiciary’s approach is a big ¯\_(ツ)_/¯.
