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part of the exemption has not been a problem for the Commission since section 61f) of the Federal Trade Commission Act (15 U.S.C. $ 46(f)) already limits the power of the Commission to make trade secrets public.' Courts have rarely been required to construe the trade secrets portion of exemption 4, probably because of their belief that a trade secret is a fortiori confidential commercial or finan. cial information.
The primary difficulty in dealing with exemption 4 is the uncertainty that has arisen as to both the definition of confidential commercial or financial information and the meaning of court rulings interpreting that language. In attempting to set out guidelines for agencies to follow in interpreting the exemption, the court in the leading case of National Parks and Conservation A88'n v. Morton, 498 F. 2d 765 (D.C. Cir. 1974) (National Parks I] held that the main consideration in determining the application of this exemption was whether release of the information would be likely to cause substantial harm to the competitive position of the submitter. That test thus required a case-by-case, document-by-document analysis.
Indeed, the history of the National Parks controversy itself reveals the difficulties inherent in the test. While the court in National Parks and Conservation Assin v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976) [National Parks II), suggested that to meet this requirement, the information must be likely to give valuable insights into the submitter's overall operational strengths and weaknesses, that case itself has involved numerous evidentiary hearings and has been remanded twice by the Court of Appeals, thus indicating that no bright line standards can be drawn. Indeed, the fact that these cases, all involving the same companies in the same industry, have generated so much judicial and administrative energy points to the conclusion that the exemption, as written, may not be amenable to general application.
Thus, each request for information calls for an individual and often an original analysis involving a series of dynamic factors. In determining whether release will cause substantial competitive harm, an examination of such factors including the make-up of the industry, the submitter's position therein, the age of the documents in question, and the ability of competitors to glean such information elsewhere will often be required. Aside from the fact that this exemption is not susceptible to ready application and calls for a burdensome and time-consuming series of evidentiary analyses, a further problem arises. The processors of Free dom of Information Act requests are not industry analysts or financial experts and therefore often lack the expertise required to perform an analysis akin to those undertaken in the National Parks cases, particularly in the limited time allowed under the act, even if the required information were readily available.
Most Freedom of Information Act requests to the Commission that involve the issues raised by exemption 4 are requests for documents submitted to the Commission, either voluntarily or pursuant to compulsory process, by companies under investigation by the Commission. Thus much time is expended with reference to documents that are not generated by the agency, but are merely corporate or business records that are being inspected by the agency.
The Courts have construed exemption 4 extremely narrowly, and have refused to deny access based solely on agency grants of confidential treatment. As a result, companies who are concerned with the confidentiality of their documents are reluctant to submit them to the Commission.
The Commission's general policy is to entertain requests for "confidentiality" as requests for advance notice prior to any disclosure of the documents in question. If such an assurance is granted, the person submitting the documents will receive notice of any impending release in response to a Freedom of Information Act request and will generally be afforded an opportunity to convince the Commission that disclosure of the documents is not required by exemption 4.
Despite the Commission's broad power to compel the production of information, collateral arguments over the confidentiality of documents to be produced have proved burdensome and time consuming. Such resistance has persisted despite recent court decisions holding that the question of confidentiality is not a defense to the production of information. See, e.g., FTC v. Texaco, Inc., 555 F. 2d 862, 883– 85 (D.C. Cir.) (en banc), cert. denied, 97 S. Ct. 2939 (1977).
Similarly, a number of persons have filed pre-enforcement suits which seek to challenge the Commission's issuance of compulsory process before the Commission itself brings an enforcement suit. The bringing of these pre-enforcement suits adds an extra burden to our task in that it requires the Commission to spend time and resources becoming involved in two suits (the pre-enforcement and the standard enforcement suits) often in two different forums that involve identical material. A major issue in such suits is, once again, the confidentiality of the in. formation to be submitted. (See, e.g., Exxon Corp. v. FTC, No. 77–61 (D. Del. Aug. 19, 1977)).
