Exemption 4

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This article is part of a series on Exemptions

Introduction

Exemption 4 is usually used by agencies to withhold trade secrets and confidential business information submitted to the government by private individuals and companies.

Under the exemption, an agency may withhold “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”[1] The exemption applies to two types of records. The first category of records that falls under Exemption 4 is trade secrets. The second category consists of information that is a) commercial or financial, and b) obtained from a person, and c) privileged or confidential.

Text of Exemption 4

(b) This section does not apply to matters that are— [...]

(4) trade secrets and commercial or financial information obtained from a person and privileged or confidential;

Trade Secrets

Scope of Exemption for Trade Secrets

While the term “trade secret” is not defined in the text of the FOIA, courts have adopted one of two definitions.

Prior to a 1983 ruling by the U.S. Court of Appeals for the D.C. Circuit, the definition courts generally relied on was what is commonly referred to as the “Restatement” test, so called after the legal treatise from which it was derived. According to this definition, a trade secret is: “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.”[2] Under this definition, “a trade secret can be any information used in a business which gives competitive advantage.”[3]

A narrower definition was adopted later by the U.S. Court of Appeals for the D.C. Circuit in Public Citizen Health Research Group v. Food & Drug Administration, which has also been adopted by the U.S. Court of Appeals for the Tenth Circuit[4] and some lower courts in other circuits.[5] In these courts, a trade secret is defined as “a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.”[6]

The “Public Citizen” definition applies only to information related to “the productive process itself,” rather than “collateral matters of business confidentiality such as pricing and sales volume data, sources of supply and customer lists.”[7] That is, there must be “a direct relationship between the information at issue and the productive process.”[8]

The distinctions between these definitions are important to understand because their applications have sometimes resulted in different outcomes. For example, in Public Citizen, the court overturned the lower court's application of the Restatement definition in finding that health and safety data from clinical studies constituted trade secrets. Instead, applying the narrower definition of “trade secret,” the court held that since “the relationship of the requested information to the productive process [was] tangential at best,” and the information was not a “plan, formula, process, or device,” it was not a trade secret under Exemption 4.[9]

Strategies for Challenging Withheld Records as Trade Secrets

Regardless of which definition of “trade secret” is applied, both definitions have three elements in common. First, the submitter must use the information in business or trade, rather than for a non-commercial purpose. Second, the information must have commercial value. Finally, the information must have been maintained as a secret.

First, a requester can challenge whether the submitter used the information in business, and identify situations in which the submitter is not “engaged in trade or commerce” related to the information.[10] For example, a court held that research designs for noncommercial scientists — such as university researchers — do not meet this criterion, as the scientists are not “involved in trade or commerce.”[11] Non-commercial research, especially that conducted by non-profit outlets or philanthropic arms of for-profit entities, is more likely to be found “non-commercial.”[12]

Second, i a requester can argue that the information is not “commercially valuable” on the basis that it does not give the submitter a “competitive advantage . . . over competitors.”[13] For example, a court rejected a company’s claim that certification materials it submitted to the federal government for an airplane were “commercially valuable” in the market for antique aircrafts, as it had not been shown that the company currently competed in that particular market or intended to do so.[14]

Third, in disputing whether the alleged information is actually a “secret,” a requester can cite examples of its “actual public disclosure,” as such disclosure “eliminates the trade secret status of such information.”[15] For example, as one court noted, if the submitter of documents gives the government permission to loan or distribute them to members of the public, “those documents are no longer ‘secret’ for purposes of Exemption 4.”[16] In one case, where a company authorized the government to “loan” information it submitted about its antique airplane model to third parties seeking to make repairs or replacement parts, court held that that information “ceased to be ‘secret.’”[17]

Commercial or Financial Information

Scope of Exemption for Commercial or Financial Information

In addition to trade secrets, Exemption 4 also applies to an independent category of records.

