Page images

with adequate safeguards for submitters and for the public interest. Exemption Four would be made mandatory against disclosure (instead of merely permitting nondisclosure, as pronounced in Chrysler), except where a supervening public interest can be clearly and convincingly demonstrated.


s. 1247 responds to a bad situation that is

worsening with time.

As now constituted, FOIA has a built

in bias against the protection of trade secrets and, consequently and proportionately, against the investment in innovations that could become a competitor's free ride. The present bill discourages voluntary submission of information which otherwise would be submitted to government agencies,

putting both the agency and the submitter in contentious relationships that are increasingly ending up in court.

The need for consistent application of FOIA among

the agencies, dependable protection of trade secrets, reduction of litigation over agency disclosures and recognition that the patent system has inherent limitations as a means

of protecting rights in important technology is adequately

acknowledged in s. 1247.

Times have changed since the Freedom of Informa

tion Act was adopted in 1966.

We are talking about a

statute having as it purpose the opening of agency records

for public review and for assessment of agency performance.

But we

are also talking about a law that is utilized for its

proper and intended purpose by a distinct minority (3% in the case of FDA) of those utilizing it at all. It is no sacrifice of the public interest to preserve access for

those whose purpose would meet the test of public interest,

while at the same time alleviating the misdeeds visited on submitters and the unjustifiable burdens imp sed on the agencies by the rest. We believe the approach adopted in

S. 1247 would best serve the needs of all.

Arthur R. Whale

July 22, 1981

Mr. RADER. The next witness is Mr. Prospere Virden, senior counsel with Honeywell, Inc.

Mr. Virden is current chairman of the American Bar Association's Contract Committee and has published often on the subject of Federal contracts.



Honeywell greatly appreciates the invitation of the Subcommittee on the Constitution to testify at these hearings.

Honeywell is a broadly based manufacturing company specializing in controls and computers with combined annual sales approaching $5 billion. Accordingly, we submit many types of documents to the Government which are required of all corporations with similar product lines.

Approximately one-quarter of our business is with the Federal Government, so that we furnish a great deal of additional information as an essential part of the acquisition process whereby the Government obtains its goods and services. As a submitter of substantial information to the Government, we are affected by and vitally interested in, the implementation of the Freedom of Information Act.

The Freedom of Information Act has served a very salutary purpose in permitting citizens to obtain information on how its Government operates. Honeywell endorses the basic principles and objectives of the Freedom of Information Act. However, there have been some abuses of the Freedom of Information Act which were never intended by the Congress.

Of greatest concern to those of us in industry is the employment of the act to obtain competitors' trade secrets and confidential business information.

My testimony will focus on documents submitted to the Government in the procurement process. It is this area that has caused Honeywell the greatest problems with the Freedom of Information Act.

The obtaining of trade secrets and confidential business information under the Freedom of Information Act has the following adverse consequences.

First, many of the documents submitted to the Government in the procurement process are done so with a legitimate expectation that they will not be released outside the Government, and especially not to our competitors.

Decisions by the courts have struck down this expectation and have held that agreements of confidentiality cannot be relied upon.

Second, contractors are reluctant to describe in detail innovative approaches, for fear that competitors will obtain their novel ideas under the act.

As one court has stated, this will have a chilling effect on the willingness of potential bidders to submit proposals to the Government.

Third, the untoward amount of litigation and the duty of the agencies to comply with the extensive traffic in Freedom of Information Act requests for documents which contain trade secrets and confidential business information have been an overwhelming administrative burden-both to the Government and to the private sector. This is not only wasteful but, in our view, in many cases it is unnecessary.

The root of the problem is the conversion of private documents into Government records upon possession or control by the Government. We do not agree that every document submitted in the procurement process automatically becomes a Government record merely because it enters the Government's files.

Additional problems arise from the fact that while the courts initially adopted a customary release test, at the present time we are dealing with a substantial competitive harm test, which has been adequately covered by Senator Hatch and Mr. Braverman and Mr. Pulley and the undue burden of proof placed on the submitter in meeting this test.

Some of the documents submitted by contractors to the Government represent company property. These property rights generally are not taken into consideration in processing a Freedom of Information Act request.

There is no uniformity as to whether or not the submitter of the document will be notified. In those cases where notification is not made, the submitter has no defense to the release of the document.

The time limits stipulated in the Freedom of Information Act, when considering whether to withhold or release documents submitted in the procurement process, are unrealistic. There is not enough time to develop a record or for the submitter to prepare the detailed justification to prevent disclosure.

Government agencies take differing views as to how the act should be implemented. In order to prepare an effective defense against release, the submitter under very severe time constraints must the find out particular practices of the agency involved.

The Chrysler decision, which has been mentioned earlier today, has created great uncertainties to those of us in industry as to just how to proceed and just what the relationship is between the Freedom of Information Act and the Trade Secrets Act. This should be corrected.

In the face of all these problems, technical, cost, and management proposals, submitted by industry, invariably contain trade secrets and confidential business information. These proposals express innovative ideas, evidence of technological breakthroughs, and state-of-the-art solutions which the prospective contractor must put forth to win the contract.

Despite the fact that an agency may agree or a court may order the withholding of some or all of the proprietary information, it must be emphasized that the process in response to a Freedom of Information Act request, both for the submitter and for the Government agency, is tedious and time-consuming.

I would like to add that based on my research of the case law with respect to technical, cost, and management proposals that, in all instances which I have been able to discover, the requests that have led to these suits have been made by competitors. In my experience, I do not know of any request for a technical, cost, or management proposal that has come from a private citizen. They have all come from industry or corporate sources.

There have been requests for other documents, such as independent research and development submittals, technical and audit reports, and overhead rates which have been expensive and timeconsuming in protecting against release.

Honeywell believes that the problems with the Freedom of Information Act can only be effectively dealt with by remedial legislation.

Simply stated, the legislation should eliminate those practices which were unintended by the Congress in the first place.

Honeywell makes the following specific recommendations, most of which are embodied in S. 1247.

First of all, submitters of information to the Government should be notified of a Freedom of Information Act request for proprietary information when it is received.

The substantial competitive harm test should be abandoned and proprietary data which would not customarily be disclosed to the public, would be protected from release.

Where the agency has obligated itself in good faith not to disclose proprietary data, this likewise would be protected from police.

To better implement this, we would suggest that agencies should be permitted to designate in good faith certain categories of documents which, because they usually contain proprietary information and are not customarily disclosed to the general public, would not be disclosed outside of the Government.

I am thinking, in particular, of technical, cost, and management proposals, I. R. & D. submittals, and some of the other areas that invariably contain this type of information and, therefore, should be considered as a category, as opposed to having to examine each document as to whether or not it is customary to release it.

Exemption B(4) should be made mandatory rather than discretionary.

Submitters should have the opportunity after notification to provide in writing or at a hearing, legal and factual justifications as to why the documents should not be released. In many situations, in response to a Freedom of Information Act request, because of time constraints much of which is not done by documentation has to be done on the telephone, which is an inadequate way to present the justification as to why the documents should not be released.

A final decision to disclose the information after the agency has considered the submitter's objections should, at the election of the submitter, be subject to a trial de novo in an appropriate Federal District Court.

These recommendations, if adopted, would materially cut down on the inordinate traffic now being experienced under the Freedom of Information Act. Not only will confidence be restored to the private sector, but abuses of the act will also be eliminated. The savings to both Government and industry are incalculable and would be in keeping with the aims of the administration.

Thank you.
Mr. RADER. Thank you very much.
[The prepared statement of Mr. Virden follows:

87-749 O

82 - 28

« PreviousContinue »