HANDLING OF CONFIDENTIAL DATA

While it has been difficult to forecast and deal with FOI workloads and related problems, we have had some success in planning for problems related to the handling of confidential materials. From the outset, the agency realized that the trade secret issue would be one of the most complex and difficult to cope with. It was decided that the ground rules for disclosing or not disclosing information-including information on trade secrets-should be laid out in considerable detail in our implementing regulations. As a result, FDA's public information regulations may be the most comprehensive issued by any Federal agency.

There was an additional reason for the lengthy and detailed treatment. The Federal Food, Drug, and Cosmetic Act makes it a crime for any FDA employee to disclose any information acquired under the authority of certain sections of the act, “... concerning any method or process which as a trade secret is entitled to protection."1

FDA is the recipient and custodian of a vast amount of scientific, technical and business information. Because "trade secret" information is frequently intermingled with such data, FDA's policy for many years was simply to refuse requests for most of the material in its official files. In our regulations,2 we have now defined trade secret and have elaborated in detail upon what information in agency documents would be made public. The regulations utilize the definition set forth in the prestigious Restatement of Torts, which emphasizes that the information must provide an advantage to competitors to be regarded as confidential. Included in FDA's list of items regarded as confidential are safety and effectiveness data contained in new drug and new animal drug applications (although such data are available under certain circumstances such as when the drug has been disapproved or withdrawn from the market). The data, in summary form, are also available when the drug has been approved for marketing.

Our regulations and the accompanying preamble describe each exemption and the rationale for the exemption in detail. Significantly, they also list the kinds of documents, or information contained in documents, which FDA routinely obtains, and states our policy on disclosure. We believe this specificity has produced the intended beneficial results. It has minimized protracted disputes and litigation over substantive disclosure questions. Also, it has allowed for greater consistency in decisions of what is disclosable and has helped to prevent errors in the release or withholding of information.

I do not intend to suggest that we have not encountered any opposition on substantive disclosure questions or that there is total public confidence in our ability to apply our regulations. On the contrary, we have been challenged on both scores. The most notable challenge has come from the Pharmaceutical Manufacturers Association (PMA) which filed suit in 1975 in the United States District Court for the District of Columbia (Pharmaceutical Manufacturers Association v. Mathews, 401 F. Supp. 444 (D.D.C. 1975), Subsequent Opinion, 411 F. Supp. 576 (D.D.C. 1976)) seeking an order declaring invalid and enjoining the enforcement of certain provisions of our regulations. The most important issue in the lawsuit involved the question of whether PMA's member companies are entitled to administrative notice and an opportunity to consult with the FDA on every contemplated disclosure by the agency of information submitted by, obtained from, or pertaining to them or their products.

Fortunately, the courts ruled in favor of the agency on this issue. In our judgment, our entire FOI operation would have been seriously threatened if PMA had been successful. Nor do we feel that providing notice in advance of every disclosure would provide benefits justifying the time and expense required. If the public is to have prompt access to agency records, the disclosure process cannot be encumbered with elaborate procedures that give private persons, with an interest in confidentiality, an opportunity-in every instance to attempt to persuade, cajole or negotiate about the disclosure decisions. Detailed regulations, such as ours, and notice in limited situations where the disclosure decision is close, are preferable.

1 See exhibit 20, n. 324 of the appendix.

* See pp. 329, 345 of the appendix.

REVERSE FOI SUITS

We have welcomed court challenges on substantive disclosure issues as we believe these are in the public interest.

There is a real question, however, whether reverse FOI suits-brought by firms attempting to prevent Government agencies from releasing recordssubstantially serve the public interest. Fortunately, FDA has had to defend only one such lawsuit. We believe that the detailed treatment of nondisclosable data in our regulations has contributed to our good fortune in this area.

I am sure the subcommittee is aware that the FOI amendments require the courts to handle expeditously FOI cases seeking disclosure of records. It has been our experience, however, that these cases are not processed as rapidly as one would hope. Moreover, the law makes no provision for expediting reverse cases. Although FDA's experience is limited, we understand that reverse cases make their way through the courts at an even slower rate than the regular FOI cases. This is significant since, as long as the suit is pending in the courts, the records will not be released.

SAFETY AND EFFICACY DATA

In the recent reverse FOI case brought against the agency by Syntex, Inc., which, incidently has been pending for nearly a year, the principal issue involves the release of what the agency considers to be summaries of safety and efficacy data pertaining to a new drug. Syntex claims that the data are not summaries but rather constitute part of the full reports of the data generated from preclinical and clinical trials, on the theory that these data are essential to obtain a license to market the product. The data provide an important competitive advantage over those who do not have access to it, for they must duplicate the data to obtain a license to compete. The license in this case is, of course, the new drug application approved by the FDA.