An agency may withhold information that is: “(1) commercial or financial; (2) obtained from a person, and (3) privileged or confidential.”[18]

Commercial or Financial

While the terms commercial or financial should be “given their ordinary meanings,”[19] the term “commercial” has been construed broadly to apply to both information that is “of a commercial nature” or “serves a commercial function,”[20]

For example, information about revenue,[21] service pricing,[22] checking accounts,[23]leases,[24] and oil quantities and reserves[25] have been held to satisfy this definition. In contrast, a court did not find registration numbers posted on aircraft tails to be “commercial,” as they could only be used to identify aircraft descriptions, the owner’s names, and historical location information, and not the business purpose of a particular flight.[26] While the party opposing release speculated that historical location information could be used to gain “insight into the nature of a company’s business dealings,” the court held this did “not convert the aircraft registration numbers themselves into commercial information.”[27]

While the non-profit status of the submitter is one relevant consideration, that fact alone will likely not be enough to overcome a claim that the information is “commercial” or “financial”.[28] As one court has explained, “information may qualify as ‘commercial’ even if the provider’s . . . interest in gathering, processing, and reporting the information is noncommercial.”[29] For example, a court rejected an agency’s claim that owl-sighting information gathered and provided by a state agency was commercial where, in exchange for access to it, the federal agency gave the state agency funds to maintain its data collection system.[30] The court found this information was not commercial, even though it was exchanged pursuant to a cooperative agreement, because the state agency was forbidden by law from selling it — indicating that the state did not have a commercial interest in its disclosure — and the government created the information, “rather than . . . a commercial enterprise.”[31]

In another case, the U.S. Court of Appeals for the D.C. Circuit held that “a noncommercial scientist’s research design” was not “a trade secret or item of commercial information,” as the scientist was not “engaged in trade or commerce.”[32] The nature of the scientist’s interest in nondisclosure was also not commercial, the court explained, as “[t]o the extent that his interest is founded on professional recognition and reward, it is surely more the interest of an employee than of an enterprise.”[33] There, the court said, the government had failed to “introduce a single fact relating to the commercial character of any specific research project.”[34]

The “character of the information” itself is also important to consider.[35] In one case, where a non-profit organization — - a consortium of utility companies — submitted nuclear power facility safety reports to the government, the court held that the information was still “commercial.”[36] The court reasoned that the organization’s member utility companies were “commercial enterprises engaged in the production and sale of electrical power for profit,” and releasing information about the operations of their nuclear power plants could “materially affect” their “commercial fortunes.”[37]

Obtained from a Person

The exemption only applies to “data which have not been generated within the [federal] Government”[38] because the Administrative Procedure Act defines “person” as “an individual, partnership, corporation, association, or public or private organization other than an agency.”[39]

It should be noted that “[t]he fact that information about an individual” — or entity — “can sometimes be inferred from information generated within an agency does not mean that such information was obtained from that person within the meaning of FOIA.”[40] Based on that distinction, a court held that information about loans the Federal Reserve made to private banks was not “obtained from” the borrowing banks.[41] Even though disclosing the terms of the loan could allow one to draw “inferences” about the borrower — such as “that the bank that got the loan asked for it, that it got no more than it requested, and that the other terms were acceptable to the borrower” — the Federal Reserve Banks themselves generated the information upon deciding to grant the loans, and, until that point, the information did not exist.[42]

Some courts have held that data “collected and slightly reprocessed by the government,” is “obtained from a person.”[43] For example, a court upheld the deletion of information relating to cost and rate data for a government contractor — such as “actual cost for units produced” — from an agency audit report, as it was “information supplied by [the company] or from which information supplied [by the company] could be extrapolated.”[44] In contrast, where an agency audit report on a hospital’s Medicare billing practices was “not simply a summary or reformulation of information supplied by” the hospital, but also involved analysis by the agency, a court held that the audit was not “obtained from” the hospital.[45]

Privileged or Confidential

In addition to the requirements that the information be “commercial or financial” and “obtained from a person,” the government must also demonstrate that the information is either privileged or confidential.

Privileged

“Privileged” information under Exemption 4 generally refers to information that is privileged from civil court discovery, meaning it can be shielded from disclosure.

