Can a non-profit charity have trade secrets? The Red Cross thinks so. Its claim to trade secret protection over information related to Hurricane Sandy relief efforts made headlines and left some journalists and activists feeling, well, cross. But is the Red Cross’s trade secrets claim really so unusual? And what can other non-profits learn from it?
The Red Cross’s trade secrets claim grew out of a letter from the New York State Attorney General’s office seeking information on how the Red Cross spent Hurricane Sandy relief donations. ProPublica, which bills itself as “an independent, non-profit newsroom that produces journalism in the public interest,” filed a public records request for the information the Red Cross provided to the New York AG. The Red Cross objected that ProPublica’s request encompassed “highly proprietary and confidential … information relating to the American Red Cross’s operations procedure and fundraising methodology” and “internal strategy.” Notably, the proprietary information included “confidential financial information that is not normally made publicly available both in regard to its response to Superstorm Sandy and disaster relief in general.” The Red Cross argued that these were trade secrets exempt from New York’s Freedom of Information Law.
The AG’s office granted the Red Cross’s request for an exemption, except for some specific pieces of information that were not shown to be trade secrets. The most interesting aspect of this decision is that it accepts, generally, that a charitable organization like the Red Cross may have trade secrets. The AG also said that disclosing those secrets “would cause the Red Cross economic injury and put the Red Cross at an economic disadvantage.” This rationale perplexed several columnists and bloggers. ProPublica’s story includes a quote from a “watchdog group” exemplifying the dissenters’ sentiment: “Invoking a ’trade secret’ exemption is not something you would expect from an organization that purports to be ’transparent and accountable.’”
But the Red Cross is hardly the first charitable or non-profit organization to claim it has trade secrets. The University of Connecticut recently succeeded in exempting from a public records request the names and contact information of its donors. The highest state court in Connecticut agreed that these donor lists were trade secrets, ruling that trade secret protection was not limited to entities engaged in “trade” and did not exclude public organizations. In addition, at least two disputes (American Syringomyelia Alliance Project v. Chiari and Syringomyelia Foundation and Alzheimer’s Disease Resource Center v. Alzheimer’s Disease and Related Disorders Association) between competing charitable organizations ended up in federal court over alleged misuse of trade secret donor lists. The plaintiffs in those two cases had less success, however: one failed to get a preliminary injunction and stipulated to dismissal soon after, and the other saw its trade secret claim dismissed.
Protecting the proprietary information of charities and non-profits as trade secrets makes sense, at least to a point. They compete for donors and dollars just like for-profit businesses compete for customers and contracts. We do not know exactly how broadly the Red Cross is claiming trade secret protection here. It will be interesting to follow this dispute and see if the initial decision holds up (both the Red Cross and ProPublica have the right to appeal).
Two take-aways from these cases: First, charities, non-profits, and publicly-funded entities should not ignore the opportunities they may have to protect their hard-earned donor lists and (maybe) other proprietary information as trade secrets. Second, these types of organizations should consider their unique public relations concerns before claiming trade secret protection. For-profit businesses may not worry about trade secret battles leading to boycotts, but the thought of altruistic charities concealing how they allocate donations or fighting with “competing” charities over donor lists seems distasteful to many. Barry Ritholtz of Bloomberg, in declaring an end to his Red Cross donations, gave a warning other non-profits should consider: “The Red Cross may win the battle for opacity, but it will lose the war for philanthropic donations in times of crisis.”