as authorized for disclosure in special cases. Current legislative efforts under the pesticide law, FIFRA, suggest the problems which are created by agency prodisclosure attitudes when those attitudes conflict with traditions of commercial secrecy in competitive, scientifically-oriented industries such as the pesticides field. II. Litigation Concerns Congress has not given courts or agencies a positive direction on the handling of reverse-FOIA cases. The agencies have contested many of the litigated cases to date, not from a desire to supply the data in particular and not from a philosophical commitment opposed to trade secrets, but rather to protect the maximum flexibility for themselves. The Justice Department's Freedom of Information and Privacy Unit of the Civil Division would have ample work to do for other agencies such as the CIA without the (b) (4) reverse-FOIA cases. Agencies with which I am familiar want to keep their options open until and unless Congress provides a specific right to submitters of data to enjoin disclosure. The private sector's litigation of reverse-FOIA cases has likewise been somewhat reluctant, for it would be preferable to have an agency give a realistic promise of confidential treatment and then stick by its promise. The Interior Department deserves commendation for its long defense of the principle of confidentiality in the National Parks v. Kleppe litigation, for example, and the private sector would prefer that the other agencies whose files contain business data sought by competitors also defend those files from disclosure. When commercial advantage resulting from technology or product quality, including marketing lead time for new or changed products, is imperiled, the private sector will use the reverse-FOIA litigation process forcefully. The proposed amendatory language structures the disclosure situation so that the parties concerned know where they stand: The submitter knows that he will receive notice; the requesting person, generally a competing firm, will know that the data may not be available in the event that litigation ensues (or that there may be a delay of several days for access, when waiver occurs); the courts will know the jurisdictional element is clear; and all parties to the litigation will know the standard of evidence to be met if the equitable relief is to be granted. It is foreseeable that agencies may take the congressional action as a direction to limit their waiver of (b) (4) exemption claims. If they do so, litigation burdens on federal courts will be reduced, since fewer of these complex reverse-FOIA cases will be brought. The rate of growth of reverse-FOIA litigation is believed to be several times that rate for pro-disclosure (b)(4) cases. This may be due, in part, to the greater likelihood that a competitor will forbear a desire to sue. By contrast, an active agency decision to disclose is likely to be fought by a person who faces a tangible economic loss from that decision. Where more is at stake, litigation against disclosure is more likely. From the litigation perspective, then, a congressional policy judgment would remove uncertainty and probably reduce the long-term volume of litigation, if agencies act in accordance with that policy judgment. III. Alternatives The proposed section (f) does not make exemption (b)(4) mandatory. The exemptions should remain discretionary, as Jacob Scher, original author of the FOIA, intended in 1960. There are specific areas in which the public interest can best be served by mandatory confidentiality for the commerial fact incorporated into the file, e.g. the name of the industrial firm producing the commodity surveyed by the Census Bureau, or the name of the factory owner who has sought an IRS ruling prior to a planned capacity expansion. Specific legislation in substantive areas should include a congressional decision about which parts of that area merit an absolute confidential status, and which a relative status which can be satisfied by an advance demonstration of a justification for confidential handling. Absolute secrecy for everything which could fall within (b) (4)'s "confidential *** commercial or financial" language would be too extreme. Apart from the FOIA itself, criminal protections for trade secrets could be reinforced. Extensive research into 18 USC § 1905 suggests that the section has no useful legisative history other than as a melding of three pre-existing prohibitions of trade secret disclosure. The section has been vigorously enforced by the Justice Department against leaks of commercial data. The most recent case arose out of the litigation in Consumers Union v. Board of Governors of the Fed cral Reserve System, in which the employee who misappropriated confidential data from confidential bank submissions was allowed to resign in a pre-indictment "plea bargain" with no criminal sanction. It is believed by some that § 1905 prohibits trade secret leaks, and it may do so; but the enforcement of that section has not been active. Section 1905 could be reinforced to restrict FOIA discretionary disclosures, but a direct amendment to the FOIA would be preferable. Doing nothing with the reverse-FOIA problem would increase the caseload of federal courts with a string of haphazard precedents, generally favoring the withholding of business confidential data. It would increase the potential for abusive leaks by the agencies, justified by discretion to waive the (b) (4) exemption without giving advance notice to submitters of the requested commercial data. It would not represent a rational response to this litigation problem over the long term. IV. Economic