New Ruling Makes It Easier for the Government to Withhold Companies’ Commercial Information

Jul 10, 2019 | Blog

The Freedom of Information Act (FOIA), originally enacted in 1966 and amended as recently as 2016, is a federal law mandating the full or partial public disclosure (upon request) of certain commercial and financial information held by government agencies. This Act was meant to increase accessibility to records otherwise unavailable to the general public.

Much of the information typically sought under the FOIA pertains to businesses since, for regulation purposes, most companies must submit some type of financial and/or commercial information to various government agencies. Once the information has been submitted, it becomes part of government record and is therefore subject to public disclosure under the rules of the FOIA.

While the FOIA does aim to make the information it receives from third parties more transparent and open to the public, the Act also contains provisions for protecting privileged information and trade secrets. Specifically, a provision referred to as Exemption 4 exempts from disclosure all “trade secrets and commercial or financial information obtained from a person and privileged or confidential” [5 U.S.C. § 552(b)(4)].

What seems on the surface to be a fairly straight forward law has in fact undergone several changes in judicial interpretation. Before 1974, “confidential” was widely interpreted to refer to either information the submitting party would not have disclosed on their own or information the government had formerly promised not to disclose.

This liberal definition was altered in the 1974 case National Parks and Conservation Association v. Morton, where the U.S. Court of Appeals for the D.C. Circuit decided that companies’ information could only be withheld if its disclosure was likely “to cause substantial harm to the competitive position of the person from whom the information was obtained.” Nicknamed the “National Parks Test,” this new standard became the litmus test for Exemption 4 cases under the FOIA, forcing parties wishing to keep their information confidential to show that disclosure would actively harm their businesses.

This decision was not without its critics, however. A subsequent case heard by the D.C. Circuit in 1992 (Critical Mass Energy Project v. Nuclear Regulatory Commission) limited the influence of the National Parks Test solely to information that companies were obliged to provide. Any commercial information submitted voluntarily by a company could therefore remain confidential. Since then, the National Parks Test has been further criticized by appellate and Supreme Court justices alike for being a misreading of the original intent and language of the FOIA statute.

On June 24th, 2019, the Supreme Court finally issued a ruling in Food Marketing Institute v. Argus Leader that swung the pendulum back in the other direction, widening the scope of the term “confidential” once again.  The case involved the South Dakota-based media company Argus Leader who had requested data from the United States Department of Agriculture (USDA) regarding local retail stores participating in the national food-stamp program. Argus Leader brought a lawsuit against the USDA when it refused to release the requested information.

Ultimately, the Supreme Court ruled that the USDA was under no obligation to share the information in question. The Court stated that it was reverting back to a more straightforward reading of Exemption 4, ruling 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.” For companies wanting to keep their information private, this means that they no longer carry the burden of demonstrating that disclosure will cause substantial harm. Instead, they are simply required to show that such information would typically be kept confidential according to the company’s own internal policies and customary practices.

While this new ruling will ostensibly make it easier for government agencies to withhold information from the public under the FOIA, questions still linger. The Court’s decision bases the confidentiality question on two factors: 1) whether the information is typically privately held by the submitter and 2) whether the submitter received government assurance that the information would be kept private. The Court, however, did not make it clear whether both of these criteria must always be met or if simply demonstrating the first will suffice.

This leaves the confidentiality issue still somewhat open-ended. If the courts do decide that companies must procure an assurance of confidentiality from the government agencies they are submitting information to, this could effectively give the government much more (and arguably undue) influence over what information will end up being available to the public. And if government agencies are gaining more control over the dissemination and withholding of information, one could argue that this largely defeats the purpose of the FOIA to begin with.

If you have any questions regarding the Freedom of Information Act or corporate compliance under its statutes, please contact Charles B. Hughes.