Protecting Confidential Business Information
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Protecting Confidential Business Information

Brownstein Client Alert, July 18, 2019

Supreme Court Upends Half-Century Standard for Handling Confidential Commercial Information Under the Freedom of Information Act

Businesses that provide sensitive commercial or financial information to the federal government can now breathe a little easier. In a recent Supreme Court case, Food Marketing Institute v. Argus Leader Media, No. 18-481, 588 U.S. __ (2019), the court relaxed a nearly 50-year-old precedent used by the federal government to determine whether to release commercial or financial information to private third parties pursuant to Freedom of Information Act (“FOIA”) requests. Under the prior precedent—followed by most federal circuits—the federal government was required to disclose “confidential” information unless the original disclosing party could demonstrate that it would cause “substantial competitive harm.” The application of this test often led to extensive back and forth between private third parties and government agencies in order to prove that disclosure would cause substantial—rather than speculative—competitive harm.

Recently, the Supreme Court in Food Marketing Institute overruled this test based on the plain meaning of the statutory text at the time of its adoption, holding that 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 information is “confidential” and can be withheld from disclosure. Parties that provide such information will now enjoy greater protection from disclosing sensitive information. The decision also relieves companies of the onerous burden of proving substantial competitive harm to agencies possessing confidential business information.

Case Background: FOIA Request Puts “Substantial Competitive Harm” Test Under Scrutiny

The Food Marketing Institute case involved a South Dakota newspaper’s FOIA request for records that would disclose data collected by retail grocers regarding the usage of the U.S. Department of Agriculture’s Supplemental Nutrition Assistance Program (“SNAP”) at specific grocery stores. The newspaper requested information about each store’s SNAP redemption data from 2005 to 2010. The USDA initially declined the request, citing FOIA’s Exemption 4, which shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential” 5 U.S.C. § 552(b)(4). This exemption is commonly referred to as the “Confidential Business Information (CBI)” exemption. Argus sued to force the USDA to disclose the grocers’ SNAP data on the basis that the data requested was not “confidential” as interpreted by prior precedent.

Prior to this case, the D.C. Circuit’s decision in National Parks & Conservation Assn. v. Morton set out the test for determining what commercial information qualifies as “confidential.” It provided that a “commercial or financial matter is ‘confidential’ if disclosure of the information is likely . . . (1) to impair the Government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information is obtained” National Parks & Conservation Assn. v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

The district court applied the National Parks “substantial competitive harm” test and held that while competition among grocery stores is fierce and disclosing SNAP data could harm competition among grocers, disclosing the information would not rise to the level of causing substantial competitive harm. The court thus authorized disclosure of the information. The USDA declined to pursue an appeal, but the Food Marketing Institute, a grocery retailer trade group, intervened in the matter and appealed the decision.

On appeal before the Eighth Circuit, the Food Marketing Institute argued that the appellate court should depart from the National Parks test and instead apply the ordinary plain meaning of the word “confidential” in Exemption 4. The Eighth Circuit rejected this argument and affirmed the district court’s application of the National Parks test. That decision was then appealed.

SCOTUS Expands the Meaning of “Confidential”

In an opinion authored by Justice Gorsuch, the Supreme Court approached the case by analyzing the statutory text of FOIA’s Exemption 4, which exempts from mandatory disclosure any “commercial or financial information obtained from a person and privileged or confidential” 5 U.S.C. § 552(b)(4). The court examined the ordinary meaning of the word “confidential” as of the time that Congress enacted FOIA. The court noted that the term “confidential” meant then, as it means now, “private” or “secret.” The definition of “confidential” suggests that two conditions might be necessary for information communicated to another to be considered confidential. “In one sense, information communicated to another remains confidential whenever it is customarily kept private, or at least closely held, by the person imparting it.” Additionally, information might be considered confidential “only if the party receiving it provides some assurance that it will remain secret.”

While the Supreme Court declined to answer whether both expectation of secrecy and government assurance of secrecy is required for information to qualify as “confidential” under Exemption 4, the court noted that in this case both prongs were clearly met by the grocers’ SNAP data.

