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Award of Costs Under Rule 54(d)(1) Cannot Exceed the Scope of 28 U.S.C. § 1920

January 26, 2006

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Last Month at the Federal Circuit - February 2006

Judges: Rader, Bryson (author), and Gajarsa

In Summit Technology, Inc. v. Nidek Co., No. 05-1292 (Fed. Cir. Jan. 26, 2006), the Federal Circuit modified an award of costs to Nidek Company (“Nidek”) because certain portions of the award were not statutorily allowable costs and other portions of the award were not supported by any evidence.

The district court awarded costs to Nidek, the prevailing party in the underlying patent infringement suit, without explaining how it computed the amount. Summit Technology, Inc. (“Summit”) appealed and the Federal Circuit remanded, directing the district court to indicate how it computed its award. The district court conducted a hearing and computed the amount of costs to award Nidek. Summit once again appealed, contesting portions of the award for trial exhibits, photocopying, and deposition expenses. The Federal Circuit noted that even though it reviews a district court’s grant of costs under Fed. R. Civ. P. 54(d)(1) for abuse of discretion, a district court may only award costs that fall within the provisions of 28 U.S.C. § 1920, and whether an expense falls under § 1920 constitutes statutory interpretation, which it reviews de novo. Given that the Federal Circuit defers to regional circuitlaw in such cases, the Court sought to determine how the First Circuit would rule.

The Federal Circuit agreed with Summit that the district court should not have awarded Nidek fees it paid a consultant for preparing trial exhibits, including computer animations. In the Court’s view, such expenses did not constitute “exemplifications [or] copies of papers necessarily obtained for use in the case,” and thereby did not fall within 28 U.S.C. § 1920(4). Consequently, those expenses could not constitute taxable costs under Fed. R. Civ. P. 54(d)(1).

The Court rejected Nidek’s argument that the First Circuit would take a broad view of “exemplifications” and allow such costs. Nidek based its argument primarily on a 1957 decision of a district court in the First Circuit that stated that the test for whether a chart expense should be taxable as costs is the extent to which it provided “real assistance to the court.” According to the Federal Circuit, the case Nidek relied on does not represent current First Circuit law because the party in that case against whom such costs wereassessed did not raise the issue on appeal. Moreover, that decision preceded the U.S. Supreme Court’s pronouncement in Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437 (1987), limiting a lower court’s discretion under § 1920 to the kinds of costs allowed under the statute.

Furthermore, finding no First Circuit decisions directly on point, the Federal Circuit surveyed decisions from the other circuits and concluded that several narrowly interpreted “exemplification.” The Court found these decisions consistent with its own prior decision applying Sixth Circuit law, where it narrowly construed “exemplification,” noting that Congress did not use the broad phrase “demonstrative evidence” in § 1920. According to the Court, even the Seventh Circuit, which has allowed a broad construction of “exemplification,” has acknowledged that Congress did not contemplate including costs for computer animations under § 1920.

Regarding photocopy expenses, the Court noted that First Circuit law awards costs “reasonablynecessary to the maintenance of the litigation.” The Court agreed with Nidek that in a complex litigation, one cannot expect tracking of every photocopied page along with a record of its relevance to the litigation. Nevertheless, the Court reduced the amount of costs awarded for Nidek’s internal photocopy expenses by 50 percent to account for unnecessary copies, as Nidek had already agreed to for photocopies made by outside vendors. Moreover, the Court eliminated an award of costs for internal photocopy expenses by Nidek’s secondary counsel because there was no evidence to support such costs.

Finally, the Federal Circuit reduced the amount of costs designated as deposition expenses because Nidek’s invoices and supporting testimony did not indicate who was deposed or what services were included in the invoice charge.

In conclusion, the Court surmised that both the district court and Nidek viewed the cost award as appropriate given the complexity of the underlying patent infringement suit. The Federal Circuit disavowed this view, stating: “Cost awards are bound by the constraint of section 1920, and, when challenged, a prevailing party must offer some reliable documentation or other proof that its bill of costs represents the allowable costs that it actually and necessarily incurred during the litigation.” Slip op. at 15.