Supreme Court Decision Broadens Protection for Confidential Information against Disclosure under FOIA

Miles & Stockbridge P.C.

In a significant decision for Government contractors, the Supreme Court has expanded the types of “commercial or financial information” that are “confidential,” and therefore exempt from disclosure under the Freedom of Information Act (FOIA). The case is Food Marketing Institute v. Argus Leader Media, 588 U.S. ___ (No. 18-481, June 24, 2019).

FOIA’s Exemption 4 shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” [1] To prevent disclosure, under previous lower-court decisions, information that was required to be submitted to the Government was only exempt if disclosure was likely to cause “substantial competitive harm.”

In a 6-3 decision, the Supreme Court held instead that whenever 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.” [2] Justice Gorsuch wrote the majority opinion; Justice Breyer wrote an opinion concurring in part and dissenting in part that was joined by Justices Ginsburg and Sotomayor.

The Supreme Court Decision Eases Proof Needed to Prevent Disclosure.

The decision completely upends law under Exemption 4. Under the previous standard, companies faced difficulty in proving “substantial competitive harm.” That standard, the so-called National Parks standard, dated back to a 1974 decision by the federal appellate court in DC, National Parks & Conservation Ass’n v. Morton. [3] Agencies must notify a company upon receipt of a FOIA request for previously-submitted information. Companies then have an opportunity to explain (under tight time deadlines) which data should be protected under Exemption 4.  

Under the National Parks standard, companies had to justify exemption, by showing release was likely to cause substantial competitive harm, which in turn could involve detailed descriptions of the relevant market and the ways in which competitors might use the information.

Under the previous decisions, agencies (and courts, if agency decisions are challenged) had started from the standpoint that all or part of requested information could be disclosed, unless companies succeeded with the somewhat difficult proof of substantial competitive harm. [4] 

By contrast, under the new rule, companies no longer need to engage in descriptions of competitive harm, if they can demonstrate the two criteria enunciated by the Court:  that the information (1) is customarily and actually treated as private, and (2) was provided to the Government under an assurance of privacy. A company will more often be able to show compliance with these tests than under the previous application of the rule. So the initial expectation may well become that information is exempt from disclosure under FOIA.

Over the years, other federal courts around the country had also adopted the National Parks test. [5] After the Supreme Court decision, a large number of decisions following National Parks will cease to be relevant.

Competitive Harm Now Irrelevant, But New Unresolved Questions Loom.

Indeed, after the decision in Food Marketing Institute, competitive harm, whether “substantial” or otherwise, appears to be irrelevant. [6] This remarkable development contributes to the landmark impact of the decision.

Yet the decision will no doubt trigger litigation over new, unresolved questions. What degree of internal confidential treatment must a submitter show? What does the term “customarily and actually treated as private” mean? For example, if a company treats data as confidential, but the industry as a whole typically does not, does that mean the information was “actually” but not “customarily” confidential?

On the Government side, must a Government agency explicitly promise confidentiality, or can the promise be implied? Suppose the Government agency promises confidentiality, but applicable laws or regulations are contrary?

Even though the new decision will require answers to these and doubtless other new questions, Food Marketing Institute should ease the burden on companies in responding to requests for their information.

Disclosure of Unit or Line-Item Pricing Now an Open Question.

For Government contractors, the Supreme Court decision may leave one important open question. To prepare for an upcoming procurement, contractors have often used FOIA to obtain a competitor’s current contract. Under the National Parks standard, battles often ensued about disclosing unit, line-item or option-year prices in such contracts, and about whether the incumbent contractor successfully showed that release was likely to cause substantial competitive harm. [7] 

After Food Marketing Institute, protecting line-item or option-year pricing from disclosure under FOIA may be an open question. Contractors should have no trouble proving that they treat such data as confidential internally. But does the Government promise to keep that information confidential?  

On the one hand, several provisions of the FAR provide for disclosure of contract unit-pricing data. FAR §15.503(b)(1)(iv) (contract unit prices "shall be made publicly available"); id. § 15.506(d)(2) (unsuccessful offeror may obtain "debriefing information" that "shall include ... unit prices"); id. § 5.303(b)(2) (agency must include unit prices in public announcement of contract).  

On the other hand, the FAR also states "the debriefing shall not reveal any information ... exempt from release under the Freedom of Information Act including, ... [t]rade secrets," or “[c]ommercial and financial information that is privileged or confidential, including cost breakdowns, profit, indirect cost rates, and similar information.” FAR § 15.506(e)(1), (3).

Presumably, courts will continue to hold that the latter provision exempts line-item pricing from disclosure. It would be surprising if a decision generally broadening protection instead resulted in disclosing information that had previously been exempt as likely to cause substantial competitive harm.  

But until a court applies the Food Marketing Institute two-part test to unit, line-item or option-year pricing, the question will be open.

Supreme Court Decision May Also Have Broad Impact Upon State Public-Information Disclosure Laws.

Many state public-information disclosure laws explicitly tie the interpretation of their exemptions for confidential business information to the federal courts’ interpretations of FOIA Exemption 4. For example, Maryland courts and the Office of the Attorney General follow the decisions of the federal appellate court in DC on this issue. [8]

Therefore, the decision in Food Marketing Institute could also have broad impact upon state information disclosure rulings and court decisions. Time will tell whether state Government contractors see stronger protection against disclosure, and/or more favorable state court rulings protecting information under exemptions in state public-information disclosure laws modeled after FOIA.

The Bottom Line: If Treated Confidentially, Obtain Government Promise of Confidentiality.

Contractors should be prepared to prove that they treat the data as confidential internally – and should verify that the agency to which they submit information has promised confidentiality. Focusing on these two points should give contractors confidence that the Government will not release sensitive data under FOIA.

[1] 5 U.S.C. § 552(b)(4).
[2] Slip op. at 12.  
[3] 498 F.2d 765 (D.C. Cir. 1974).
[4] As the Supreme Court noted in Food Marketing Institute, the D.C. Circuit later declined to extend the National Parks test to information provided voluntarily to the Government in Critical Mass Energy Project v. NRC, 975 F.2d 871, 879-80 (D.C. Cir. 1992) (en banc) (holding that voluntarily submitted information is confidential if it is of a kind that would customarily not be released to the public by the person from whom it was obtained).  Slip op. at 9.  So companies could also gain the benefit of Exemption 4, if they could show that information had been submitted voluntarily to the Government.
[5] Food Marketing Institute, slip op. at 7-8.
[6] Additionally, the decision appears to do away with the prior distinction between information that was required to be submitted to the Government, and information that was voluntarily submitted.  
[7] However, in recent years, the same federal appellate court in DC moderated the harshness of the National Parks standard, by finding that the likelihood of substantial competitive harm precluded release of, for example, option year prices, just based upon the possibility that the agency would reprocure, instead of exercise options, McDonnell Douglas Corp. v. Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004), or unit pricing in general, Canadian Commercial Corp. v. Dep’t of the Air Force, 514 F.3d 37 (D.C. Cir. 2008).
[8] Amster v. Baker, 453 Md. 68, 160 A.3d 580 (2017) (Maryland follows post-National Parks decision, Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992)); see also Office of the Attorney General, MPIA Manual 3-23 (14th ed. 2015) (instructing executive branch agencies to follow same case).

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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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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