The Nickel Report

Guarding confidential or sensitive information is a longstanding tradition that transcends daily life. From the pinky-swearing days of childhood (to prevent your parents from finding out you rode your bike beyond their imposed boundary), to the fourth down play when your team is one point down with three seconds left on the clock, to the unique, complex chemical composition of a lifesaving drug, the concept of secrecy has roots in just about everything we do. In the business world, secrets are routinely kept to protect market share, privacy of customers, technology or for any number of other legitimate business-related concerns. Indeed, disclosure of confidential information can pose a real threat to a business’s vitality.

A recent decision by the United States Supreme Court that broadens the protection of confidential information to prevent it from being disclosed under the Freedom of Information Act (FOIA) is a significant legal development that may impact the business community. Food Marketing Institute v. Argus Leader Media, 139 S. Ct. 2356 (2019), addresses when commercial or financial information may be withheld from disclosure to the public under the Freedom of Information Act’s “Exemption 4.” 5 U.S.C. § 552(b)(4). The Court’s decision abrogates the longstanding National Parks and Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), test, which required a showing that disclosure of the commercial or financial information would result in “substantial competitive harm” to the company that disclosed the information to the government. Under the new Food Marketing test, commercial or financial information will be considered confidential and exempt from disclosure under FOIA when the information is both customarily and actually treated as confidential by its owner and it was provided to the government under an assurance of privacy by the agency receiving the information.

The Food Marketing case, and, in particular, how it will be implemented, raises a number of questions for companies providing commercial or financial information to the government. The answers to these questions remain to be seen. But, this new threshold for confidentiality could have a significant impact on the amount of information disclosed to the public while also potentially impacting the amount of information businesses are willing to provide to the government. Businesses may be more comfortable volunteering information under this new test based on what appears to be a more manageable test. The government may then find itself in possession of more information, but it may also result in government agencies withholding more information from disclosure to the public.

The “substantial competitive harm” test lives on, at least for now, in individual agencies’ FOIA regulations. For example, the US Environmental Protection Agency’s regulations implementing FOIA (40 C.F.R. Part 2) retain a “substantial competitive harm” test similar to National Parks. In particular, 40 C.F.R. Section 2.208 provides the following:

Substantive criteria for use in confidentiality determinations.
Determinations issued under §§ 2.204 through 2.207 shall hold that business information is entitled to confidential treatment for the benefit of a particular business if—
. . .
(e) Either—
(1) The business has satisfactorily shown that disclosure of the information is likely to cause substantial harm to the business's competitive position; or
(2) The information is voluntarily submitted information (see § 2.201(i)), and its disclosure would be likely to impair the Government’s ability to obtain necessary information in the future.
40 C.F.R. § 2.208 (emphases added).

Notably, in adopting Section 2.208’s requirement to show “substantial harm to the business’s competitive position,” EPA relied on the National Parks ruling. See EPA, Confidentiality of Business Information; Final Rule, 41 Fed. Reg. 36,902, 36,921 (Sept. 1, 1976). EPA has not yet amended Section 2.208 to reflect the Food Marketing decision (after all, the case is only one month old), but it could be argued that the abrogation of National Parks, absent alternative authority or reasoning, would also abrogate Section 2.208’s requirement to show competitive harm. In any case, Section 2.208 and other federal government agency FOIA-specific provisions utilizing the National Parks test may require amendments consistent with the Food Marketing ruling. In the meantime, depending on the relevant agency and its FOIA-specific regulations, companies may find themselves needing to substantiate confidentiality claims under both the Food Marketing test and the National Parks test.

It is always interesting to observe the aftermath of significant changes in case law, especially when a change involves the abrogation of a test that is more than 40 years old. How each agency implements this new test and how questions left open by the Court are addressed by those agencies remains to be seen. And, if the history of FOIA-specific litigation is any indication, we can expect to see more judicial decisions in the future, perhaps focusing on the “assurance of privacy” prong and what that means in the context of commercial or financial information. In addition, it seems likely that various regulatory amendments will arise insofar as individual agency FOIA-specific regulations relied on the now-abrogated National Parks test. As a firm that routinely advises on confidential business information issues, we will continue to monitor these developments and update this post as appropriate.