It is questionable — as is the case with Exemption 5 — whether Exemption 4 incorporates “every privilege known to civil discovery,”[46] and privileges should be incorporated “only after careful consideration of the language and legislative history of Exemption 4, its relationship to other exemptions, and the general disclosure mandate of FOIA.”[47]

The U.S. Court of Appeals for the Fifth Circuit has specified that the term “refers only to privileges created by the Constitution, statute, or the common law.”[48] The court cited as examples the Fifth Amendment to the U.S. Constitution, a Texas statute providing for a clergyman-penitent privilege, and two that had been recognized by federal courts — the attorney-client and marital privileges.[49] On that basis, the court rejected a proposed lender-borrower privilege — which was mentioned in FOIA’s legislative history — as the statutory language that would have supported that privilege ultimately was not adopted in the FOIA, and the U.S. Supreme Court has emphasized that the FOIA itself “creates no privileges.”[50]

From the limited case law interpreting the “privileged” nature of information under Exemption 4, one privilege that some courts recognized under this exemption is the attorney-client privilege, which protects an attorney’s confidential communications to his/her client based on confidential information supplied by the client.[51]

Confidential

What constitutes “confidential” information “has been the focus of the vast majority of the litigation surrounding Exemption 4,”[52] and two tests for what it means have emerged.

First, in what is often referred to as the “National Parks test,” named for the case in which the test was formulated, information is “confidential” under Exemption 4 if its release would “likely . . . have either of the following effects: (1) to impair the Government’s ability to obtain the necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.”[53]

Following an alternative test, the U.S. Court of Appeals for the D.C. Circuit applies the National Parks test only where the information was submitted “under compulsion.’”[54]

Strategies for Challenging Withheld Records as Commercial or Financial Information

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Pre-Disclosure Notification

Under Executive Order 12600, agencies must notify records submitters upon receiving a FOIA request for “records provided to the government by a submitter that arguably contain material exempt from release under Exemption 4” that the agencies believe might have to be released.[55]

The agencies must “afford the submitter a reasonable period of time in which the submitter or its designee may object to the disclosure of any specified portion of the information and to state all grounds upon which disclosure is opposed.”[56] Consult the agency’s FOIA regulations for specific details on its handling of pre-disclosure notifications.

The consult will often require additional time and may consequently go beyond the 20-day statutory deadline.

Reverse FOIA Lawsuits

See also Reverse FOIA Lawsuits When an agency releases information that the submitter of the information believes should have been withheld under Exemption 4, the submitter may bring a “reverse FOIA” suit against the agency under the Administrative Procedure Act to challenge its decision.[57]

Recent district court opinions on Exemption 4

Recent district court cases regarding this topic from TRAC's FOIA Project. Visit their issue search page for more options.

