There are no Magic Words for Taxation of Processing Costs, but there is the Law

Taxation of cost cases can be dull. However, when the Judge shoots down an argument with a YouTube video in the opinion, you know it’s a party.

The prevailing party in a trademark infringement case between companies that make portable electronic fitness tracking devices sought $88,888.86 in costs and the clerk awarded $54,089.15. The Court ultimately granted $63,660.94 in costs. Fitbug Ltd. v. Fitbit, Inc., 2015 U.S. Dist. LEXIS 62879, *2 (N.D. Cal. May 13, 2015).

The opposing party made a procedural argument against awarding costs based on the fact the declaration filed in support of the Bill of Costs with statutory citations did not include the three words “allowable by law.” The Court rejected this argument, stating:

… the requirement a party say the “three little words,” “allowable by law,” is merely a reminder that the Court expects them to submit costs they believe are taxable, not a set of magic words necessary to receive any costs. Cf. Sarah Vaughan, Three Little Words, on Live at the London House (Mercury Records 1958), available at: https://www.youtube.com/watch?v=9WSZ6IRC-ys

Fitbug Ltd., at *4-5.

With that, Judge Samuel Conti simultaneously invoked one of the greatest jazz singers of the 20^th Century and reminded us that legal arguments do not come out of book of spells. Well played. Fitbug Ltd., at *6.

Taxation of eDiscovery Costs

The Court noted that Section 1920 was enacted in 1853 and did not speak on electronic discovery costs (largely because “new” technology at that time included typewriters and telegraphs). Fitbug Ltd., at *6.

Judge Conti summarized that taxation for “exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case . . .” applies to some electronic discovery expenses. Fitbug Ltd., at *7.

Granting Data Extraction and Processing Costs

The Court allowed $32,282.05 in processing and data extraction costs to be taxed. Fitbug Ltd., at *11. There are many cases where processing costs are denied, so this is a significant award.

The supporting declarations explained that the costs related “to collection, scanning and conversion of documents, and related processes necessary to the eDiscovery process,” and these entries specifically “concern document collection, including scanning and related processes.” Fitbug Ltd., at *8. In a supplemental declaration, the prevailing party explained the costs were necessary to prepare discovery documents for production to the opposing party in the format to which the parties agreed to produce ESI. Fitbug Ltd., at *8-9.

The Court held the processing expenses were properly taxed for complying with the parties’ ESI agreement. Furthermore, the Court also allowed the costs for extracting metadata, because “these too are necessarily incurred, allowable exemplification costs because they were incurred not for the convenience of counsel, but to comply with the parties’ agreement.” Fitbug Ltd., at *10-11.

The Court also held that the cost of converting document formats as required per the parties’ agreement were also taxable. The Court explained the costs were “expressly contemplated by the parties’ agreement and are necessarily incurred exemplification costs.” Fitbug Ltd., at *11-12.

Bow Tie Thoughts

ESI Protocols determined at the Rule 26(f) Conference and codified in a Court Order at the Rule 16(b) Hearing matter. This case highlights that production formats agreed to by the parties can be taxable. However, if the parties had agreed that discovery costs were to be carried by the parties, this case could have turned out very differently.

A lawyer cannot cry “I Cast Ye Costs Out!” as if these were magic words that would prohibit a prevailing party from recovering agreed to costs for the production of ESI. However, a well prepared ESI Protocol that addresses costs could have that very effect.