12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. The usual definition of a "trade secret" comes from the 1938 See Francois Dessemontet, The Legal Protection of Know-How in the We are very much indebted to the pioneering work of F. A. Hayek on Ibid. Karl Popper, The Open Society and Its Enemies (University of Chicago Israel Kirsner, Competition and Entrepreneurship, (University of Israel Kirsner, Opportunity and Profit, (University of Chicago National Parks and Conservation Assn. v. Morton 498 F2d. 765 W. Casey, J. Marthinsen and L. Moss, "Businesses Move To Get Low-Cost This view has been supported by many economists. For an early See Burton H. Klein, Dynamic Economics (Cambridge, Harvard University See Roger Milgrim, New York, Trade Secrets (1976). Paul J. Quirk, "Food and Drug Administration," in James Q. Wilson, Pracon, Inc., "Study of Assess Impacts of Releasing Safety and Effec- 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. D. Montgomery, A. Peters and C. Weinberg, "The Freedom of Information W. Casey, J. Marthinsen and L. Moss, "Productivity, Research and "More Business Data from Government Files," Business Week, July 20, 1974. Casey, et al. Ibid. Extensive interviewing was conducted with five (5) U.S. pharmaceutical Stevenson offers several other explanations for the lack of reported See Louis T. Wells, ed., The Product Life Cycle and International Tsurumi, Ibid and Pharmaceutical Manufacturers Association, Prescription Drug Industry Fact Book, Washington, D.C., 1980. Pharmaceutical Manufacturers Association, Ibid, p. 28. Ibid. Also see Henry G. Grabowski, John M. Vernon and Lacy Glenn Thomas, Mr. RADER. Thank you very much. Do you have anything to add, Dr. Casey, in conclusion? Dr. CASEY. I just wanted to add that we agree completely with Professor Stevenson that if technology were a free good, or if we lived in a static economy, it should be freely and fully disseminated. Our concern is with the creation of new technologies. We believe that the FOIA is producing disincentives in that regard. Mr. RADER. Thank you. We appreciate your coming a great distance to present excellent testimony on the economic aspects of the Freedom of Information Act. We would advise you, as we have advised the other witnesses, that there is a potential for subcommittee members, not present here today, to have questions, after they have had a chance to review your testimony, and they might submit those in writing. Mr. MARTHINSEN. We would be glad to respond. Mr. RADER. We appreciate very much your attendance here today. With that, the subcommittee will close this first day of hearings on FOIA. [The subcommittee was adjourned at 12:30 p.m.] FREEDOM OF INFORMATION ACT WEDNESDAY, JULY 22, 1981 U.S. SENATE, SUBCOMMITTEE ON THE CONSTITUTION, COMMITTEE ON THE JUDICIARY, Washington, D.C. The subcommittee met, pursuant to recess, at 9:35 a.m., in room 2228, Dirksen Senate Office Building, Senator Orrin G. Hatch (chairman of the subcommittee) presiding. Present: Senators Hatch, Thurmond, and Grassley. Staff present: Randall Rader, counsel; Dickson Burton, law clerk; Peter Ormsby, professional staff assistant; Claire Greif, clerk; and John Kohut, staff assistant. STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH, CHAIRMAN, SUBCOMMITTEE ON THE CONSTITUTION Senator HATCH. The hearings will come to order. Today we convene the second of a series of hearings on the Freedom of Information Act. We started these hearings a week ago with the general overview of the issues relevant to a legislative reconsideration of the act. We took testimony that showed the act in general operated very well. It has done much to promote openness in Government. It has worked well, and I think has made Government more accountable to the public. However, even though it has been working well, there are some critical areas where it has impaired important Government functions. In the next 2 months, we will be looking more closely at areas where some adjustments of the Freedom of Information Act might be in order. Specifically, we will look at how law enforcement and intelligence functions are affected by FOIA. Law enforcement agencies are required to answer requests from convicted felons seeking their investigative records, personnel rosters, and investigative manuals. Much of this information is available upon request under FOIA. A full 40 percent of the requests handled by the Drug Enforcement Administration are from convicted felons, many of them seeking this information to aid them in their criminal activities or to help identify informants that helped convict them. With law enforcement agencies bombarded by FOIA requests, informants are understandably reluctant to cooperate for fear that they might be discovered. Moreover, the sharing of information between State and local governments and Federal law enforcement agencies has been seriously hampered. The CIA has testified that foreign intelligence sources hesitate to share critical information with our intelligence officers, due to a widespread belief that the U.S. Government is incapable of protecting its secrets because of the Freedom of Information Act. In September, we will be looking closely at the national security exemption of FOIA to determine what adjustments should be made. Today our focus is on another critical issue of the Freedom of Information Act. When it was originally enacted, exemption 4 was included to protect confidential business information and trade secrets. The 1966 Senate report described the confidential information as that "which would customarily not be released to the public by the person from whom it was obtained." This test was used by the courts in the early decisions addressing the question and recognized that no one knows better than the submitter what information is actually sensitive. However, in National Parks and Conservation Association v. Morton the court created its own competitive harm test. No longer does the Government look solely at what the information means to the submitter but instead weighs whether disclosure would cause substantial harm to the competitive position of the person from whom the information was obtained. This judicially created standard does not adequately protect a submitter of information. Consequently, it has multiplied the number of reverse-FOIA suits, or suits to protect commercial information from disclosure. Not only was the standard for exemption 4 diluted by judicial innovation, but the courts left businesses without adequate procedural protection for their confidential information. The Supreme Court in Chrysler Corporation v. Brown held that the Freedom of Information Act provides no remedy in the courts for a person objecting to release of his confidential information. Instead, an individual can only proceed under the Administrative Procedures Act which would subject him to unpredictable procedures of each distinct agency. This case leaves submitters without even an opportunity to file an effective reverse-FOIA suit. As a result of the confusion surrounding exemption 4, thriving new businesses specializing in industrial espionage have arisen to exploit FOIA. Indeed, 85 percent of the requests received by FDA, and more than three out of five received by all the other agencies, come from these firms or other businesses or lawyers. Accordingly, we are here today to more closely examine the questions surrounding exemption 4 of the Freedom of Information Act. Senator Dole has introduced S. 1247 to address some of the problems I have mentioned. It would require the agencies to notify a submitter when disclosure of his information has been requested, and it would allow him to voice any objections to its disclosure. |