The agency has generally agreed with this position since enactment of the Federal Food, Drug, and Cosmetic Act in 1938, by interpreting the term "method or process which as a trade secret is entitled to protection" in section 301(j)1 as encompassing animal and human testing data. Later, however, the agency adopted a policy of releasing a summary of such data when a drug was approved for marketing.

The result of the longstanding FDA interpretation of safety and efficacy data as trade secrets is, on the one hand, to protect manufacturers' investments in drug development and thus provide an incentive for further research, but, on the other hand, it requires scarce research resouces to be spent duplicating studies which have already established the safety and effectiveness of marketed drugs. On an ethical level, the confidentiality accorded to scientific studies can delay the dissemination of new medical knowledge and, if clinical trials are repeated, may place human subjects at risk without a justifiable corresponding benefit to themselves or the public. Finally, the "secrecy" of the data frequently limits public acceptance of FDA's judgment on specific drugs, and may understandably weaken public confidence in the agency.

Legal constraints rather than agency policy choice has largely dictated FDA's policies and practices with respect to release of safety and efficacy data. Agency representatives have on numerous occasions since the early 1960's indicated in public statements that current statutory prohibitions prevent disclosure of useful information contained in the agency's files, and particularly, data relating to the safety and effectiveness of drugs. FDA has repeatedly stated that it cannot unilaterally change its longstanding interpretation of the law, on which the industry has relied for almost 40 years.

FDA believes that scientific data, including safety and efficacy data now considered trade secrets, should be made public recognizing the potential negative impact this might have on drug research. This dilemma is not properly one for FDA to solve by itself, even if it legally could. Rather, it is an important public policy issue that can and should be addressed primarily by Congress. If any change is to be made in the handling of the full reports of the safety and effectiveness data submitted to the agency as part of a drug application, it should properly be made by Congress through new legislation, and not by the FDA through regulations.

1 See exhibit 20, p. 324 of the appendix.

CONCLUSION

Overall, the FOI Act and our implementing regulations have resulted in substantial public benefits, although, as I noted earlier, they have also produced some disappointing effects. Contrary to some fears expressed at the time the regulations were first published, our policy of disclosure has not hindered communications or relations with anyone outside the Federal Government nor has it impeded internal agency deliberations. It has, of course, properly encouraged closer public scrutiny of our actions, and thus has enhanced public accountability of the Agency.

Mr. Chairman, that concludes my formal statement. I will be happy to answer any questions you or members of the subcommittee may have.

Senator ABOUREZK. That was a good presentation for catching you

unaware.

Mr. GARDNER. Thank you.

Senator ABOUREZK. Mr. Norton?

TESTIMONY OF GERALD P. NORTON, DEPUTY GENERAL COUNSEL, FEDERAL TRADE COMMISSION; ACCOMPANIED BY BARRY RUBIN, ASSISTANT TO THE GENERAL COUNSEL

Mr. NORTON. Mr. Chairman, I am Gerald Norton, Deputy General Counsel of the Federal Trade Commission. With me is Barry Rubin, who is Assistant to the General Counsel.

I will be presenting staff views which do not necessarily reflect the views of the Commission or any commissioner.

I think one initial observation to make about the act and exemption 4 is that the problems, as with any general statute that applies across the whole Government, are going to vary somewhat from agency to agency. Maybe the solutions should also be tailored to deal with particular problems in a way the act at present does not.

The statutory standard is the first place where the problems of administering the act begin. The act refers to trade secrets or confidential commercial and financial information. The "trade secret" part does not, for the Trade Commission, present a serious problem because most of what would constitute trade secrets that we encounter are also encompassed by the "commercial or financial information" standard. In any event, the FTC Act has a specific provision which prohibits the Commission from making public trade secrets.1

So, we are only concerned with the commercial and financial information segment of the test. But, even so, that has been construed by the courts in a way—perhaps not surprisingly, in light of the generality of those terms-that does not lend itself to easy application. It is in the nature of a subjective standard in the sense that its application requires a focus on particular facts pertaining to particular documents and whether their release would be likely to cause substantial competitive harm to the company that submitted the information. That is just a very difficult test to apply without getting into a whole lot of facts and evidence about the nature of the industry and the ways in which particular information might be harmful.

Senator ABOUREZK. Do you think it is possible for Congress to legislate more specific standards which the agency should follow, or do you think the existing broad guidelines are better?

1 See exhibit 21, p. 324 of the appendix.

Mr. NORTON. Well, I am not yet prepared to say that it is better at present. I am not terribly optimistic about the prospect for a more precise definition that eliminates litigation. I do not think we will ever get to that point. You might be able to single out certain kinds of information or documents that will be presumptively regarded as privileged or protected under that exemption.

