26 June 2019

Supreme Court Clarifies Broad Interpretation of FOIA Exemption for Confidential Commercial Information

In a very significant FOIA decision for business, Food Mktg. Inst. v. Argus Leader Media, decided on June 24, 2019, the Supreme Court reversed 45 years of understanding that Exemption 4 only protects confidential business information whose disclosure by the government would cause “substantial competitive harm.”

Relying on the plain meaning of words in the statute – rather than what the Court majority characterized as muddled legislative history – the Court found that the D.C. Circuit had engrafted a condition on the Exemption that is not supported by the text.  Rather, so long as the commercial or financial information obtained by the government is “private” or “secret” – the plain and ordinary meaning of “confidential” – it may be withheld from disclosure under FOIA.

This is a sea change that should be of considerable importance, and reassurance, to many companies.  In particular, it is possible that commercial information that is kept secret only because its disclosure might embarrass a company would now be protectable under FOIA. Writing for the majority, Justice Gorsuch expressed consternation over the entrenched, cavalier approach to statutory interpretation.  He noted that in 1974, in National Parks & Conservation Assn. v. Morton, 498 F. 2d 765, the D.C. Circuit narrowed the scope of Exemption 4 “after a selective tour through the legislative history [and]… [w]ithout much independent analysis, a number of courts of appeals eventually fell in line and adopted variants of the National Parks test.”  Taking the lower courts to task, Justice Gorsuch said: “We cannot approve such a casual disregard of the rules of statutory interpretation. In statutory interpretation disputes, a court’s proper starting point lies in a careful examination of the ordinary meaning and structure of the law itself. Where, as here, that examination yields a clear answer, judges must stop.” [cites omitted]

The dissent authored by Justice Breyer characterized the Court’s holding as follows:

Exemption 4 says that the Act does “not apply” to “commercial or financial information obtained from a person and . . . confidential.” §552(b)(4).  The majority holds that “commercial or financial infor­mation” is “confidential” and consequently falls within the scope of this exemption “[a]t least” where it is “[1] both customarily and actually treated as private by its owner and [2] provided to the government under an assurance of privacy.”

The requirement for a government “assurance” of privacy, however, is not a requirement of Exemption 4, though it would strengthen a company’s claim of confidentiality.  Justice Breyer may also have tried in his dissent to limit the scope of protection for merely “embarrassing” information by arguing that, “[t]he Exemption’s focus on “commercial” or “financial” information, for instance, implies that the harm caused by disclosure must do more than, say, simply embarrass the information’s owner.  It must cause some genuine harm to an owner’s economic or business interests.”  Of course, a company’s business interest would likely be genuinely harmed by the release of embarrassing information that was maintained in confidence and kept secret (before providing to the government).

Going forward, companies should not hesitate to claim protection under FOIA Exemption 4 for commercial or financial information submitted to the government that the company considers confidential, private or secret regardless of any impact with respect to competitors or competitive posture.  The company’s position will be strengthened of course to the extent it can convincingly demonstrate that it treated the information in question confidentially, and even more so, where it received some assurance of privacy from the government.  Note, however, that some agencies may have incorporated the now superseded “substantial competitive harm” standard in their regulations.  Companies invoking Exemption 4 should therefore be prepared to advise agencies that any such regulatory narrowing of Exemption 4’s coverage is no longer justified.  In addition to invoking confidentiality under FOIA, companies should also consider citing 18 USC § 1905, which is a criminal statute that prohibits federal employees from disclosing trade secrets, financial or statistical data, and other confidential information obtained in the course of official duties or investigations, without authorization of law. This prohibition is generally understood to provide a basis for agencies to categorically withhold confidential business information under Exemption 4 rather than to exercise discretion in favor of disclosure (which is the general rule under FOIA).

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