SCOTUS Strengthens Protections for Federal Government Contractors Under FOIA

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The Freedom of Information Act (“FOIA” or “the Act”) provides private citizens access to information in the possession of government agencies that is not otherwise publicly available. Unfortunately, an agency’s disclosure can potentially include confidential information of a government contractor, such as proposal content, pricing structures, and other proprietary material. Such disclosures are concerning because publicly disclosed information can be used by competitors to the great detriment of the contractor. Luckily for contractors, FOIA’s power is not unlimited. Indeed, Congress restricted its scope through a series of exemptions that protect certain information from disclosure that can be of use to contractors when a competitor or private party seeks a company’s proprietary information that is in the hands of the government.

For example, “Exemption 4” to FOIA protects confidential information of a commercial and financial nature. Exemption 4 has been invoked with success by government contractors to secure their confidential information from disclosure, but protection is not guaranteed. Historically, courts and agencies have wrestled with the interpretation of “confidential” under Exemption 4, which led to inconsistent rulings among courts throughout the country.

This past June, the Supreme Court of the United States (“SCOTUS” or “the Court”) added clarity to the issue in Food Marketing Institute v. Argus Leader Media. In that case, a South Dakota newspaper submitted a FOIA request to the U.S. Department of Agriculture (USDA) for names and addresses of all retail stores that participate in acertain government assistance program and corresponding sales data from each store. In response, the USDA released the requested names and addresses, but refused to release the data, claiming it was confidential under Exemption 4. The USDA argued that such data could be used by the stores’ competitors to develop sales strategies to the detriment of the stores that released the data. In affirming the trial court, the Eighth Circuit sided with the newspaper and found the requested data did not meeting the definition of “confidential,” as any disclosure would not cause “substantial harm” to the stores that released data.
In reversing the lower court’s decision, SCOTUS abrogated the “substantial harm” test and created a new rule: “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.” In so ruling, the Court primarily relied on common usage of the term “confidential” at the time of the Act’s passage in 1965, which did not encompass “substantial harm.”

The decision represents a fairly significant shift from prior precedent, as government agencies now largely possess all decision-making power as to what information is deemed “confidential.” The decision also substantially increases protections for government contractors, as any information designated as “confidential” by both the contractor and agency will be exempt from public disclosure. However, successfully designating information as “confidential” can still be a complicated process depending on the agency and the nature of the information.

Prior to the submission of any information believed to be “confidential,” a contractor should learn the respective agency’s guidelines for designating such information. If possible and prior to the submission of any information, a contractor should receive an assurance in writing from the agency that the information to be produced is confidential. All pages of documents a contractor wishes to remain confidential should be marked accordingly with a corresponding page number (e.g., “CONFIDENTIAL 000001,” CONFIDENTIAL 000002, etc.) This process will aid in challenging a FOIA request. It is important to note that a contractor must closely follow any procedures from the respective agency for marking and submitting confidential documents.

In the event of an applicable FOIA request pertaining to confidential information, agencies are required to notify the contractor of the request and the initiation of any subsequent legal action. Prior to disclosure, the agency must provide a contractor with an opportunity to submit a comment as to why the documents are confidential. If the situation warrants, a contractor should also consider legal action to protect its interests.

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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