Is Your Trade Secret Safe Under FOIA?

Fenwick & West LLP

Fenwick & West LLP

In June 2019, the U.S. Supreme Court decided Food Marketing Institute. v. Argus Leader Media. The case marked the Court’s first chance to address an important question: When can (or cannot) the federal government withhold information from a Freedom of Information Act request based on the contention that responsive information is confidential or a trade secret? The Court held that commercial or financial information that is “customarily and actually treated as private by its owner and provided to the government under an assurance of privacy” is confidential under Exemption 4 to FOIA and is therefore shielded from disclosure.

Argus Leader Media, a newspaper company, filed a FOIA request for data collected by the U.S. Department of Agriculture requesting the name, address and store-level data for all retail stores that participate in the national food stamp program. The USDA released the names and addresses of the participating stores but declined to disclose the requested store-level food stamp data, citing FOIA’s Exemption 4, which shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Unsatisfied with the USDA’s nondisclosure, Argus brought a lawsuit in the U.S. Court of Appeals for the Eighth Circuit to compel disclosure of the store-level data.

Like many other courts, in Argus Leader Media v. United States Department of Agriculture, the Eighth Circuit applied the “substantial competitive harm” test to determine whether FOIA’s Exemption 4 shielded disclosure of the requested store-level data. Under this test, commercial information is not confidential unless the disclosure of such information is “likely…to cause substantial harm to the competitive position of the person from whom the information was obtained.” The Eighth Circuit ordered disclosure, finding that such disclosure was not likely to cause “substantial competitive harm.”

On appeal, in Food Marketing, the Supreme Court rejected the “competitive harm” test, noting that the test was a “casual disregard of the rules of statutory interpretation” and did not find support in the statutory language. Instead, the Court used the plain meaning of the term “confidential” as understood at the time Exemption 4 was enacted. It found that information is confidential if: (1) the information is “customarily kept private, or at least closely held,” by the submitting party of information; and (2) where the receiving party provides “some assurance that [the information] will remain secret.” The Court explained that the first condition must always be established because it would not make sense for the government to treat information as private if the owner does not. However, the Court left open the second question: whether confidential information loses its confidential status if it is provided to the government without assurance that the information will remain private. The Court went on to state that “at least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is ‘confidential’ within the meaning of Exemption 4.”

Although Food Marketing seems to broaden the scope of Exemption 4, it is unclear whether both conditions must be met for trade secrets to be protected under the exemption. In an October 2019 guidance update, the Department of Justice suggested that “agencies should as a matter of sound administrative practice consider both conditions in the process of determining whether to invoke Exemption 4's protection for ‘confidential’ commercial or financial information.” With that, companies that must disclose confidential information to federal agencies should obtain explicit assurance that the agencies will not disclose the information in response to a FOIA request. Further, companies should ensure that they are taking the necessary precautions to keep their trade secrets private, as agencies may seek information from the submitter about its practices.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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