As we’ve discussed multiple times (see here, here, and here), the issue of what types of ediscovery costs are taxable under 28 U.S.C. § 1920 was first addressed by a federal appellate court last spring in Race Tires America, Inc. v. Hoosier Racing Tire Corp.  The Third Circuit – in line with the Supreme Court’s interpretation of Section 1920 – declined to broadly apply the statute, concluding that only the costs of scanning paper documents and converting native files into TIFF images are recoverable.  The Third Circuit’s analysis has gained traction with numerous district courts, but last week, gained its first appellate follower.

The Fourth Circuit relied heavily on the analysis in Race Tires in denying a majority of the prevailing party’s ediscovery costs in Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc.  The Fourth Circuit affirmed the lower court’s decision that only costs for the conversion of native files to TIFF or PDF and the transfer of files onto CDs constituted “making copies” as contemplated by Section 1920(4).  In so holding, the Fourth Circuit found that costs for flattening and indexing ESI, searching and extracting data, bates numbering, and management tasks are not recoverable.  The Court reasoned that the Supreme Court has found that taxable costs are “limited to relatively minor, incidental expenses” that “almost always amount to less than the successful litigant’s total expenses.”

Like Race Tires, the Fourth Circuit also found that parties who believe they have compelling equitable reasons to seek protection from the burden or expense of electronic can seek a Protective Order (and appeal any denial thereof) in the course of the litigation, but cannot obtain this protection retroactively from Section 1920 which “impose[s] rigid controls on cost-shifting in the federal courts.”  We expect decisions from at least the Federal Circuit and Ninth Circuit in the coming months addressing this issue.  Stay tuned as we continue to follow the trends of this often times million dollar question.