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Senator HATCH. Our next witness is Prof. Russell B. Stevenson, Jr., from the National Law Center, George Washington University. Professor Stevenson graduated from the Harvard Law School and practiced law here in Washington, D.C. He has written a book on **Corporate Information and Disclosure Under the Freedom of Information Act,” and he recently presented a study for the administrative conference of the United States entitled "Protecting Business Secrets Under the Freedom of Information Act, Managing Exemption Four.”

Mr. Stevenson, I am particularly interested in what you and our final witness, Mr. John Marthinsen, a professor of economics at Babson College, have to say here. Unfortunately, I really do have to go meet that appointment. However, I commit to you that I will read your statement and that of Mr. Marthinsen and that they will play an important role in this process.

If you could forgive me then, rather than interrupt you in the middle of your statement, I am going to leave now. I understand that there are a number of media people over there who want to see me before I go to my meeting. I had better leave now, but if you will forgive me, I want to express my gratitude to you and Professor Marthinsen for being here.

Staff will take the rest of the testimony and they might want to ask you some questions as well so that we can build this record as well as we possibly can. STATEMENT OF RUSSELL B. STEVENSON, JR., PROFESSOR OF LAW,

GEORGE WASHINGTON UNIVERSITY Mr. STEVENSON. Thank you, Mr. Chairman. I appreciate your reasons for having to leave and I appreciate also your interest in what I have to say.

I am delighted to be here this morning to talk about a subject whose importance has been stressed by the witnesses that have gone before me and the importance of which I would only underline myself.

I have submitted a written statement for the record. I thought I had mailed it in ample time to arrive in advance of the hearings. I understand, however, that it is still floating around in the recesses of the congressional mailrooms. I regret that you have not had a chance to look at it in advance of my testimony.

In the interest of time, I propose to summarize informally and fairly briefly some of the major points which I have made in that statement. Then I would be glad to respond to any questions.

I would like to make four points this morning. First, in considering the reform or amendment-whether with a crowbar, a screwdriver, or a scalpel-of the Freedom of Information Act, it is important that we not overestimate the costs of the act. Second, it is equally important that we not underestimate its benefits. Third, I believe there is a mechanism that falls short of major restructuring of the act that would assist in dealing with one particular category of costs. Fourth, I believe that there is a readily available mechanism for dealing with some of the administrative problems of the act to which I would hope the Congress and the administrative agencies would give due attention.

COST-BENEFIT ANALYSIS

I thought for a moment in listening to the testimony of Mr. Saloschin this morning that he had mistakenly picked up a copy of my testimony and was reading from it when he began to talk about the problems of conducting a so-called cost benefit analysis of any particular public policy.

After listening to him for a short while, however, I realized he was saying it better than I had said it in my prepared testimony. I would only wish to associate myself with his remarks this morning, remarks that I have amplified in my prepared testimony.

One of the difficulties of cost benefit analysis is that it contains an alluring fallacy into which far too many people who are considering questions of public policy tend to fall. That is, where the costs or benefits of a particular course of action are reasonably concrete and easily graspable, there is a tendency to seize on that side of the balance to the neglect of the other side of the balance, where the costs or the benefits are often somewhat more difficult to describe or to understand. That is a particular problem for the Freedom of Information Act.

COST-BUSINESS INFORMATION

This morning I would like to consider some of the costs that have been attributed to the release of business information possessed by the Government. In the course of my study that I prepared for the Administrative Conference, I had the occasion to attempt to ascertain the truth of the all-to-familiar charges that the Freedom of Information Act has been used as a tool for industrial espionage. I began by searching the public record to see if I could ascertain any particular instances in which the Freedom of Information Act had led to the release of confidential business information which ought to have been withheld. I was somewhat surprised, given the vociferousness of the criticism of the act in this area, that I found practically none. In fact, upon further investigation, the few examples that were cited in the public record turned out not to have been examples of the unwarranted release of confidential business information at all.

In most cases, they involved a good faith dispute between a submitter and a Government agency about the applicability of exemption 4. Frequently, this dispute was ultimately submitted to a court which, more often than not, largely accepted the position of the agency, saying that the information had to be released under the act. I would suggest that is not precisely a case of an abuse of the Freedom of Information Act, at least as it is now drafted.

In the absence of much hard evidence in the record, I decided to ask the Administrative Conference to post a notice in the Federal Register soliciting specific examples of cases in which confidential business information had been released under the FOIA. There were some two dozen responses to that request. Again, I was surprised to find that only a handful of those responses contained alleged cases in which there had been an abuse of the act in this respect. Again, on closer scrutiny, the majority of those cases turned out to have involved a good faith dispute over the applicability of exemption 4. In several others the information in question was clearly not within the exemption and therefore had to be released by the agency.

What does one make of this evidence? I suppose that depends on where one locates the burden of proof. I, for one, find myself provoked to a certain degree of skepticism about the widespread and vocal charges that have been made against the operation of the act with respect to business information. At the very least, I would suggest that the study does not lead one to conclude that the charges in this area have been proved. If one is skeptical, and would pose the burden of proof on the critics of the act, the study might lead one to conclude that perhaps the problems are not as severe as has been suggested, and that there may be a good deal more smoke than fire here.

In summary, I would urge that the committee pay careful attention to specific examples and press those who criticize the operation of the act in this and other areas for specific instances in which there have indeed been problems and not bow to the widespread criticism of the act simply because it comes from a number of quarters.

