Costs of OCR Ruled Taxable by Court Under 28 U.S.C. § 1920(4)

18 Mar 2022

In U.S. FUTURES EXCHANGE, LLC and U.S. EXHANGE HOLDINGS v. BOARD OF TRADE OF THE CITY OF CHICAGO and CHICAGO MERCANTILE EXCHANGE, INC., No. 04 C 6756 (N.D. Illinois, Jan. 6, 2022), Defendants sought costs in the amount of $307,033.40 after the Court granted summary judgment to the Defendants that was affirmed on appeal.

Plaintiffs opposed $217,033.40 of the costs, among which were: “$140,602.80 in costs for electronically stored information (“ESI”) processing and electronic document production.”  From Defendants’ request for $140,602.80, $126,926.49 was for the reproduction of documents in 2014 that the Defendants originally produced to the Department of Justice in 2007, and $13,676.30 was for processing and preparing their production of documents in 2017.

Defendants’ production in 2014 and 2017 consisted of “(1) applying Optical Character Recognition (“OCR”) software to documents in order to make them text searchable, (2) conversion of digital native files into readable formats (TIFF or PDF), and (3) bates stamping the digital files.”  Plaintiffs argued that “costs associated with preparing ESI for production, such as applying OCR, are not taxable.’”

Pursuant to 28 U.S.C. § 1920(4), “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case” are permitted to be taxed as costs.  Courts have traditionally interpreted “exemplification” and “making copies” with reference to the cost of making photocopies of paper documents.

In its opposition, Plaintiffs cited a case from the district which held that “preparing ESI for conversion into a readable file format” did not constitute as “exemplification” or “making copies” for purposes of § 1920. However, the Seventh Circuit explained that the costs for converting computer data into a readable format are recoverable. Courts in the district have also awarded costs for conversions of hard copies into electronic format.

As detailed by the Court, some courts have distinguished the costs for format conversion and OCR application and found format conversion is compensable but OCR application is not. The courts that have declined to award OCR costs have done so because documents are “readable” upon conversion to the proper electronic format, whereas OCR is an added process to make those readable documents word-searchable.

According to the Court, OCR application is not analogous to making a photocopy of a paper document, which is why some courts disallow such costs. However, parties generally expect electronic document productions to be word-searchable and being word-searchable is the benefit of an electronic document which is one of the reasons why electronic documents are produced in databases rather than by printing hard copies.  And, as other courts have observed, being word-searchable is a “fundamental” characteristic of an electronic “copy.” The Court thus agreed the costs of OCR in this case were taxable under § 1920(4).

Plaintiffs also argued that Defendants’ ESI vendor’s statement of work which showed the costs of the production, which included costs such as loading, processing, and storage, were not recoverable under § 1920(4). Defendants, however, presented affidavits from their vendor that stated the charges for format conversion and OCR, which was a sufficient basis for the Court to award costs.

Plaintiffs further argued that even if the Court found that ESI processing for which the Defendants sought reimbursement constituted “copies” under § 1920(4), the copies were only taxable if they were “necessarily obtained for use in the case.”

Plaintiffs claimed that the costs of the 2014 production were unnecessary because Defendants had already produced the documents to the Department of Justice and “Plaintiffs offered to take a straight reproduction of the DOJ documents” without “any additional processing.” Plaintiffs also asserted that some of the costs of the 2017 production were potentially duplicative of work done in connection with the DOJ documents, and were therefore unnecessary.

Plaintiffs’ argument was premised on the contention that the Court ordered Defendants to make a document production in this case that was identical to what was produced to the DOJ. However, Defendants were only required to product a subset of the DOJ documents. The Court narrowed the time period of documents to be produced. Defendants re-processed the documents in order to create the sub-set. Further, the “original media” used to make the production needed to be re-processed because certain files from CD-ROMs from the original DOJ production were corrupted, and some hard copy documents were destroyed by the DOJ rather than being returned.

The Court found, for the above reasons, that it was not possible to simply provide a “straight reproduction of the DOJ documents” as Plaintiffs allegedly requested. Thus, the conversion costs of the DOJ were deemed necessary and taxable.