definition of a trade secret, but which we consider very confidential.

The reason for our concern for such information is that our competition may be able to use this information to unfairly reduce the normal risk of doing business, but this is a very difficult thing to prove even more difficult for us to learn about.

Our competition does not tell us what they know of our operating processes. It is not evident in their product, and it is not evident from any single act that they may take.

In summary, we believe that S. 1247 corrects both the procedural and substantive laws in FOIA-again, without undermining its basic purpose.

I plan on submitting a more detailed written statement, but I would be happy to answer any questions you may have at this time.

Mr. RADER. Thank you very much.

[The prepared statement of Mr. Pulley follows:]

PREPARED STATEMENT OF JACK PULLEY

My name is Jack Pulley; I am a senior attorney with Dow Corning Corporation, a speciality chemical manufacturing firm. Our products are broadly referred to as silicones and are used in every major industry including automobiles, aerospace, medicine and electronics. Generally, I handle Dow Corning's environmental legal affairs; however, I am also responsible for ensuring the protection of Dow Corning technology submitted to various health and environmental agencies. you will see from my examples today, I have had experience in responding to requests for documents Dow Corning has submitted to the government and, therefore, I am very interested in the Freedom of Information Act (FOIA) the subject of this hearing.

As

Even though my comments today are somewhat critical of FOIA, as it now exists, I must emphasize that we support the underlying public purpose of this Act - that is, an open government. In a democracy the public has a right to know how the government operates. However, this right must be balanced against the rights of those who have a vested interest in information they have given the government.

My basic point today is that there are serious ambiguities in the present statute which encourage those who would use, I should say abuse, FOIA to serve their own private economic interests. This situation adds unwarranted risks and costs to our business. Further, we believe these ambiguities or flaws can be legislatively corrected, without undermining the basic purpose of FOIA.

The risk of losing proprietary information through FOIA abuse is very real. This was clearly illustrated to me by two recent events. The first was the publication of an article entitled "The Freedom of Information Act; Strategic Opportunities and Threats", in the Winter, 1978 issue of the Sloan Management Review. In this article, the authors described how FOIA could be used to gain (and I use their words) "a differential competitive advantage". Here is one of America's most prestigious business journals teaching the world how FOIA can be used to serve private economic interests. Such abuse is contraty to both the American way of doing business and the original purpose of FOIA.

The second event which showed me the reality of this abuse was a series of four (4) requests, over a period of about a year and a half, for copies of all environmental permits and supporting documents for Dow Corning's two basic U.S. manufacturing facilities. These documents not only described the character of the discharges to the environment from those facilities, but also contained production capacities, construction cost figures, and certain process operating data.

Initially, one may think these requests would be the ultimate public purpose - a citizen reviewing the government's environmental decisions. However, three of the four requests were filed by large law firms on behalf of an unknown client and the fourth by an environmental consulting firm acting on behalf of an anonymous client reportedly in "the same line of business as Dow Corning".

Two Dow Corning experts and I had to make several trips to discuss with the agencies how they would respond to the requests. In each case, the agencies ultimately agreed with our appeal to withhold certain information and in each case no further word was heard from the requestor.

We will probably never know who was seeking our documents, but it does not appear they were concerned environmentalists. First, an environmental group would not normally hire lawyers to file a request they could file themselves; and secondly, if they were truly concerned about some aspect of our facilities, why would they not pursue the requests further? Their lawyers would have advised them of their legal recourses and it would be surprising that costs should become a factor so quickly.

It is my opinion that the requestor was (in each case) one of our present or future competitors trying to gather information regarding our facilities but more anxious to preserve their own anonymity.

The problems with FOIA, as it is now written, are both procedural and substantive. Together they create an unacceptable degree of unpredictability in the handling of our trade secrets. Procedurally, the statute does not set forth a uniform and complete approach for agencies to follow in handling FOIA requests for proprietary information. Therefore, as you would expect, each agency has a somewhat different policy which may or may not be completely codified in regulations. As a result, we have a confused situation in which it is very difficlut to determine whether a given agency, at a given time will or will not protect proprietary information. Let me give you a specific example.

A while back, Dow Corning was considering filing an application for a refund of the duty we had paid for importing a certain raw material. The U.S. Customs allowed such a refund to the extent the raw material was used in producing exports; this refund is referred to as a duty-drawback. Unfortunately, the duty-drawback application called for a detailed description of the process in which the raw material was used. To Dow Corning, these details were highly confidential and very valuable.

Since the agency did not have regulations completely defining their procedures for handling FOIA requests for confidential information, I telephoned the agency and eventually talked to the FOIA attorney. She immediately assured me that the agency would not disclose confidential information that is, information that the agency considered confidential.

