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Incidentally, there is another comment of the previous witness in her statement to the effect that we must redress the imbalance that exists against the requesters. I would say that, if there is an imbalance, it is on the other side—against submitters of data and information.

I think that, if it has not already been done, it would be useful for the committee, if you have time and staff available, to analyze the implementing regulations of the most important agencies in Government.

In the early period of our analysis, we are finding that those regulations are not necessarily consistent on the subject, for example, of notice. They are uneven to some extent with regard to quality. The scope of them is quite different, as far as we have gone.

Senator ABOUREZK. I think you are right. The staff has done limited review of some agencies, and they agree with that.

Mr. STEWART. Time permitting, I would suggest that that be pursued.

The DOD proposal," which is in the form of an amendment to their prior regulations, has a number of things that deserve careful consideration. Overall, I think that agency has tried to do the best it could to deal with this massive problem. They do offer one new idea, however, which troubled us. That is that all requests for information do not have to be classified as FOIA requests. That is an invitation for people to come in with a request and have it perhaps approved, without DOD being obliged to conform to the Freedom of Information Act in terms of its protective provisions.

I will stop soon because I realize you are at a late hour.

We have been fascinated and appalled in our study of this subject. We take no exception to the principle of disclosure, where appropriate, but we feel there is a good deal of reevaluation that needs to be done with reference to the statute as amended and also with reference to its implementation.

If we can be of any help in that area, we would be glad to assist.

We have published about five pieces on this subject, going all the way back to the original law. We submitted that material to the sta ff.2

We will be continuing to observe the field, as I say, with kind of a mixed approach because our companies frequently are on one side or the other. Sometimes the same company is on both sides, not necessarily in the same case.

I think that is all I have to offer in a brief oral comment.
Senator ABOUREZK. Thank you very much, Mr. Stewart.

Do you believe that the determination of confidentiality should be made when the information is first submitted to the agency ? Or should it be made at a later time, when the request is made?

Mr. STEWART. In part I think that should be examined in terms of the burden. Certainly you can make a case for confidentiality being determined at the very beginning, at the time of receipt.

I would favor early consideration on one ground that has not so much to do with FOIA. That is that we confront in this country at the present time what might be described as a "leak” syndrome. If

1 Sep pp. 223 and 318 of the appendix. . See p. 226 of the appendix.

there were a determination at the time of receipt of the material, or at least a preliminary determination that confidential information might be involved, then I think it might deter, to some extent, premature leakage.

So, I would answer the question that way.

Senator ABOUREZK. Do you believe the business community is less likely to voluntarily submit information now because of the possibility of release under the Freedom of Information Act ?

Mr. STEWART. The answer to that question in one word is "yes." I would add this. The business community is also concerned about what I have described as leaks—very much concerned.

Senator ABOUREZK. Politicians are concerned about that, too.

Is there a legitimate public interest in disclosure of some types of information that affect public health and safety, even if disclosure would cause competitive harm to the submitter?

Mr. STEWART. Well, I think that you get into what you were describing as a balancing act. In other words, I think the probability is that what you have suggested is true. But where you come down in your ultimate decision requires a balance and a subjective judgment.

There could be a conflict between those two considerations. Senator ABOUREZK. Senator Thurmond's counsel has some questions. Mr. Lyon. Thank you, Mr. Chairman.

LYON Mr. Stewart, the Senator is interested in this syndrome type of thing that you are speaking of, the sunshine law combined with the FOIA. He is particularly interested in the possible effects on governmental relations that you mentioned earlier.

Do you think that any governmental official will continue to freely express himself or herself

in inter- or intra-agency memorandums if some other Government official may, at his or her discretion, release such memorandums to the world?

Mr. STEWART. I think there is a risk of that.

Mr. Lyon. Could one probable result of all this be to drive government decisionmaking underground?

Mr. STEWART, It is my conviction which I cannot document-that one result of the Freedom of Information Act and, more specifically, the burden that it creates and the subjective judgments that must be made under its provisions, probably is to encourage Government officials to put less on paper than they used to.

Mr. Lyon. So, in effect, it thwarts the legislative intent of disclosure and drives it back underground and turns into a big circle?

Mr. STEWART. “Underground” may be too strong a word. I really believe the burden has reached, in certain departments, such a high level that there is this tendency toward or a strong tilt toward disclosure. Of course, as I said earlier, I believe that is what the Attorney General really is recommending with his letter.

Mr. Lyon. I have one last question on this shift of the test from customary released to competitive harm. You mention in your statement that one of the consequences of the shift would be expensive litigation. Would you give us a quick and dirty example?

