Protecting Government Contractors’ Confidential Information Just Got Easier

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At the end of June, the U.S. Supreme Court issued an important Freedom of Information Act (FOIA) decision that decreases the burden on contractors seeking to protect confidential information.  As most contractors are aware, FOIA requires that, upon request, the government disclose information in its possession, unless an exemption applies.  This presents a significant risk for contractors as they regularly provide highly sensitive information to the government in the course of obtaining or performing federal contracts and grants.

Fortunately, that type of information falls within the scope of the exemption at 5 U.S.C. 552(b)(4) (Exemption 4), which shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  After receiving notice that a party is seeking the public release of such information, in order to protect it, contractors previously had to demonstrate that the information was customarily kept private and that the government agreed, implicitly or expressly, to treat it as confidential.

Prior to June, in some circumstances, contractors seeking to protect confidential information were also required to show, in accordance with the reasoning of a 1974 DC Circuit decision adopted by other Circuits, that the release of the information would: (1) “impair the Government’s ability to obtain necessary information in the future” or (2) would cause “substantial competitive harm to the competitive position of the person from whom the information was obtained.”

Exemption 4 No Longer Requires a Showing of Competitive Harm

That latter requirement, which the DC Circuit itself had limited to circumstances where the information was required to be provided to the government, is now gone.  In Food Marketing Institute v. Argus Leader Media, the Supreme Court held that the DC Circuit’s imposition of the showing of competitive harm requirement was based on a “casual disregard of the rules of statutory interpretation.”  It continued, stating that under the regular rules of statutory construction, the clear statutory language only requires that “where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under the assurance of privacy, the information is ‘confidential’ within the meaning of Exemption 4.”  The statute requires nothing more, and to the extent courts have imposed more onerous requirements, that was improper.

Not only will this interpretation of Exemption 4 make it easier for contractors to shield confidential information provided to the federal government, it will likely impact contractors’ ability to protect information provided to state governments.

State laws often mirror FOIA’s language, so the Supreme Court’s elimination of the “competitive harm” requirement may have a beneficial impact in certain state matters, as well.  The decision may even provide a basis for state legislatures to consider amendment of their sunshine laws to the extent they have, like New York’s Freedom of Information Law, codified the “substantial injury to the competitive position” requirement.

Contractors: Continue Providing Justification for Withholding Confidential Information

Notwithstanding the positive impact of the Supreme Court’s decision on contractors’ ability to shield confidential information from disclosure, it is still vitally important that contractors provide prompt and fulsome justifications for the withholding of confidential information in response to a notice that the government has received a FOIA request for such information.  Tardy or incomplete responses can prejudice your ability to protect trade secrets or other confidential information.

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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