1 See exhibit 21, p. 324 of the appendix.
A final point in this regard is that since the exemption as construed by the courts may only apply to a very small category of financial or commercial information, which the company submitting would rather keep confidential, a further burden is placed on the Commission in that it must process a large number of requests for material that the submitters consider confidential but must be released since the stringent requirements for invoking exemption 4 have not been met. These requests for material that is not otherwise available are often made to either circumvent or supplement administrative or judicial discovery. See e.g., Gifford-Hill, Inc. v. FTC, 1975–2 Trade Cas. | 60674 (D.D.C. Jan. 13, 1976); Thrifty Drug Stores, Inc. v. FTC, 40 Ad. L.2d (Pike & Fisher) 108 (D.D.C. Dec. 17, 1976). As numerous courts have pointed out, the Freedom of Information Act was not enacted to enable parties to a suit to supplement discovery (see, e.g., Title Guarantee Co. v. NLRB, 534 F. 2d Cir.), cert. denied, 429 U.S. 834 (1976)), and the use of the act to do so, again, unnecessarily diverts the agency's resources from its underlying mission. In the first half of 1977, for example, of the 375 Freedom of Information Act requests received by the Commission, 273 came from businesses or corporations or their lawyers.
The other major problem of exemption 4 is the filing of so-called reverse FOIA suits. A reverse suit arises when a person who has submitted information to an agency seeks to enjoin the agency from releasing the information to requester under the FOIA. Just as an FOIA appeal involving material that may be exempt under exemption 4 presents an agency with problems not found in other appeals, a reverse suit produces complexities not present in regular Freedom of Information Act litigation. One problem is that some courts have suggested that exemption 4 not only permits an agency to withhold documents within its scope, but requires an agency to do so, thus unnecessarily restricting agency discretion. (See Westinghouse Electric v. Schlesinger, 542 F. 2d 490 (4th Cir. 1976) cert. denied, 45 U.S.L.W.3749 (May 7, 1977); contra Charles River Park, 519 F. 2d 935 (D.C. Cir. 1975).)
Another difficulty presented by a reverse suit lies in the choice of forum by the submitter. The forum may be chosen so as to be so inconvenient for the requester that the requester will be unable or unwilling to intervene; this is particularly true where the requester is an individual or public-interest group that cannot afford the expense of retaining counsel in some distant city. Where there are multiple plaintiffs (because the information requested had been submitted by several persons), there is the possibility of an agency being confronted with lawsuits in different parts of the country although the questions presented are essentially the same. This exact situation has recently happened to the Commis. sion. Five reverse suits resulted from a single freedom of information request. Three of the companies brought suit in Washington, D.C., one sued in Dallas, and the fifth company sued the Commission in Los Angeles.' The Commission was unsuccessful in seeking to have the cases in Dallas and Los Angeles transferred to Washington and must now defend these cases on three different timetables and with the involvement of three separate U.S. Attorney's offices.
Third, and perhaps the most important problem presented by a reserve suit, is the difficulty an agency has in litigating such suits. Part of the problem is a result of the agency's interest in the outcome: while the agency is usually only a stakeholder, with the actual contest being between the requester and the submitter, the agency is often forced to assert the claims of the requester who is unwilling or unable (e.g., because of lack of finances) to become a party to the litigation. In the five reverse cases mentioned earlier the requester has refused to intervene in any of the cases. Indeed, this can also be a problem in the standard Freedom of Information Act suit where the submitter of the information does not intervene to protect its confidentiality. As if this confusion of roles were
1 Liberty Homes, Inc. v FTC, Civil Action No. 77-406 (D.D.C. 1977) ; Moduline Inter. national, Inc. v. FTC, Civil Action No. 77-407 (D.D.C. 1977); Skyline Corp. v. FTC, Civil Action No. 77-403 (D.D..C 1977) ; Redman Industries, Inc. v. FTC, Civil Action No. 3-77-0322 (N.D. Tex. 1977) ; Fleetwood Enterprises, Inc. v. FTC, No. CV 77--0897-RJK (C.D. Calif. 1977).
not enough, the agency also often lacks the necessary expertise to rebut effectively a submitter's claim of confidentiality, particularly when the submitter brings in expert witnesses to testify at a hearing about the alleged harms to the submitter's competitive position if the information at issue were disclosed.