Impact Advance notification of government's intention to disseminate commercial formulas, plans, statistics, product marketing data, efficacy tests, etc., would reduce uncertainty which now exists among some business managers. Uncertainty about government's future behavior is an economic disincentive to innovative research in the scientific and technical communities. This disincentive process results from loss of the capacity to achieve a return on investment. Firm A invents the widget and patents it; Firm B invents a new variation on an existing mechanical process and keeps it a trade secret, either because it is nonpatentable or because the firm is too small to afford the policing and defense of patent claims. Firm A is guaranteed a return on investment. If Firm B is required to submit that trade secret to the Environmental Protection Agency, asserts that it is confidential under exemption (b) (4) and 40 CFR Part 2, then Firm B should be given prima facie respect for its right to continued secrecy. If the secret is irrevocably lost through FOIA disclosure without advance notice, EPA has destroyed the return-on-investment possibilities which Firm B had enjoyed. The FOIA requester, Firm C, pays no royalties and incurs no R&D costs but enjoys the benefits of the process developed by B. The answer to the economic disincentive is to so structure the agency treatment of that secret, the process improvement of Firm B, or that B is made a formal participant in the agency handling of its secret. When the disclosure issue is a tripartite issue, the proposed 552(f) will allow B to actively defend the value of its secret. If C chooses to intervene it is free to do so. But B's uncertainty is reduced and its willingness to cooperate with the agency in the future is increased. This proposed amendment would not lessen the number of instances in which disclosure of the confidential data is sought by competitors, but it would eliminate unannounced disclosures in response to those requests and it would provide the agencies with some direction in favor of confidentiality where appropriate claims are made in the commercial context. RATIONALE FOR REVISION OF ADMINISTRATIVE APPEALS As a counterpart of the litigation-oriented section (f) proposal, the Subcommittee may find that the administrative appeals mechanism is not providing an adequate review of complex technical and legal issues. For example, political appointees at the Assistant Secretary level may be required to make decisions on trade secret status of commercial plans without an appreciation of the sensitivity of the information and without time or manpower to examine the consequences of granting the FOIA appeal. Appeals are the point at which agency "law" is made, and the time and resources for serious deliberation should be provided. An administrative law judge can serve the function of culling confidential materials from non-confidential items, see e.g., Planning Research Corp. v. FPC, No. 75-1540 (DC Cir 1977), and can regard the items requested with a fair degree of objectivity. Of course, the final decision will still be made by the agency manager. But the quality of input into that decision would be improved by transplanting this "special master referral" technique from the federal courts into the administrative appeal process, if the agencies choose to use the technique. The proposal would be voluntary, for those agencies which wished to give themselves an optional method of deciding appeals. The appeals process as it now exists is restrictively brief, and an agency with substantive authority in a complex field may find itself unable to sort out the facts, e.g., the valuation of pieces of information, the "trade secret” status of a plan, and the nature of the agency's promise regarding the handling of that data in agency-submitter communications. At the present time, both initial and appellate denials of access are sometimes attributable to the short deadlines for action. This suggested approach could save the courts the burden of a later detailed in camera inspection. COSTS OF THE TWO PROPOSALS Additional mailing, telegraph or telephone costs to the agencies would be involved if section (f) were adopted. However, no attorneys fees awards are authorized, though a court may award such fees in pro-disclosure cases. Absence of attorneys fees provisions reflect the commercial initiative behind the use of the section (f) process, and is consistent with the 1974 amendments, see S. Rep. 93584, 93d Cong. 2d Sess. 19 (1974). As discussed above, costs for government litigation would likely be reduced (a) by the section (f) amendment, assuming that greater predictability and changed attitudes would decrease agency actions in the disclosure of commercial secret information and thus would decrease litigation against the government; and (b) by the appeals changes, assuming that more careful disclosures would be made and the selection of truly exempt material by an objective agency reviewer, apart from program managers, would lessen litigated disputes over the remaining exempt material. I hope that the above may be useful to your subcommittee's consideration of the Freedom of Information Act. Sincerely, JAMES T. O'REILLY. [Exhibit 11] STATEMENT OF BURT A. BRAVERMAN, ATTORNEY, I am Burt A. Braverman, an attorney and member of the firm Cole, Zylstra & Raywid. I am tendering this written testimony to the Subcommittee in connection with the oversight hearings which it is conducting concerning the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552. I. PRELIMINARY REMARKS My testimony will deal with what I preceive to be