Justice Breyer penned a partial dissent, joined by Justices Ginsburg and Sotomayor. While they agreed that the statutory text could not support the substantial competitive injury test set forth in National Parks, the justices disagreed with the court’s decision to remove any consideration of harm from Exemption 4. In support, the dissenters noted that in many other contexts the potential consequences of a disclosure are considered when determining whether information is confidential. In the national security context, for example, information is deemed confidential when disclosure would prejudice national interests. The dissenters further illustrated their argument by hypothesizing that a “speaker can more sensibly refer to his Social Security number as confidential than his favorite color in part because release of the former is more likely to cause harm.” In the dissent’s view, the court’s broader definition would incentivize submitters to overstate the secrecy of the information submitted in order to shield it from possible disclosure, which would run afoul of FOIA’s very purpose of allowing public citizens to hold the government accountable for its decisions.

Based on Food Marketing Institute, private parties submitting sensitive information to a government agency now can avoid future disclosure of that information under FOIA by demonstrating that they have attempted to keep the information private and that they received some form of assurance from the agency that such information would remain private. A party need no longer prove that disclosure would cause substantial harm to its competitive position, which is often a difficult and speculative showing to make, particularly because the government is free to interpret whether—and how much—harm may result.

Potential Impacts, New Rulemakings, and Future Limitations

The impact of Food Marketing Institute remains to be seen, but it will likely provide greater assurance of confidentiality for private parties that submit sensitive information to the government. For example, parties seeking to collaborate with an agency in pre-rulemaking stakeholder efforts may shield documents from subsequent disclosure to competitors, and parties that have submitted documents in the context of litigation settlement negotiations may also enjoy greater protection from disclosure of such information. On the other hand, journalists, open government organizations and interested parties will encounter greater difficulty in obtaining sensitive commercial information.

Despite the ruling’s significant impact, future disputes will arise in the wake of Food Marketing Institute. One question that remains open is whether information that is “closely held”—meaning private, but perhaps carefully shared—can satisfy the requirements of prong 1, the expectation prong.

Another open question is whether either the expectation or the assurance prong of the confidentiality test is alone sufficient to exempt disclosure under Exemption 4. The court itself framed such a hypothetical, questioning whether privately held information can lose its confidential character for the purposes of Exemption 4 if it is communicated to the government without assurances that the government will keep it private. The court unfortunately declined to answer that question.

These questions may be addressed in future agency guidelines and rulemakings. It is expected that the Department of Justice and agencies like the Environmental Protection Agency (EPA) will revise their guidelines and rulemakings to comply with Food Marketing Institute. Private third parties working with government agencies to disclose confidential information should be aware of the pending changes and look for forthcoming announcements.

It also remains to be seen whether future presidential administrations will attempt to limit the case’s impact by incorporating new limitations on the use of Exemption 4. Absent legislation, an administration cannot disturb FOIA’s statutory text, but it can direct how agencies analyze and respond to FOIA requests. On his first full day in office, President Obama issued a memorandum instructing executive departments and agencies to administer FOIA “with a clear presumption: In the face of doubt, openness prevails”. 74 Fed. Reg. 4683 (Jan. 26, 2009). Based on that direction, Attorney General Eric H. Holder, Jr. issued new FOIA guidelines for the Executive Branch in a March 19, 2009, memorandum, stating that agencies should not withhold information “simply because it may do so legally” 74 Fed. Reg. 51879 (Oct. 8, 2009). Instead, agencies were encouraged to make discretionary disclosures whenever possible and to make partial disclosures if full disclosure is not possible. He also rescinded a 2001 attorney general memorandum and established a “foreseeable harm” standard for defending agency decisions to withhold information: “the Department of Justice will defend an agency’s denial of a FOIA request only if (1) the agency reasonably foresees that disclosure would harm an interest protected by one of the statutory exemptions, or (2) disclosure is prohibited by law.” Agencies were thus required to incorporate the “foreseeable harm” standard as part of their FOIA analysis at both the initial request and administrative appeal stages. Similarly, a future administration could attempt to promote greater transparency by reincorporating the thrust of National Parks in evaluating whether to disclose confidential commercial or financial information pursuant to a FOIA request.

Conclusion

Food Marketing Institute provides relief to private parties submitting sensitive commercial or financial information to the federal government. No longer will a showing of “substantial competitive harm” need to be made. It is likely that in the coming weeks and months the Department of Justice and agencies that handle large amounts of confidential commercial or financial information will issue new guidelines and rulemakings in response to Food Marketing Institute. Private third parties working with the government should stay abreast of these developments in order to protect their confidential information. Parties should also be aware that changes in political administrations could impact the scope and application of FOIA Exemption 4.

This document is intended to provide you with general information regarding the U.S. Supreme Court's ruling in Food Marketing Institute v. Argus Leader Media. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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