under the Act. Many cases involved a simple difference of opinion between the agency and the submitter of the information as to the applicability of exemption 4. And in most of these the dispute was submitted to a court for ultimate resolution. More often than not the court agreed with the agency's view of the situation. Since the public record contained so little in the way of support for the large volume of criticism of this aspect of the FOIA, I asked the Administrative Conference to publish a notice in the Federal Register specifically requesting information on instances in which exempt information had been released. To provide wider dissemination of this request, I wrote a short article in a widely-read legal journal drawing attention to the request. The notice generated approximately two dozen responses. The greater number made no mention at all of the kind of specific abuse that had been sought. Indeed, at least two corporations admitted that they knew of no such incidents. Some of the responses did cite cases in which it was claimed that exempt information had been released. However, on closer examination, the overwhelming majority of those instances turned out, again, to have involved a mere difference of opinion between the agency and the submitter as to the applicability of the exemption. And, again, in most of those instances, the matter was ultimately resolved in the courts. These are hardly examples of failures of the law to protect confidential business information from the alleged ravages of the Freedom of Information Act. On the contrary, they appear to be cases in which the law has functioned as one might desire it to function. At worst, they have exposed business to the costs of going to court to seek to protect their information. While these costs are not to be lightly dismissed, they are not qualitatively different from the costs of compliance with any other form of government regulation. At the very least, they can hardly be said to strike at the roots of the competitive system as many of the critics of the Act seem to suggest. Among all of the submissions, there were a mere handful in which it was clear that exempt information had in fact been inadvertently released. What does all this show? At the very least, the allegations by some in the business community that the FOIA has led to the wholesale release of business secrets remain unproved. That does not necessarily mean, of course, that this admittedly unsystematic study proves the contrary. There may well be reasons why business prefers not to come forward with evidence of the sort the study sought. On the other hand, the charges that business has made against the Act have been so vociferous and so widespread that one is inclined to want to put the burden of proof on business with respect to this issue. That inclination is strengthened by the observation that the bulk of the evidence that business has produced purporting to support its case turns out, when scrutinized, to be defective. Under these circumstances it would seem that a certain skepticism is in order. On the basis of the evidence I have seen, I am inclined to believe that there is a great deal more smoke here than there is fire. That is not to say that there are no problems with the manner in which government deals with confidential business information. Even one case of the release of information that results in "substantial harm to the competitive position of the submitter" is one too many. But unless it can be demonstrated that there are in fact serious problems in this area, Congress should not react to the noisy clamor that has been raised by either major alterations in the substance of the exemption or by the erection of a complex and costly procedural structure intended to deal with a problem that does not exist. In short, in the course of these hearings, I urge you to press those who come before you to make general criticisms of the functioning of the Act for harder evidence of their claims than they have heretofore placed on the public record. Alhough I have been talking here about the problems of exemption 4, the same might be said of other alleged problems with the FOIA. Benefits of the FOIA As I have indicated the benefits of the Freedom of Information Act are often difficult to assess. They are, however, a good deal more numerous and more diverse than is generally recognized. Most think of the FOIA as principally a tool for improving government by allowing citizens better means to oversee its activities. That appears to have been the principal concern of the Congress at the time of the enactment of the statute. The Senate report on the bill that became the FOIA quoted the words of James Madison: "Knowledge will forever govern ignorance, and a people who mean to be their own governors must arm themselves with the power knowledge gives. A popular government without popular information or the means of acquiring it, is but a prologue to a farce or a tragedy or perhaps both."* While the facilitation of the democratic process is clearly the major purpose of the FOIA, the Act has also proved to have a number of other benefits, both public and private, not all of which were conceived of at the time of its enactment. The 1979 Justice Department study to which I previously alluded asked for, in addition to an estimation of the costs of administering the FOIA, *S. Rep. No. 813, 89th Cong., 1st Sess. at 2-3 (1965). a statement of the benefits that agencies believed to flow from the Act. The summary of the agency responses, which is appended to this statement, is enlightening. The respondents described a large number of benefits, many of them relating to improving citizen participation in government, but a great number of them somewhat less obvious. Interestingly enough, among the benefits listed were a number of gains to the government growing not out of citizen participation but out of the simple need to comply with the Act. For example, respondents reported they had experienced "improved record quality", "improved record access", "improved documentation relating to decision-making", and "improved security classification assignments", as well as a number of other improvements in agency functioning that do not leap to mind as consequences of a statute such as the FOIA. To turn for a moment to the sort of advantages that Congress intended to flow from the FOIA, a classic example is found in increased access to health and safety testing data received by agencies such as the Food and Drug Administration. This is not the place for a complete catalogue of those benefits. For an excellent