Mr. STEWART. I cannot give vou an example, but I think that I can generalize beyond what is implied in your question. There is not any question about it. Legitimate litigation--and almost always a person


does not spend the money on litigation costs unless he feels he has more than just a surface case-can be expensive if for no other reason than the limited number of practitioners familiar with the Freedom of Information Act. You normally will not find in a general corporate law firm these specialists. Two hundred dollars an hour is not out of sight.

Mr. DERR. As a matter of fact, the Circuit Court for the District, in stepping back in National Parks II 1 from the initial competitive harm test in National Parks 1,- suggests that you really do not have to prove what it said the first time that you must prove. It went on to say that there was no necessity for the kind of proof found in the ordinary antitrust situation.

I think this is an apt analogy. Nothing is more expensive in litigation than antitrust litigation. This is the kind of massive and sophisticated market and competitive analysis that would have to be made to truly satisfy the competitive harm test.

Mr. STEWART. Under the prior test of customary release, there was, I think, much less litigation.

Mr. Lyon. Thank you, Mr. Chairman.

Senator ABOUREZK. You answered most of the questions we had prepared in your initial presentation.

I want to thank you and your colleagues very much, Mr. Stewart, for appearing here and for your testimony.

Mr. STEWART. It is a privilege to be here. If we can be of assistance in any way, let us know. [The prepared statement of Mr. Stewart follows:]

PREPARED STATEMENT OF CHARLES W. STEWART The Machinery and Allied Products Institute greatly appreciates the subcommittee's invitation to appear and testify in these hearings.

The institute, composed of capital goods and allied industrial products manufacturers, has followed the Freedom of Information Act (FOIA) closely from the time of its adoption and has undertaken to inform its membership currently of the more significant developments in this increasingly important field of law. The decade and more which has passed since enactment of the act has seen a reemphasis-by 1974 amendments on the act's mandate of disclosure and a clarification of the act's application through a very considerable body of case law. Thus, we think it is altogether timely to conduct this examination into “experience under the act" as indicated in the chairman's September 2 letter of invitation.

As we understand that letter, the subcommittee expects to focus in today's hearing on “the issues raised by the trade secrets exemption including release of proprietary information and reverse FOIA suits.” Our experience with the act persuades us that this is probably the most important-and almost surely the most abrasive_issue raised by the act. But it is not the only one. Accordingly, and in order to be as responsive as possible to the chairman's request, we have addressed that question first in our statement which follows. Thereafter, we have summarized our views, borne of our own observations and the experience of our member companies, on certain other issues which we think deserve reexamination in the course of the current subcommittee review.


Exemption 4 to the Freedom of Information Act makes possible the protection from disclosure of information in government's hands which constitutes “. trade secrets and commercial or financial information obtained from a person and privileged or confidential.” It should be emphasized that this exemption "makes possible" the protection from disclosure of information protected by it. It does not-and cannot-assure protection from disclosure because the withholding of information sought by a requester and which falls under all but one of the nine exemptions is discretionary with the agency to which the request is addressed. (The one exception is, of course, exemption 3 which is discussed below.)

1 547 F. 20 673 (D.C. Cir. 1976). *498 F. 2d 765 (D.C. Cir. 1974).

We think it especially useful for the subcommittee to devote special attention to exemption 4 under FOIA because of what we consider to be the wholly unintended results which its interpretation and application have produced. Included in the train of circumstance which led to these results are such matters as the absence of any statutory requirement for notice to a source of information that such information may be disclosed, the failure to distinguish between government documents and private documents, a judicial decision which substitutes its own and much more rigorous test of confidentiality for that which we believe was intended by Congress, the apparent adoption by the Justice Department of this judicially crafted test, and certain 1974 amendments to FOIA which made some matters worse. Let us consider each of these topics separately.

No requirement for notice.—Neither the Freedom of Information Act nor the exemptions thereto distinguish between treatment to be accorded information prepared by government and information from private sources in government's hands. For reasons discussed more fully hereafter, we think such a distinction proper. We raise the point now because we think it is directly related to whatfrom the standpoint of business may be the most serious shortcoming of the Freedom of Information Act.

Where privately-developed information is submitted to government on the understanding that it is to be held or used in confidence the exemption 4 situation—there is no statutory requirement that the source be notified that such information may be disclosed in response to a request under the FOIA. Most agencies apparently follow the administrative practice of giving notice to a person whose information may be disclosed. Only a handful have embodied such a requirement in pertinent regulations. The Attorney General has suggested that, “... there may be instances when agencies will find it appropriate to consult with the persons who provided the information before deciding whether the exemption applies.” 1 Although helpful, this suggestion is neither directive in character nor general in application.

The disclosure by government of valuable, privately-developed information without giving the source notice of possible release and the opportunity to contest such action seems to us to be something very close to an unconstitutional taking of property without due process.