Finally, the agency may be faced with inconsistent or conflicting decisions. The former situation would be most likely where multiple plaintifts have sued in different forums. The result could be that the information submitted by one person is completely protected from disclosure, another submitter's information is partially protected, and a third submitter's information is released in its entirety, even though information for all three submitters was produced in response to identical subpoenas and is identical in format. The agency may be faced with inconsistent judgments where the requester, who was not a party to the reverse suit, brings his own suit to obtain the information the agency was enjoined from releasing. See, e.g., Consumers Union v. CPSC, No. 75–2059 (D.C. Cir. July 5, 1977).
In view of our experience we suggest various actions that the subcommittee may wish to consider to alleviate the problems imposed on the Commission, the courts, and the public by exemption 4 in its present form.
1. Redefine the scope of the exemption in more precise and objective terms.
2. Require that a person believing that information it is submitting to the Commission is subject to exemption 4 make that claim known at the time of submission, and, within a specified period after notice of the Commission's receipt of an access request supply substantiation for the current validity of that claim, the Commission's time to respond to the request being appropriately adjusted.
3. Provide that exemption 4 will be inapplicable if the submitter does not make such a submission to the Commission or does not join as a defendant in a Freedom of Information Act suit concerning the request within a specified period after receiving notice that a suit has been filed.
4. Prohibit preenforcement suits concerning Commission process along the general lines of the provisions of S. 1288, as reported by the Senate Committee on Commerce, Science and Transportation, and H.R. 3816, as reported by the House Committee on Interstate and Foreign Commerce.
5. Limit reverse Freedom of Information Act actions by (1) clarifying that exemption 4 does not limit the discretion the Commission has to make public information in its possession pursuant to its other authority; (2) specifying a single venue, to avoid multiple actions ; (3) requiring the requester to become a party of the request is to continue in effect, to avoid the risk of multiple litigation and inconsistent judgments.
6. Define agency “records" to make clear to what extent the term includes documents belonging to private parties that have been subpoenaed or otherwise made available for inspection or use by the Commission.
TESTIMONY OF MICHAEL A. JAMES, DEPUTY GENERAL COUNSEL,
ENVIRONMENTAL PROTECTION AGENCY, ACCOMPANIED BY RICHARD BOEHLERT, DEPUTY ASSOCIATE GENERAL COUNSEL FOR GRANTS AND GENERAL ADMINISTRATION
Mr. JAMES. Mr. Chairman, I am Michael A. James, Deputy General Counsel, Environmental Protection Agency. With me this morning is Mr. Richard Boehlert, who is our Deputy Associate General Counsel for Grants and General Administration. Carrying out our seven major statutes, we, of course, handle large
, , quantities of information from business. Our policies and procedures attempt to balance disclosure needs and our policy of protecting legitimate interests of business in the confidentiality of information they submit.
We are operating now and have been for almost exactly a year under a set of regulations which, in great detail, attempt to chart our course for this balancing effort. In order to operate under exemption
1 See p. 348 of the appendix.
4 of the FOIA and related provisions of most of our statutes, we have assigned the term “confidential business information” to cover the perhaps more cumbersomely worded trade secret and commercial confidential information category in the exemption 4.
We identify confidential business information by having the business submitting the information make the identification for us. When we request information from a business under one of our statutes, we notify it that it must assert the confidentiality claim or risk disclosure without further notice from us.
For information which is not submitted in response to a request, the business is not notified of its right to assert a claim until we receive a request for it or until perhaps we decide for some reason to disclose it ourselves, which is considered necessary in the course of our business.