the principal problems under Exemption 4 of the FOIA and the principal causes for the rapidly increasing number of reverse FOIA law suits. My testimony is based on the experience and knowledge which I have gained in representing businesses in a number of reverse FOIA actions which they have commenced in order to enjoin federal government agencies from publicly disclosing private documents which are confidential and commercial in nature. While the views which I present coincide with some of the positions which I have asserted on behalf of my clients in those cases, this testimony reflects my personal opinions and experience. When enacted by Congress, Exemption 4 of the FOIA was intended to serve a definite protective purpose with respect to private documents and information. Initially, the Exemption was construed by the courts consistent with this legislative intent. However, in recent years, many courts have deviated from the original congressional intent and have substantially restricted the protection which Exemption 4 offers to persons or businesses who submit private, confidential commercial information to federal government agencies. These federal agencies, in turn, have followed and contributed to the distortion of Exemption 4. Paralleling and perhaps in part responsible for this development, there has been a profound change in the purposes for which FOIA requests are being made. While initially intended to serve as a means for the public to learn more about its government, the Act has increasingly become a vehicle for surveillance, at public expense, of the private affairs of commercial enterprises by their adversaries. Exemption 4, as now construed by the courts and federal agencies, bears little resemblance to the exemption which was enacted by Congress in 1966. Assuming that the purpose of the Act still is to better inform the public of the manner in which its government operates, but not to facilitate the looting of private business records, Exemption 4 sorely needs to be amended to clarify its purpose and to restore the Exemption to its original character. Amendment of the Act is also needed in order to confirm the rights of submitters of private information to fair agency treatment and to adequate judicial review. The Act should be revised to delineate minimum types of procedures which must be adhered to by agencies before private documents may be publicly disclosed and to formalize the right of access to the courts of an aggrieved submitter of private documents. However, it must be emphasized that unless the fundamental dispute over the meaning of the term "confidential", as used in Exemption 4, is eliminated, and unless courts are directed to adhere anew to the meaning of Exemption 4 which Congress originally intended, no amount of reform in FOIA procedures will stem the growing tide of reverse FOIA litigation. In dealing with these substantive and procedural questions, it is my intention both to review past developments under Exemption 4 and in reverse FOIA cases, and to propose certain changes which would protect important private interests while continuing to effectuate the Act's underlying purpose of opening government processes to public scrutiny. II. A VAST ARRAY OF PRIVATE INFORMATION IS AT STAKE As our nation has grown during the past century, so has the size of our government and the amount of business regulation. Today, there are literally thousands of federal departments, commissions, boards, task forces, etc., which administer a complex network of federal statutes and regulations cutting across all industries. These federal agencies secure a constant flow of information from the private sector. Such information comes both in response to statutory and regulatory filing requirements and also in response to informal, but no less compelling, agency requests for information from regulated as well as unregulated businesses. Thus, although much of the private information which finds its way into government possession is required to be filed with federal agencies, a substantial amount of information is voluntarily submitted to the Government in a spirit of cooperation. The information submitted by the private sector is staggering both in amount and in diversity. Major corporations each submit thousands of reports and documents every year to the federal government; and even small businesses supply the Government with a surprisingly large number of reports and other documents. These reports contain information concerning sales, manufacturing costs, technical designs, salaries and identities of key personnel, financial forecasts, descriptions of manufacturing processes, employment practices, etc. Because such reports are often submitted on a recurring basis, annually and even monthly, they provide extremely current and accurate data concerning these varied aspects of the reporting companies' operations. The business value of such privately generated information depends upon its continued secrecy. Consequently, such information traditionally has been carefully guarded by businesses and, quite understandably, has not been disclosed either to competitors or to the public. Now, however, the tables of business privacy have turned as a result of the novel use to which the FOIA has been put. Today, the FOIA is being utilized by an extremely diverse group as a means of obtaining this private data. The Act has been employed by competitors, analysts, investors, disgruntled employees, potential and existing adverse litigants, self-styled "public interest" groups, foreign businesses and governments and a wide variety of others to obtain information concerning