See also

References

  1. 5 U.S.C. § 552(b)(4).
  2. Restatement (First) of Torts § 757 cmt. b (1939). See, e.g., Wash. Research Project, Inc. v. Dep’t of Health, Educ. & Welfare, 504 F.2d 238, 245 n.8 (D.C. Cir. 1974).
  3. Pub. Citizen Health Research Grp. v. Food & Drug Admin., 704 F.2d 1280, 1289 (D.C. Cir. 1983) (quoting H.R. Rep. No. 1382, 95th Cong., 2d Sess. 16 (1978)).
  4. Anderson v. Dep’t of Health & Human Servs., 907 F.2d 936, 944 (10th Cir. 1990).
  5. See, e.g., Citizens Comm’n on Human Rights v. Food & Drug Admin., Eli Lilly & Co., No. 92CV5313, 1993 WL 1610471 at *7 (C.D. Cal. May 10, 1993), aff’d in part and remanded in part on other grounds, 45 F.3d 1325 (9th Cir. 1995); Burnside-Ott Aviation Training Ctr., Inc. v. United States, 617 F.Supp. 279, 285 (S.D. Fla. 1985).
  6. Pub. Citizen Health Research Grp., 704 F.2d at 1288.
  7. Id. at 1287 (internal citation omitted).
  8. Id. at 1288.
  9. Id. at 1286-90.
  10. Physicians Comm. for Responsible Med. v. Nat’l Insts. of Health, 326 F.Supp.2d 19, 23 (D.C. Cir. 2004).
  11. Id.at 22-23.
  12. See, e.g., Wash. Research Project, Inc., 504 F.2d at 244 n.6.
  13. Taylor v. Babbitt, 760 F.Supp.2d 80, 88 (D.D.C. 2011) (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1011 n.15 (1984)).
  14. Taylor, 760 F.Supp.2d. at 88-89.
  15. Id. at 86.
  16. Herrick v. Garvey, 298 F.3d 1184, 1194 (10th Cir. 2002).
  17. Id. at 1194.
  18. Skybridge Spectrum Found. v. Fed. Commc’ns Comm’n, No. 10-01496, 2012 WL 336160 at *12 (D.D.C. 2012).
  19. Watkins v. U.S. Bureau of Customs & Border Prot., 643 F.3d 1189, 1194 (9th Cir. 2011) (citing Pub. Citizen Health Research Grp., 704 F.2d at 1290).
  20. Skybridge Spectrum Found., 2012 WL 336160 at *12 (quoting Nat’l Ass’n of Home Builders v. Norton, 309 F.3d 26, 38 (D.C. Cir. 2002)).
  21. Skybridge Spectrum Found., 2012 WL 336160 at *12.
  22. Id.
  23. Id.
  24. Merit Energy Co. v. U.S. Dep’t of Interior, 180 F.Supp.2d 1184, 1188 (D.Colo. 2001).
  25. Id.
  26. Nat’l Bus. Aviation Ass’n, Inc. v. FAA, 686 F.Supp.2d 80, 86-7 (D.D.C. 2010).
  27. Id. at 87.
  28. Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 830 F.2d 278, 281 (D.C. Cir. 1987), vacated on other grounds, 975 F.2d 871 (D.C. Cir. 1992)).
  29. Id.
  30. Norton, 309 F.3d at 38-9.
  31. Id.
  32. Wash. Research Project, Inc., 504 F.2d at 244.
  33. Id. at 244-45.
  34. Id. at 244 n.6.
  35. Critical Mass Energy Project, 830 F.2d at 281.
  36. Id.
  37. Id.
  38. Bloomberg, L.P. v. Bd. of Governors of the Fed. Reserve Sys., 601 F.3d 143, 148 (2d Cir. 2010) (quoting Bd. of Trade v. Commodity Futures Trading Comm’n, 627 F.2d 392, 403-04 (D.C. Cir. 1980)).
  39. Stone v. Exp.-Imp. Bank of U.S., 552 F.2d 132, 136 (5th Cir. 1977); 5 U.S.C. § 551(2).
  40. Bloomberg, L.P., 601 F.3d at 148 (emphasis in original).
  41. Id.
  42. Id.
  43. Id. at 148-49.
  44. Gulf & Western Indus. v. United States, 615 F.2d 527, 529-30 and n.6 (D.C. Cir. 1979).
  45. Philadelphia Newspapers, Inc. v. Dep’t of Health & Human Sevs., 69 F.Supp.2d 63, 66-67 (D.D.C. 1999).
  46. Wash. Post Co. v. U.S. Dep’t of Health & Human Servs., 690 F.2d 252, 267-68 (D.C. Cir. 1982).
  47. Id. at 268 (quoting EPA v. Mink, 410 U.S. 73, 86 (1973)).
  48. Sharyland Water Supply Corp. v. Block, 755 F.2d 397, 400 (5th Cir. 1985), cert denied, 471 U.S. 1137 (1985).
  49. Id. at n. 14-16.
  50. Id. at 400 (quoting Chamber of Commerce of the U.S. v. Legal Aid Soc’y of Alameda Cnty., 423 U.S. 1309, 1310 (1975)).
  51. See Artesian Indus., Inc. v. Dep’t of Health & Human Servs., 646 F.Supp. 1004, 1007 (D.D.C. 1986).
  52. Skybridge Spectrum Found., 2012 WL 336160 at *12.
  53. Nat’l Parks & Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).
  54. Critical Mass Energy Project, 975 F.2d at 879.
  55. Exec. Order No. 12,600, 52 Fed. Reg. 23781, § 2 (June 23, 1987), ttp://www.archives.gov/federal-register/codification/executive-order/12600.htm.
  56. Id. at § 4.
  57. Chrysler Corp. v. Brown, 441 U.S. 283, 318 (1979); see 5 U.S.C. § 706.