At the time there is a determination to disclose and there is a claim of confidential business information, the information automatically goes to the General Counsel's office, where we review it and make the determination as to whether it falls within our statute's definition. If it does, we rule on it; it is a final ruling. It is reviewable, of course, in district court.
That is the most difficult part of the process, the General Counsel's office ruling. As Mr. Norton pointed out, we frequently have very little information to operate on other than the substantiating information submitted by the business involved. To the extent they claim and can document in any reasonable fashion that there will be some competitive harm to them by release of the information, we have little independent means of going beyond that.
We are operating, naturally, under the National Parks and Conservation Association v. Morton case tests, which are that there would be substantial competitive harm to the individuals who supply the information or that there would be some impairment to the ability of the Government to obtain necessary information in the future if the information were disclosed.
We most often have to apply, as I indicated, the substantial competitive harm test. I also indicated that we have problems with that. It is something we do routinely, but we do not feel that we are able to override the company if a claim is made unless we have a very good basis for making that judgment to the contrary.
The second Norton test we do not use too terribly often. It mainly arises in connection with procurement activities. A business will submit, in response to a request for bid, information to the Agency. So, we have it, in essence, voluntarily submitted. We then decided that information submitted in that fashion should be held confidential if it is so identified as confidential business information by the company so as to enhance the possibility that we will get complete submissions on future requests for bids.
We have not had great problems in the Agency with reverse Freedom of Information Act cases. We have only two underway right now, I believe. And that is out of a total number of Freedom of Information Act requests of some 1,300 in the calendar year 1976; in
1498 F. 2d 765, 770 (D.C. Cir. 1974).
1977, it appears from figures, which I think are over 1,200 already, that we will exceed the 1,300 number this year.
One area we hope to be able to use to simplify our legal office's work is to use some class determinations. That is information submitted on certain types of forms that would never be deemed to be confidential. That has been used, so far, only in the context of a form that the States have been principally responsible for getting filled in by businesses.
Another area that I would like to touch on is the sharing of confidential business information. We take the position that we will generally disclose business information to another agency if we receive a written request for it. That would not apply if that information could be obtained and released by that agency itself. .
We generally are not restricted by our statutes in the release of information to other Federal agencies. In fact, the Toxic Substances Control Act specifically authorizes free disclosure to other agencies and authorizes other agencies to disclose information to us to carry out our overlapping responsibilities,
That is all I have by way of summary, Mr. Chairman.
PREPARED STATEMENT OF MICHAEL A. JAMES It is a pleasure to appear before the subcommittee this morning to relate EPA's experience with the trade secrets exemption of the Fre lom of Information Act.
The diverse statutory mandates of EPA require the Agency to handle large quantities of information dealing with internal practices and processes of businesses of all sizes. In handling this information EPA is faced with the same dilemma that faces almost all regulatory agencies. That is, how to insure that the disclosure dictated by the Freedom of Information Act is accomplished, while insuring that the legitimate interests of businesses submitting information will be protected. My testimony will deal with how these competing considerations are handled by EPA under our regulations, which have been in effect for about one year.
The fourth exemption of the Freedom of Information Act states that an agency must disclose records in response to a request unless the records contain "trade secrets and commercial or financial information obtained from a person and are privileged or confidential.”
The initial problem in applying the fourth exemption to specific information is identifying which information falls within the exemption. It is often difficult to assign specific information to a particular category to determine, for example, whether information constitutes “trade secrets" as opposed to "commercial information." Therefore, EPA has chosen the term "confidential business information” to describe the information covered by the fourth exemption. This broad term in no way changes the types of information covered by the exemption.
Similarly, it does not relieve the burden of the Agency to decide which information fits within the exemption. However, EPA has found that the best way to identify confidential business information is to ask the business submitting the information to identify it for us. This is done in one of two ways, When EPA makes a written request for information that EPA believes is likely to be considered confidential by the business, EPA gives the business notice that it may assert a business confidentiality claim covering part or all of the information. The notice states how the business should assert its claim and