Protecting Financial/Trade Secret Information Submitted to the Federal Government: FOIA Exemption 4

The Freedom of Information Act, or FOIA, was signed into law by President Lyndon Johnson on July 4, 1966. FOIA gives the public the right to access records from any federal agency or department within the executive branch. Oil and gas, renewable energy, and mining companies frequently are required to provide financial or trade secret information to the Bureau of Land Management (BLM) or other federal agencies. How can a company be sure that business information won’t be widely shared with the public as a result of a FOIA request? While FOIA plays an important role in keeping the government transparent and accountable, Congress has set forth a series of exceptions to FOIA’s disclosure requirement.

Exemption 4 most recently received the limelight. Exemption 4 states, in pertinent part, that FOIA’s mandatory disclosure requirement does not apply to “commercial or financial information” that is “obtained from a person and privileged or confidential.” 5. U.S.C. §552(8)(B)(b)(4). Yet the term “confidential” is not defined anywhere in the Act. This is where things get interesting.

In 1974, the D.C. Circuit declared that a commercial or financial matter “is confidential” under Exemption 4 only if disclosure was likely to cause “substantial harm to the competitive position of the person from whom the information was obtained.” National Parks & Conservation Assn. v. Morton, 498 F.2d 765 (1974). This became known as the “substantial harm” test or the National Parks test, and has been adopted by several other federal appeals courts over the past fifty-five years—until now. On June 24, 2019, the U.S. Supreme Court reversed the Eighth Circuit’s application of the National Parks test in Argus Leader Media v. United States Dep’t. of Agriculture, 889 F. 3d 914 (2018).

Argus Leader is a South Dakota newspaper that submitted a FOIA request for data collected by the USDA. Among other information, Argus Leader wanted the names and addresses of all retail stores that participate in SNAP (the national food-stamp program) and each store’s annual SNAP redemption data, referred to in the case as “store-level SNAP data.” The USDA invoked FOIA’s Exemption 4, declining to disclose the data. Argus Leader sued in federal court, where it eventually received a favorable ruling from the Eighth Circuit, which held that the USDA could not rely on Exemption 4 because release of the requested information would not cause the retailers “substantial harm.” The Food Marketing Institute (“the Institute”), a trade group that represents retailers such as the grocery stores in this case, filed a writ of certiorari from the United States Supreme Court in lieu of the USDA.

Cert. Granted.

The parties argued their respective interpretations of “confidential,” within the context of Exemption 4. Writing for a six-justice majority, Justice Neil Gorsuch not only reversed the Eighth Circuit’s denial of Exemption 4 protection, but stated that the Court “cannot approve such a casual disregard for the rules of statutory interpretation” as exhibited by the “substantial harm” test. So what is the proper interpretation? Justice Gorsuch explained that the common meaning of “confidential,” or its dictionary definition at the time Congress enacted FOIA, points to a less restrictive reading of the Exemption 4.

A New Interpretation.

Based on the common definition of “confidential,” the majority overruled the National Parks test and adopted a new rule: where commercial or financial information is (1) both customarily and actually treated as private by its owner, and (2) provided to the government under an assurance of privacy, the information is “confidential” within the meaning of Exemption 4.

The first condition is met whenever the information is “customarily kept private, or at least closely held,” by the person revealing it. This condition, Justice Gorsuch explained, must be met in order for information to be “confidential.” Uncontested testimony that the Institute’s members “customarily do not disclose store-level SNAP data or make it publicly available in any way,” plus testimony that, even within individual member companies, only a small group of employees usually had access to the information, satisfied the first prong.

As for the second condition, the Court was not so clear. Stating that both prongs were “clearly” satisfied in this circumstance, the Court declined to answer to what extent the second condition, government assurance of privacy, is necessary to establish Exemption 4 protection. In this case, the condition was satisfied because the government “has long promised” to keep the information provided private. As further explanation, Justice Gorsuch spoke approvingly of a Ninth Circuit ruling that Exemption 4 protects information that a private individual wished to keep confidential, but revealed to the government under the “express or implied promise” of confidentiality. The majority opinion concluded by emphasizing the “important interests served by exemptions” to FOIA, and how these exemptions are “as much a part of FOIA’s purpose and policies” as the disclosure requirements.

Dissenters.

Three justices—Stephen Breyer, Ruth Bader Ginsburg and Sonia Sotomayor—partially dissented. Justice Breyer, writing for the three, expressed fear that the majority’s reading “will deprive the public of information for reasons no better than convenience, skittishness, or bureaucratic inertia.” He explained that “confidential” should encompass a third condition: that the release of such information would cause “genuine harm” to the owner’s economic or business interests. During oral arguments, Justice Ginsburg expressed concern that “to say the Government can control [disclosure] by making a promise that it won’t disclose, seems to run counter to the whole idea of FOIA.” But, the six justices in the majority declined to adopt any condition requiring a showing of harm, certainly not “substantial harm,” in order to satisfy the Exemption 4 shield. And, just like that, the half-century D.C. Circuit interpretation was put to rest as a “relic from a bygone era of statutory construction.”

Implications.

How will this decision affect the confidentiality of information submitted by private parties to federal agencies like the Bureau of Land Management? The BLM encourages, but does not require, submitters to identify specific information which the submitter would like to be considered protected from disclosure under Exemption 4, at the time of submission. 43 CFR § 2.26(a). However, the Bureau, not the submitter, makes the final determination whether the information will be subject to disclosure or not. In the event a submitter fears disclosure of submitted information, the submitter may object to disclosure by submitting to the BLM a detailed Exemption 4 objection statement. §§ 2.30-2.31. This is where the June 24, 2019 SCOTUS opinion becomes relevant.

The pertinent Department of the Interior’s (DOI) FOIA regulation, last updated on December 31, 2012, engrafts the National Parks test into Exemption 4 confidentiality considerations. Information provided voluntarily is not subjected to a showing of “substantial harm;” however, submitters required by the government to provide information must detail, among other requirements, “how substantial competitive harm or other business harm would likely result from disclosure,” in order to receive Exemption 4 protection for provided information. §§2.31(1)-(2).

Directly relevant to DOI’s regulation, in Food Market Institute Justice Gorsuch declined to make a distinction between voluntarily submitted information and submissions required by the government. The June 24 Opinion recounted how the D.C. Circuit only required a showing of “substantial harm” for information a private entity was required to provide, not for information voluntarily provided. Expressly rejecting this distinction, Justice Gorsuch explained that the Court is unable to “discern a persuasive reason to afford the same statutory term two such radically different constructions.” This holding suggests that the courts may now set aside agency regulations that incorporate the National Parks distinction, which has been heavily litigated, between voluntarily submitted information and submissions required by the government agency.

The Food Marketing Institute decision has significant implications for how federal agencies, such as the BLM, evaluate the confidentiality of information submitted by private companies in the face of a FOIA request. However, the ultimate holding was narrowly tailored to overruling the National Parks test, and the requirement for government assurance that information submitted to an agency will be kept confidential is still unclear. For example, the BLM regulations require an oil and gas lessee to submit information in response to a draining demand (43 C.F.R. § 3162.2-9), or as part of an application for permit to drill (43 C.F.R. § 3162.3-1), that may include confidential commercial information. Even though BLM has traditionally agreed to keep such information confidential, there is no regulation that specifically provides that it will be kept so. It remains to be seen whether such information will be deemed to satisfy the “government assurance of privacy” prong of the confidentiality standard set forth in Food Marketing Institute. One important practical step that a company can take before submitting such information to the federal government is to prominently label the document in bold, on each page, with a legend claiming it is information subject to FOIA Exemption 4.