August 19, 2019

On June 24, the U.S. Supreme Court upended decades of lower court precedent to expand protection of “trade secrets and commercial or financial” information from disclosure under the Freedom of Information Act (FOIA). It is important to note that the court’s ruling does not pertain to the Defend Trade Secrets Act.

The court in Food Marketing Institute v. Argus Leader Media, No. 18-481 (U.S. June 24, 2019) addressed the scope of the “trade secrets and commercial or financial information” exception to the FOIA. The federal government maintains information from countless businesses regarding their compliance with federal laws or programs. Under previous cases, a governmental entity receiving a FOIA request had to demonstrate a “substantial competitive harm” to the disclosing business to invoke the exception and thereby avoid producing categories of documents. The court rejected the “substantial competitive harm” standard, and raised new questions as to what constitutes “confidential” information exempted from FOIA disclosure.

The dispute started when Argus Leader, a newspaper in South Dakota, filed a FOIA request with the U.S. Department of Agriculture (USDA). The request sought information regarding, among other things, redemption data for all stores participating in the Supplemental Nutrition Assistance Program (SNAP) program from 2005 to 2010. The USDA withheld the SNAP redemption data based on Exemption 4 to FOIA, which excludes “trade secrets and commercial or financial information obtained from a person [that its] privileged or confidential.” Argus then sued the USDA to compel production of the store-level SNAP redemption data.

The trial court ordered the USDA to disclose such information, applying the U.S. Court of Appeals for the Eighth Circuit’s “substantial competitive harm test,” a test employed by the D.C. Circuit, Second Circuit, Tenth Circuit and many district courts for almost 45 years. The trial court held that although “competition in the grocery business is fierce,” the evidence did not show that disclosure of such information would result in “substantial competitive harm” to the stores.

The USDA did not appeal, but the Food Marketing Institute, a grocery retail trade association, intervened to appeal to the Eighth Circuit. The Eighth Circuit affirmed the trial court’s application of the “substantial competitive harm test,” and held the USDA need not disclose the store-level SNAP redemption data. The Supreme Court then granted review.

The Supreme Court addressed the question of how to define “confidential” information under FOIA Exemption 4, and whether a showing of “substantial competitive harm” is required to invoke the exemption. The court rejected the “substantial competitive harm test” because the test had no grounding in the statutory language of FOIA. The court instead addressed the plain meaning of the term “confidential,” and found two potential criteria: information that is “customarily kept private, or at least closely held,” by the submitting entity; and information for which the government provides “some assurance that it will remain secret.” The court held the first requirement must always be established to invoke Exemption 4 protection, opining “it is hard to see how information could be deemed confidential if its owner shares it freely.”  However, the court did not resolve whether the second element is required. The court noted “there’s no need to resolve that question in this case because the retailers before us clearly satisfy this condition too.” The court ultimately concluded that protection under FOIA Exemption 4 is warranted “at least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy.”

The court’s opinion surely expanded protection of “confidential” information under Exemption 4 of FOIA, but left parties, the government and the lower courts to deal with uncertainty in applying Exemption 4. Questions remain as to what steps businesses and organizations must take to keep information “private, or at least closely held,” and when government “assurance” is required to establish information as “confidential” and exempt from FOIA disclosures. The Department of Justice and other government agencies will likely revise their guidelines and policies on how to apply Exemption 4 in reaction to the court’s decision. Such guidance and policies, as well as lower court decisions applying Exemption 4, will likely help illuminate additional considerations for protecting confidential information from disclosure under FOIA.

For now, businesses seeking to prevent public disclosure of “trade secret and commercial or financial” that is submitted to a governmental entity should consider marking the materials as “confidential” or take other means to prevent its disclosure. Businesses should also establish and maintain company policies protecting such information, include such provisions in employee and commercial contracts, and establish a practice of opposing disclosure of such information in civil discovery.

Businesses and organizations should also seek the government’s assurances that “confidential” information will in fact be protected before submitting such information to the government. It may be difficult to obtain a nondisclosure agreement with a governmental entity, and any such discussions should be memorialized in writing.

The dissent in Food Marketing Institute v. Argus Leader Media asserted that the court’s abandonment of the long-used “substantial competitive harm test” opened the door for FOIA challenges to prevent the disclosure of information, which was merely private or embarrassing, but did not amount to a competitive harm to the business if disclosed.

Dylan W. Wiseman is a shareholder in Buchalter’s San Francisco and Sacramento offices and firmwide co-chair of the trade secret and employee mobility practice group.

Rick A. Waltman is a member of the firm’s trade secrets and employee mobility, and labor & employment practice groups in the firm’s San Diego office.