BENEFITS-ENHANCED COMPETITION

It is easily possible to understate the benefits of the act. The benefits that grow from open government have been discussed by a number of other witnesses here. I need not elaborate on them. I would, however, suggest that there are a number of benefits growing out of the act that are perhaps unexpected and unintentional. Let me make the somewhat radical suggestion that if the act does occasionally result in the release of business information that businesses would rather not have released, and I am quite certain that it does, this may itself have economic benefits that were perhaps unintended by the Congress when it passed the statute but should nevertheless be considered in any so-called cost benefit analysis.

A moment's reflection suggests that the very objection of businesses to the release of information to their competitors indicates that the result of the release is likely to be more effective and efficient competition as a result of reductions of market imperfections. This is a considerable benefit.

In addition, there are substantial advantages that grow out of the dissemination of technological information through the FOIA. Let me suggest that you consider, as a simple analogy, the effect of the patent system. The patent system says, to an inventor in effect, "You may have a Government benefit in the form of a limited monopoly, but in order to obtain that Government benefit, you must first disclose your invention so that others may make use of it and build on it in their own technological work.” The same principle might be applied to other Government benefits, as for example, license from the Food and Drug Administration or valuable Government contracts.

There is no principle that would require us to say that there is something absolutely wrong with the Government's saying to such a seeker of benefits: “You may have the benefit, but only if you agree to disclose certain information to the Government and, in turn, through the Freedom of Information Act to the public.”

Obviously, there is another side of this argument. It is perfectly clear that the disclosure of confidential business information may have an impact on incentives for technological development. That is something that we ought to be concerned about. However, I have not seen any hard evidence which demonstrates that the negative effects of disclosure on technological development are sufficiently great that they outweigh the benefits. I am willing to be convinced, but I think that at this point the case has simply not been made.

My third point relates to another variety of costs which you have already heard discussed here this morning: The direct costs to Government of administering the act. There is a means of at least partially ameliorating these costs: Simply to raise the level of fees which are charged to certain kinds of requesters. It is perfectly clear to me that it makes no sense at all for the taxpayer to subsidize a profit seeking organization which uses the Freedom of Information Act to gain information which it is going to put to use for private purposes. On the other hand, it is equally clear that such a subsidy may very well make sense in those cases in which the information is to be used for public purposes.

I would suggest that those agencies which find a large number of their requests coming from law firms and other businesses, however, be allowed to charge the full cost to them of complying with the act-not just the search and reproduction costs, but the substantial cost of the review time spent by high level personnel in ascertaining that information that should not be released is not released and that information that must be released is released.

The fourth point that I would like to make has to do with the manner in which the Government organizes itself to deal with information problems. As you may be aware, private industry has in the last few years become increasingly aware of the importance of information to its own activities. Many businesses have as a consequence, begun to establish high level positions within business whose principal function is the management of information and information resources.

The Congress reflected its own awareness of this trend in the passage last year of the Paperwork Reduction Act. I would suggest that statute, although it says nothing about the Freedom of Information Act, may provide a lever by which the administration by Government agencies of their obligations under the Freedom of Information Act may be improved.

It seems absurd to me that Freedom of Information Act compliance problems, as important as they are to Government information activities, should be excluded from the obligations of the Paperwork Reduction Act, in particular the obligation that requires each agency to appoint a single official who is responsible for oversight of the agency's information activities. It would seem only sensible that that official have within his jurisdiction the agencies' Freedom of Information Act operations, and that those operations be coordinated with the Government's other Freedom of Information activities. If that is done, I would suggest that some of the problems of administration of the act might be overcome, and that some of the other criticism of the act might be reduced as a consequence of better training, better personnel motivation, and generally better management practices.

Thank you for your attention. I would be glad to take any questions which you have.

Mr. RADER. Thank you, Professor Stevenson.

As one of the more obscure graduates of your institution, I am particularly happy to welcome you to this subcommittee.

If I could just ask a couple of questions, particularly based on your excellent paper which you presented to the administrative law conference: You mentioned at page 5 of your report that agencies do not define in advance what class of information will be withheld as secret. However, at the same time you recommend that agencies publish a list of information that they will not keep as confidential data.

Would it not increase the reliability of Government for a submitting person to know in advance that the type of document being submitted is routinely held from disclosure? It seems it would be very productive and more likely to stimulate exchanges of information than a program of only listing those items which an agency freely distributes.

Mr. STEVENSON. To the extent that it is possible, it seems to me to make perfectly good sense for agencies to publish in advance a regulation which describes certain categories of information which will not normally be released. I think that is what I said in my study.

However, there is a difficulty with that. That is that information or the importance of information is extremely time dependent. An item of information which would fall within an exemption today might well have lost its importance in 5, or 10, or 15 years, and might therefore no longer fall within the exemption. A particularly good example is an item of information which represents a trade secret today but which in 5 years may be virtually valueless as a result of technological developments in the industry,

I think one has to be cautious about making such classifications too rigid, but to the extent that they can be used, I think they make sense.

Mr. RADER. There has been a great deal of concern in this session of Congress and in others with the impacts of regulation on small business in particular. In the area of private confidential information being disclosed by Federal agencies, your report at page 79 says that a legislated notice requirement is not necessary.

Instead, you recommend that each agency work out its own notice rules. These would include a requirement for making a confidential treatment claim at the time of submission without which the submitting person loses a right to notice. You also recommend at page 77 that agencies act by their regulations to declare that whole classes of information will be disclosed without notice.

Our real question is: What impact will that have on small businesses? Many smaller firms have information which because of their relative size could be devastating if given to a competing firm by the agency. How could a smaller firm protect itself if your recommendations are adopted?

Mr. STEVENSON. I am sensitive to the problems of small business, having represented a fair number of small businesses myself. I am again not sure, however, of how significant the act's impact on

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