private businesses which, but for the FOIA, would not be available to them. Yet now, for the price of a postage stamp, such persons can generally obtain such data from federal agencies. The use of the FOIA for such surveillance of private affairs was not intended by Congress and needs to be remedied. III. EXEMPTION 4 HAS BEEN CONSTRUED BY THE COURTS IN A MANNER INCONSISTENT WITH CONGRESSIONAL INTENT The Freedom of Information Act was intended to better inform the electorate by opening the processes of government to public scrutiny; thereby, government would be made more accountable to the public.' However, Congress sought to 1 S. Rep. No. 813, 89th Cong., 1st Sess. 3 (1965) (hereinafter "S. Rep. No. 813"); H. Rep. No. 1497, 89th Cong., 2d Sess. 12 (1966) (hereinafter "H. Rep. No. 1497"). See Bristol-Myers Co. v. FTC, 424 F. 2d 935, 938 (D.C. Cir.), cert. denied, 400 U.S. 824 (1970). 3 2 balance the Act's disclosure philosophy with the "equally important rights of privacy with respect to certain information in government files." While each of the exemptions to the Act reflects this concern over rights of privacy to a varying degree, it was of particular significance to Congress in fashioning Exemption 4. Exemption 4 was specifically designed to protect the confidentiality of information which is obtained by the Government through questionnaires, reports or other inquiries, but which would “customarily not be released to the public by the person from whom it was obtained." The congressional intent concerning the scope of Exemption 4 was clearly defined by the House Report dealing with the Exemption: "This exemption would assure the confidentiality of information obtained by the Government through questionnaires or through material submitted and disclosures made in procedures such as the mediation of labor-management controversies. It exempts such material if it would not customarily be made public by the person from whom it was obtained by the Government * * * It would also include the information which is given to an agency in confidence, since a citizen must be able to confide in his government. Moreover, where the Government has obligated itself in good faith not to disclose documents or information which it receives, it should be able to honor such obligations." Cited by the Senate Report as types of information which "customarily would not be released to the public" were "business sales statistics, inventories, customers' lists, and manufacturing processes." Congress thus contemplated that the Exemption would "assure confidentiality" of "quite broad" categories of information. And, consistent with this intent, courts-including the U.S. Court of Appeals for the District of Columbia Circuitrepeatedly sustained this congressional interpretation of the Exemption by refusing to order release of information on Exemption 4 grounds of confidentiality where the "information [is] of the type which would not customarily be released to the public by the person from whom it was obtained";' or where such disclosure might be harmful to the private interests of the party who supplied the information to the Government.s Exemption 4 was consistently construed in this fashion during nearly the first seven years of the FOIA's existence. However, in a series of cases culminating in its 1974 opinion in National Parks and Conservation Assn. v. Morton, the U.S. Court of Appeals for the D.C. Circuit articulated a new and considerably different interpretation of Exemtpion 4 which would have the effect of emasculating the Exemption and eviscerating the protection for business records which the Act was intended to afford. In National Parks, supposedly in an effort to replace the more "subjective" approach of earlier cases a more "objective" standard, the court of appeals formulated a new test for determining whether information is confidential within the meaning of Exemption 4: "Commercial or financial matter is 'confidential' for purposes of the exemption if disclosure of the information is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future: or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained." 10 The standard adopted by the National Parks case does not find its source in the legislative history of the FOIA and is in fact contrary to both the express S. Rep. No. 813, supra, at 3. 3 Id. at 9 (italics added). H.R. Rep. No. 1497, supra, at 10 (footnote omitted) (italics added). S. Rep. No. 813, supra, at 9. 110 Cong. Rec. 19667 (1964). 7 Sterling Drug, Inc. v. F.T.C., 450 F. 2d 698, 709 (D.C. Cir. 1971) (emphasis added). See also Grumman Aircraft Engineering Corp. v. Renegotiation Board, 425 F. 2d 578 (D.C. Cir. 1970), rev'd on other grds, 421 U.S. 168 (1975); Porter County Chapter of the Isaak Walton League of America, Inc. v. United States Atomic Energy Commission, 380 F. Supp. 630, 634 (N.D. Ind. 1974) (disclosure denied where information had previously been treated as confidential "in accordance with normal company procedures having a rational basis. and [where] information involved is in fact customarily held in confidence and is not customarily made available to the public'); M. A. Shapiro & Co. v. S.E.C., 339 F. Supp. 467, 471 (D.D.C. 1972) ("a court should determine, on an objective basis, that this is not the type of information one would reveal to its public"); Ditlow v. Shultz. 379 F. Supp. 326 (D.D.C. 1974); Rural Housing Alliance v. U.S. Dept. of Agriculture, 498 F. 2d 73, 79 (D.C. Cir. 1974). Ditlow v. Shultz, supra.; Grumman Aircraft Engineering Corp. v. Renegotiation Board, supra. 9498 F. 2d 765 (D.C. Cir. 1974). 10 498 F. 2d at 770 (footnote omitted). |