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June 26, 2019 - Federal Procurement, Data Rights, Grants, Intellectual Property, Cybersecurity & Data Privacy

Supreme Court Removes “Substantial Competitive Harm” Requirement for Contractors Seeking to Protect Confidential Information from Release Under FOIA

Supreme Court Removes “Substantial Competitive Harm” Requirement for Contractors Seeking to Protect Confidential Information from Release Under FOIA

You can rejoice in a recent Supreme Court decision if you have ever spent hours trying to convince a government agency not to release your company’s confidential information to the public in response to a Freedom of Information request. In a reversal of long-standing precedent in federal district and circuit courts, the Supreme Court ruled Monday that those submitting confidential information to the government need not demonstrate a “substantial competitive harm” to protect that information from disclosure under the Freedom of Information Act (FOIA). Instead, the Court held in Food Marketing Institute v. Argus Leader Media that those seeking to prevent disclosure of confidential commercial or financial information under FOIA Exemption 4 need simply demonstrate that (1) the information is “customarily kept private” or “closely held”; and (2) the government, in receiving the information, provided “some assurance that it will remain secret.”  The extent to which this new rule will limit the nature and type of federal contractor information released under FOIA is unclear. But the Court’s decision, at the very least, assures contractors that they will no longer be forced to prove (to an agency or to a court) that they will be substantially harmed by the release of information they provide to a federal agency, so long as that information has been provided with the expectation that it remain confidential.

At the center of Food Marketing Institute is “Exemption 4” to FOIA’s mandatory disclosure requirement, which states that FOIA does not apply to “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. § 552(b)(4). Congress provided no guidance in the FOIA statutes as to what would make commercial or financial information “confidential,” but for 45 years, federal courts all but unanimously applied the D.C. Circuit’s National Parks test, requiring a party to demonstrate that disclosure of such information would either “impair the Government’s ability to obtain necessary information in the future” or “cause substantial harm to the [submitter’s] competitive position.”  See National Parks & Conservation Assn. v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

In an opinion authored by Justice Gorsuch and joined by Chief Justice Roberts and Justices Thomas, Alito, Kagan, and Kavanaugh, the Supreme Court rejected that test as “a relic from a ‘bygone era of statutory construction,’”[1] one that inappropriately elevated legislative history above statutory text. The Court, turning instead to an assortment of English‑language and legal dictionaries contemporary to FOIA’s enactment, found no mention of “substantial competitive harm” in their definitions of “confidential.”  Instead, the Court gleaned “two conditions” that “might be required” to make information confidential. Based on definitions such as “known only to a limited few,” “not publicly disseminated,” and “intended to be held in confidence or kept secret,” the Court found that information could be considered confidential if it “is customarily kept private, or at least closely held, by the person imparting it.”  Based on definitions such as “spoken or written in confidence” and “told in confidence,” the Court found that information also could be confidential if “the party receiving it provides some assurance that it will remain secret.”

The Court questioned whether both conditions must be met. The first “has to be,” it figured, as “it is hard to see how information could be deemed confidential if its owner shares it freely.”  But the Court left open whether “privately held information [can] lose its confidential character for purposes of Exemption 4 if it’s communicated to the government without assurances that the government will keep it private,”[2] finding the information at issue clearly satisfied both conditions.

So, for now at least, a contractor seeking to prevent the release under FOIA of information it has submitted to the government must show that information was submitted under some assurance that the government would keep it secret. But what kind of assurance satisfies?  In Food Marketing Institute, the Court cited the government’s promises of privacy in the Federal Register when promulgating regulations requiring submission of the data at issue. If text supporting a regulation counts, then one would strongly suspect the government’s assurances in FAR 15.506(e)(3) — that it will not disclose in a debriefing any confidential manufacturing processes or techniques, cost breakdowns, profit, indirect cost rates, or similar information submitted with a proposal — should also suffice. By corollary, the promise to disclose information such as overall cost or price, including unit prices, in FAR 15.506(d) means such information would not be protected under Food Marketing Institute.

In all events, it is as important now as ever that contractors mark their proposals with the legend supplied in FAR 52.215-1:

This proposal includes data that shall not be disclosed outside the Government and shall not be duplicated, used, or disclosed — in whole or in part — for any purpose other than to evaluate this proposal. If, however, a contract is awarded to this offeror as a result of — or in connection with — the submission of this data, the Government shall have the right to duplicate, use, or disclose the data to the extent provided in the resulting contract. This restriction does not limit the Government’s right to use information contained in this data if it is obtained from another source without restriction. The data subject to this restriction are contained in sheets [insert numbers or other identification of sheets]

or such other legend or marking as prescribed in the RFP. Use of this legend will help ensure that the proposal — and any portions of it not incorporated into the final contract — will remain confidential. Furthermore, during contract performance, it is essential to mark all technical data and computer software in accordance with the applicable data-rights clauses.[3]  And, where appropriate, mark other documents with a FOIA legend such as the following:

This document contains trade secrets and commercial or financial information which are proprietary and confidential and exempt from disclosure under the Freedom of Information Act, 5 U.S.C. § 552(b)(4). Furthermore, this information is prohibited from disclosure under the Trade Secrets Act, 18 U.S.C. § 1905. [4]

These practices should not be new to government contractors, but if your company has not been using them routinely, we recommend that you implement them immediately. Although the scope of information protectable under FOIA Exemption 4 may have grown, the sensitive information that keeps contractors up at night — cost breakdowns, indirect rates, confidential technical information, and trade secrets — have long been exempt from disclosure, if marked appropriately. The difference now is that, under Food Marketing Institute, contractors will be spared the time, cost, and aggravation of having to prove, at the behest of an aggressive FOIA-requester or insistent government official, that disclosure could cause them substantial harm when, in many cases, the FAR itself already recognizes as much. This is welcome, and warranted, relief.

[1] This quotes the United States in its amicus brief, in which the Administration’s position was a marked departure from those before it and undoubtedly in contrast with the government’s position in many ongoing FOIA disputes.

[2] Emphasis in original.

[3] See, e.g., FAR 52.227-14(g)(3)-(4) (Alternates II and III), DFARS 252.227-7013(f), and DFARS 252.227-7014(f).

[4] This additional sentence recognizes a nuance that is beyond the scope of this post, but one that might be affected by the Food Marketing Institute holding — that is, FOIA does not itself prohibit the government from disclosing information that falls within an exemption; the Act’s exemptions merely enumerate categories of information the government is not required to disclose pursuant to a FOIA request. Courts have long held that FOIA Exemption 4 is coextensive with (or at least wholly within) the scope of the Trade Secrets Act, 18 U.S.C. § 1905, which prohibits government officials from disclosing “information concern[ing] or relat[ing] to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association,” and can serve as a basis for injunctive relief under the Administrative Procedure Act if an agency has decided to disclose information falling into FOIA Exemption 4. See Chrysler Corp. v. Brown, 441 U.S. 281 (1979); CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1151-52 (D.C. Cir. 1987); McDonnell Douglas Corp. v. Dep’t of the Air Force, 375 F.3d 1182, 1186 (D.C. Cir. 2004). With the scope of FOIA Exemption 4 now greatly enlarged under Food Marketing Institute, however, it’s possible courts could find situations in which information would be exempt from disclosure under FOIA but not necessarily protected from disclosure under the Trade Secrets Act.