enumeration and elaboration, I commend to your attention an article in a recent number of the Harvard Law Review* which, after weighing the benefits of disclosure of such data against the costs, concludes: "[A]n analysis of the competing policy con- The release of sensitive business information of the kind discussed in this article has been, as you are well aware, the focus of a great deal of attention in discussions of the costs of the FOIA to the economy. I would like, however, to advance the radical suggestion that, in many cases, the release of certain kinds of business information creates substantial benefits to the economy. Indeed, a moment's thought compels the conclusion that there must be some benefits to the economy from the release of the kind of information about which business has complained so strongly. The complaints are based on claims that the information will give an advantage to competitors. If this is true and in many cases - *McGarity and Shapiro, The Trade Secret Status of Health and Safety Testing Information: Reforming Agency Disclosure Policies, 93 Harv. L. Rev. 837 (1980). **Id. at 840. it probably is - the immediate result can only be lower prices, which will benefit consumers and taxpayers. In more general terms, economic theory teaches us that in a competitive economy the rapid dissemination of information enhances competition and is therefore beneficial. There are at least two reasons for this: First, the spread of information tends to increase the overall rate of technological progress of the society; and second, it enhances the vigor of competition by tending to eliminate market imperfections. This analysis does not, of course, go far enough. There are important drawbacks to the disclosure of business information. The most obvious is that a certain degree of secrecy is necessary to protect incentives to innovate. A business is far less likely to engage in research and development if it knows that its competitors will have immediate access to the results of these efforts and can therefore prevent it from reaping the benefits. This does not necessarily mean, however, that guaranteeing secrecy is always economically efficient in all situations. Exactly how much secrecy and for how long will maximize the economic welfare of the society is a matter of disagreement among economists. This is not the place for a discussion of that problem. Suffice it to say that disclosure is, in this context, neither all good nor all bad; its effects are mixed. Given our uncertainty about the matter and the importance of incentives for business research and development, it is necessary to be careful not to weaken those incentives unduly as a result of the disclosure of technological information through the Freedom of Information Act. On the other hand, while some measure of protection is undoubtedly needed, there is nothing that indicates that the protection furnished by the law in its present state is inadequate. Let me again urge you not to react too quickly to charges that the FOIA is undermining incentives for research and development simply because those charges are made with such frequency. We have yet seen no sound evidence of the truth of those charges. The second objection to the disclosure of confidential information is based not on the effects of such disclosure on the system of incentives as a whole but on considerations of equity. There is a certain element of unfairness in disclosing the business secrets of one company to competitors who are not subject to the same treatment. In general we ought not to do so. Even here, however, so long as the incentives for socially productive behavior that are provided by a certain amount of secrecy are not destroyed, society, at large, may reap economic benefits from disclosure. A simple analogy will illustrate why even here we are not dealing with absolutes of right and wrong. The patent system offers a reward to innovators in the form of a limited monopoly over qualifying inventions. As a condition of that reward, however, the law requires the inventor to disclose his secrets in order that the rest of society may benefit from the resulting dissemination of technology. No one suggests that this is "unfair". The same analysis may be applied to other rewards offered by the government, such as, for example, a profitable contract or a license to sell a new drug. It would be no more "unfair" for the law to require, as a condition of awarding such a benefit, that the recipient divulge certain information to the public than it is to require that a patent applicant publicly disclose the details of his invention. There are reasons of public policy -the possibility that the government would be limited in its ability to procure high quality goods, for example why we might wish to afford some degree of protection (as indeed we do) for the commercial secrets of those who deal with the government. But there is no absolute principle that demands absolute protection. - I do not mean to suggest by what I have said that the federal government ought to put itself in the business of handing out commercial secrets to all comers. What I do suggest, however, is that the position that business confidentiality should be elevated to some sort of a sacrosanct status the merest invasion of which threatens dire consequences for the economy is a gross exaggeration. Critics of the functioning of the FOIA in this area talk of the use of the FOIA as a "tool for industrial espionage." The pejorative connotation of that phrase is simply unwarranted. The characterization would be considerably closer to the truth if it spoke of "industrial intelligence". Every well-managed business is constantly engaged in gathering information about the economy, the markets in which it operates, and the activities of its competitors. There is absolutely nothing evil or harmful about this sort of behavior. It is of the essence of a free market economy. Indeed, the economy would function very badly without it. It cannot be denied that businesses use the Freedom of Information Act regularly as a tool of industrial intelligence. This is, in fact, one of the major uses to which the statute is currently being put. It is also undoubtedly true that Congress did not have this use of the statute in mind at the time of its passage. As any lawyer knows, however, it is a common occurrence in the law for a rule of law originally developed for one purpose to be adapated to a different one. There is nothing malign in this sort of development. As often as not the unintended consequence of the rule of law is a beneficial one. |