Third Circuit Addresses E-Discovery Costs for Losing Parties

The Third Circuit recently addressed e-discovery, which is an evolving and developing area of law.  The specific issue before the Third Circuit in Race Tires America, Inc. v. Hoosier Racing Tire Corp., was whether all the charges imposed by electronic discovery vendors to assist in the collection, processing and production of electronically stored information (“ESI”) are taxable against a losing party as “fees for exemplification [or] the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”  See 28 U.S.C. § 1920(4).  The Third Circuit had not dealt with issue before and courts that have opined on this issue have reached conflicting decisions.  The district court had ordered the losing party to pay $365,000 in e-discovery costs in a market monopoly suit against a competitor.  The Third Circuit cut the award down to $30,000.

The panel discussed the significant role that e-discovery plays in litigation and noted that it “is estimated that in 2011, 1.8 zettabytes of data were created, the equivalent of 57.5 billion iPads, each with thirty-two gigabytes of storage.”  The Third Circuit held “that of the numerous services the vendors performed, only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved ‘copying,’ and that the costs attributable to only those activities are attributable under § 1920(4)’s allowance for the ‘costs of making copies of any materials.’”

The court also provided some comfort to parties that are concerned about being held responsible for e-discovery costs when they lose a case.  The court opined that “[n]either the language of § 1920(4), nor its history, suggests that Congress intended to shift all the expenses of a particular form of discovery—production of ESI—to the losing party.  Nor can such a result find support in Supreme Court precedent, which has accorded a narrow reading of the cost statute in other contexts.”

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