A further problem in the application is that, whatever the courts have said, business tends to view everything that is not required to be made public by law-or that it does not choose to make public-as confidential. So, there is a tension right at the outset; it is understandable, perhaps. But you have a narrow standard and a broad interest in maintaining confidentiality that will persist under almost any standard.

The biggest category of cases that we have or instances in which we have to apply the act involves documents that we have obtained from companies in the course of economic or law enforcement investigations. The Commission has regarded these as subject to the act unless they are covered by the exemption. Some questions have arisen in recent cases as to whether that is a proper interpretation of the act and whether a third party's documents which happen to be in the possession of an agency should be subject to FOIA requests. If that category of documents were not covered by the act, our problems would be greatly eased.

Senator ABOUREZK. There would be nothing left to request.

Mr. NORTON. Well, that is not true. We get a lot of information through questionnaires and other types of inquiries which very often is very confidential and which is also a matter of comparable concern to the companies and is also the subject of requests. It would not wholly eliminate this category of information from potential access; but in terms of the magnitude of the problem for the Commission, it would simply ease it tremendously.

Because of the possibility that documents that they have not yet submitted to the Commission might be released, increasingly we find that companies we are trying to get documents from are resisting voluntary requests and are requiring that we go to court. They are trying to raise all sorts of questions in the courts to obtain protective orders.

Ultimately we end up winning most of these suits and we get the documents, but only at a cost of not only the litigation expense but great delay. I think this is a direct consequence of the availability of these documents under the act. In addition to that, we get preenforcement suits, where a company does not wait to litigate the question when we go to enforce the process, but goes off to some other court and sues us first. We get involved in multiple litigation in different. courts. It has been a tremendous problem in the last couple of years.

Senator ABOUREZK. I think the biggest problem with the reverse lawsuits you just talked about is forum shopping. Do you have any recommendations as to how that situation can be stabilized?

Mr. NORTON. Right now we have direct experience with that. We have a request for documents made in connection with a rulemaking proceeding that is ongoing concerning the mobile home industry. The Commission determined that we should release certain documents which had been submitted by a number of different companiesessentially the same kind of documents.

1

Pursuant to our confidentiality procedures, which are another direct result of the FOIA, in which we guarantee 10 days' prior notice before releasing information that the company has asserted is confidential, some five or six of the companies sued us. Some sued here in Washington. One sued in Dallas. One sued in Los Angeles. They all raised the same question.

We have tried to get the other suits transferred here. The courts have denied our request. Now we are litigating the identical questions in three different courts under different schedules and different U.S. attorneys offices; it is multiple, duplicative litigation.

One of the problems in these cases is that, not only can there be difficult litigation because of the test, but the party requesting documents is not required to join or to assist in the litigation. So, we are in the middle as a stakeholder. We have these documents. Someone wants them, and someone else does not want us to give them out.

We have to defend the reverse suit and also defend-if we do not give them out-against the requester's suit. The result in the one suit does not necessarily bind the other party.

One possibility would be to specify a venue where any such suit would have to be brought.

Senator ABOUREZK. Where should that be, in your view?

Mr. NORTON. For us the most sensible place would be here, where the agency is located and where, in most cases, the documents are located.

Senator ABOUREZK. There is another part to that.

If Congress were to require that the party asking for the information in the reverse suits become a party to the suit, would the District of Columbia venue still be a good place to continue such an action?

Mr. NORTON. From our standpoint, I suppose it depends on the extent to which we had to litigate the case. If you end up having a fight between the requester and the submitter-in which we do not have any particular interest-venue would be less of a concern for us. Senator ABOUREZK. But you would be a party obviously, as well. Mr. NORTON. We would under the present situation.

There is another

Senator ABOUREZK. Let me ask one other thing before you go on. Where are the people located who request the documents? Do they come to Washington? Are they mostly Washington-based groups?

Mr. NORTON. It is always done by letter. I would say the vast majority are Washington. A lot of them are Washington law firms representing people involved in litigation with the agency.

Senator ABOUREZK. Would it make sense to hear those kinds of suits in Washington?

Mr. NORTON. It would be in the great number of cases. But you do, also, have the problem of some requests coming from people who are not big law firms or big organizations; they are all over the country. It could be an inhibiting factor if they had to litigate in the District. Senator ABOUREZK. Do you think it would be advisable to, by statute, set the venue in Washington but allow the court, in its discretion, to make an exception if the party making the request is based elsewhere and is not using a Washington group or law firm?

1 See p. 347 of the appendix.