Quite naturally, I asked how the agency would handle a situation in which the applicant considered the information confidential but the agency did not.

Actually, I had two questions. First, would Customs notify Dow Corning of an FOIA request for our duty-drawback application if Customs did not agree that it contained confidential information; and secondly, would it be possible to obtain a binding determination of whether this application would be entitled to confidential treatment prior to Dow Corning's submitting the application.

Apparently, both were novel questions and it took almost

a month to get an answer.

I am sure you can understand that by that time, as far as I was concerned, the answer was irrelevant. I advised Dow Corning not to file the application and risk losing this technology. My reason was that if it took the FOIA attorney almost a month to dig up an answer, I had no assurance that the front line employees actually responding to FOIA requests would be aware and sensitive to this problem.

Our loss was about $10,000 from the duty-drawback and a few thousand more in lost time, effort and energy. This is an unnecessary cost caused by the FOIA's failure to require a uniform and complete procedure for all agencies to follow in handling these matters.

Now, the substantive ambiguity lies in the "competitive harm" test set forth in the National Parks Case* decided in the District of Columbia. This case law places a difficult, and sometimes impossible, burden on the original submitter to prove that the release of the information is likely to cause compe

titive harm.

Again an example - there are many pieces of information such as plant capacity, production rates and certain process -operating parameters which are neither patentable, nor within the traditional definition of a trade secret, but which we consider very confidential. The reason for our concern for such information is that our competition may be able to use the information to unfairly reduce their normal risks of doing business.

This is a very difficult thing to prove.

In summary we believe, that S. 1247 corrects both the procedural and substantive flaws in FOIA without undermining its basic purpose.

More specifically, S. 1247 would set forth a uniform and complete procedure for all agencies to follow in handling FOIA requests for business information. This would significantly reduce uncertainty and agency unpredictability, and thereby discourage those who would use FOIA to gain "a differential competitive edge." More importantly, S. 1247 would provide a clear substantive standard to judge whether a given piece of information would fall within the confidentiality exemption and limit an agency's discretion to disclose such information.

In addition to reducing undue risks and costs, we would expect S. 1247 to facilitate our relations with various federal agencies since it would no longer be legally necessary to assume a somewhat adversarial posture and scrutinize each agency request for information and challenge such requests where it appeared there was inadequate protection for competitively-sensitive information.

We plan on submitting a more detailed written statement but I would be happy to answer any questions you may have at this time.

*National Parks and Conservation Association vs. Morton, 498 F2d. 765 (C.D. Cir., 1974)

Mr. Race The subcommmee has certain questions it would like to pose to this panel

Mr. Braverman you mentioned in your testimony that you advised your clients not to cooperate with the Government in sharing information with them. Are other businesses following this kind of advice? If so, is this harming the Government's ability to gather information?

Mr. BRAVERMAN My general impression is that this is advice that other private counsel are giving to their clients, and that this is advice that other companies are following

The obvious effect of course, is that Government programs which depend upon securing data and cooperation from regulated companies are suffering in several respects. Where data is lost, the basis for Government action is narrowed and sometimes made inadquate. Where data is made more difficult to obtain, it makes the process of Government regulation more difficult, more time consuming, more expensive, and more inefficient.

Certainly, it seems to me that the loser is the public.

The answer to your question, then, is yes; other companies are being forced to follow this approach.

I would add, as I stated in my testimony, that it is advice that we would rather not have to give. It is advice that these companies would rather not have to follow, and would not have to follow, if adequate protection were incorporated into the act.

Mr. RADER. Thank you.

Mr. Pulley, at one point in your testimony, you mentioned that you had advised your client to withhold information in regard to a duty drawback. Is your statement to the subcommittee similar to that of Mr. Braverman-that such advice could have some impact on the Government's ability to gather information?

Mr. PULLEY. Yes; it is.

The uncertainty which causes Mr. Braverman to so advise his clients has two impacts. The first is that it adds an adversarial element to our relationship with the agencies.

As an attorney, as I indicated in the customs example, I cannot accept blanket promises of confidentiality. I have to dig further and ask questions until the issues are clearly resolved.

Until those issues are resolved, I cannot advise Dow Corning to submit the information.

In addition, it focuses attention away from the substantive issue at hand, causing delays which are unwarranted and costly.

Mr. RADER. Mr. O'Reilly, S. 1247 amends exemption 4 to include information which would not "customarily be disclosed to the public by the person from whom it was obtained."

How would this standard be determined? Would the court look to what is customary for the industry or would it be required to accept the claims of the submitter that the information is customarily withheld by him? To whom does "customarily" refer-the industry in which the submitter participates or the submitter himself?

Mr. O'REILLY. It refers to the submitter's practice as established by the submitter's statement to the agency that the submitter customarily does not disclose it. It carries through the principle