The law should be amended to require such notice. If this is not feasible, then the legislative record should make clear that such action is desired by Congress.

Public documents vs. private documents. The Freedom of Information Act is so drafted as to raise a presumption that any information in government's hands and requested by a person on the outside is to be disclosed. The nine exemptions are, generally speaking, “permissive" and not mandatory; that is, an agency may in its discretion choose to disclose information which falls within one of the exemptions. The one exception, as noted previously, is exemption 3 which applies to matters "specifically exempted from disclosure by statute (other than section 552b of this title), provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld.”

This general presumption favoring disclosure is reinforced by thrusting onto the agency involved the burden of proving why a particular record is not to be disclosed. Speaking to this point Congressman Moss, as floor manager of the bill which became the Freedom of Information Act, said in the course of debate, “The bill lists nine categories of Federal documents which may be withheld to protect the national security or permit effective operation of the Government but the burden of proof to justify withholding is put upon the Federal agencies.”

Are confidential private documents converted into “Federal documents" merely by the fact of government possession and which possession, incidentally, may have resulted from a government requirement imposed upon the supplier of

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1 Attorney General's Memorandum on the Public Information Section of the Administrative Procedure Act, June 1967, p. 34.

information? It is our contention that a private document remains a private one even though information taken therefrom may be used confidentially by government for its purposes or combined with similar information from other private documents to constitute a wholly new "Federal document.” For the most part, the nine exemptions are distinguishable one from another largely upon the basis of whether they apply to government sourcei.e., "Federal"-documents or private information in government hands. Exemptions 1, 2, 5, 6, 7 and 8 apply generally to government-source documents, although 6 and 7 may, in some cases, apply to privately-generated data. On the other hand, exemptions 4 and 9, by their terms, apply largely if not wholly to private documents. Although exemption 3 also applies to some types of private documents, the fact that its application is mandatory and not discretionary rules it out of consideration for this purpose.

To repeat, we think that FOIA exemptions applicable to private documents in government possession probably should from the adoption of the act have mandated nondisclosure rather than making this a matter for agency discretion. Moreover, we think this initial failure to distinguish between the character and the protection to be afforded “Federal documents” on the one hand and privatelygenerated information in the hands of government on the other may lie at the root of some of those difficulties encountered with exemption 4 which have led to this hearing. With this in mind let us now consider what has actually happened to exemption 4.

Customary releasevs. competitive harm."-Reports of both the House and Senate on the Freedom of Information Act make clear that exemption 4 was intended to cover information that “. would not customarily be made public by the person from whom it was obtained by the Government.” 1 The Senate report indicates that information which “customarily would not be released to the public" includes "business sales statistics, inventories, customers' lists, and manufacturing processes." The House report in enumerating a similar list of items with one or two additions concludes its discussion of exemption 4 by saying, "... where the government has obligated itself in good faith not to disclose documents or information which it receives, it should be able to honor such obligations."

To sum up, the pertinent House and Senate reports contemplated exemptions per se of broad categories of information identified in those reports. Moreover, this intent appears to have been adopted initially by the courts.' Presently, however, the very court which had originally accepted the "customary release" test by judicial improvisation engrafted thereon a wholly new test which we believe is another principal source of difficulties stemming from the “trade secrets exemption." In National Parks and Conservation Association v. Morton, the D.C. Circuit Court of Appeals sought additional legislative purposes beyond those ascribed by Congress itself to exemption 4' and citing language from the Senate report-opined that, “In general, the various exemptions included in the statute serve two interests that of Government in efficient operation and that of persons supplying certain kinds of information in maintaining its secrecy."

The only issue on appeal was whether or not the information in question (specifically, certain Department of Interior records concerning concessions operated in the national parks) was "confidential” within the meaning of exemption 4. Having found, as noted above, that there existed under the act another and broader legislative purpose than that which Congress in both Houses had very clearly assigned to exemption 4, the court held that “... commercial or financial matter is 'confidential for purposes of the exemption if disclosure of the information is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the futureo; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained."

1 The language is from E. Rept. No. 1497, 89th Cong., 2d sess. at page 10. To similar effect is the language of S. Rept. No. 813, 89th Cong., 1st sess. at page 9. See p. 419 of the appendir. Sterling Drug, Inc. V. FTC, 450 F. 2d 698 (D.C. Cir. 1971). *498 F. 2d 765 (D.C. Cir. 1974).

• It should be noted that the language cited by the court appears in a general preamble to the Senate report and not in that portion of the report which relates specifically to exemption 4,

* An unusual set of facts, incidentally, upon which to base an opinion of general authority. • Footnote omitted.

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