December 4, 2014
The staff of the Committee on Open Government is authorized to issue advisory opinions. The ensuing staff advisory opinion is based solely upon the facts presented in your correspondence.
I have received your letter and hope that you will accept my apologies for the delay in response.
You have sought an advisory opinion concerning the application of §87(2)(d) of the Freedom of Information Law (FOIL), which permits an agency to withhold records or portions thereof that:
“are trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from a commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the subject enterprise…”
Reference was also made in your letter to §89(5) of FOIL, which, in brief, authorizes a commercial enterprise to contend, at the time of submission of its records to a state agency, that disclosure of those records or portions of them may be withheld pursuant to §87(2)(d). In relation to that situation, you wrote that:
“It has been the practice of state entities to respond to certain requests for an exemption from FOIL disclosure by requiring that the requester establish that the documents are 1) trade secrets and 2) create a genuine potential for competitive injury if disclosed. The burden is on the requester and must be satisfied by reasonably specific evidence, rather than by broad or categorical assertions.”
You raised the following question in relation to the foregoing:
“Does FOIL, by the letter of the statute and by its history and intent, require that an exemption from disclosure be granted only when the requester can establish with reasonably specific evidence that the documents in question are both trade secrets and have a reasonable likelihood of causing competitive injury if disclosed?”
It appears that the question was precipitated by a recent decision, Verizon New York Inc. v. New York State Public Service Commission (Supreme Court, Albany County, July 31, 2014). In short, the Court found that “[o]nce a document is found to be trade secret…the analysis ends” (p. 19) and that the “interpretation by DPS is not only wholly inconsistent with the legislative history of Public Officers Law § 87 (2) (d), which indicates that the ‘substantial injury’ prong was not intended to apply to trade secrets, it is at variance with the Restatement discussion of ‘trade secret’ which does not require such a showing…” (p.22).
I respectfully disagree with the holding in Verizon, and in this regard, offer the following comments.
First, in consideration of numerous decisions and the general thrust and intent of FOIL, it has been suggested publicly on many occasions that FOIL is based largely on common sense, that records maintained by or for a government agency are available to the public, except to the extent that disclosure would “hurt” - - an individual in relation one’s privacy or safety, a government agency in terms of its ability to carry out its functions well on behalf of the public, or on occasion, a private company vis a vis its competition. The question raised so often is simple: what would happen if the government had to disclose? Unless the answer is that disclosure would cause some sort of harm, the outcome ordinarily should involve disclosure. Obviously, that is an oversimplification because of the profusion of laws that have been enacted over the course of years, and the numerous inconsistencies among them.
It has been suggested, not in written opinions, but rather in conjunction with the general advisory function of this office, that the phrase “trade secret” appearing in §87(2)(d) is unnecessary and largely meaningless. That is so due to the belief that an item cannot be a trade secret unless disclosure would cause harm to a firm’s competitive position. That point appears in Verizon, but in my view, the Court’s logic is flawed.
The Court referred to the two “prongs” of the exception, the first concerning trade secrets, and the second concerning substantial injury to the competitive position of a commercial enterprise. With that background, it was found that:
“…disclosure of a trade secret would seem, by its very nature, to adversely impact the entity seeking the protections of the exemption and thus render compliance with the second prong – proving that disclosure ‘would cause substantial injury to the competitive position of the subject enterprise’ – an unnecessary and overly burdensome requirement” (p.13).
Can it be that the Court is suggesting that merely labeling or characterizing a record as a “trade secret”, without more, can serve as a justifiable means of denying access? From my perspective, a conclusion of that nature would be contrary to the thrust of FOIL and numerous decisions rendered by the Court of Appeals. In Gould v. New York City Police Department [89 NY2d 267 (1996)] expressed its general view of the intent of the Freedom of Information Law, stating that:
"To ensure maximum access to government records, the 'exemptions are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for exemption' (Matter of Hanig v. State of New York Dept. of Motor Vehicles, 79 N.Y.2d 106, 109, 580 N.Y.S.2d 715, 588 N.E.2d 750 see, Public Officers Law § 89[b]). As this Court has stated, '[o]nly where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld' (Matter of Fink v. Lefkowitz, 47 N.Y.2d, 567, 571, 419 N.Y.S.2d 467, 393 N.E.2d 463)" (id., 275).
Just as significant, the Court in Gould repeatedly specified that a categorical denial of access to records is inconsistent with the requirements of the Freedom of Information Law, for it was stated as a general principle that "blanket exemptions for particular types of documents are inimical to FOIL's policy of open government" (id., 275). The Court also offered guidance to agencies and lower courts in determining rights of access and referred to several decisions it had previously rendered, stating that:
"...to invoke one of the exemptions of section 87(2), the agency must articulate 'particularized and specific justification' for not disclosing requested documents (Matter of Fink v. Lefkowitz, supra, 47 N.Y.2d, at 571, 419 N.Y.S.2d 467, 393 N.E.2d 463). If the court is unable to determine whether withheld documents fall entirely within the scope of the asserted exemption, it should conduct an in camera inspection of representative documents and order disclosure of all nonexempt, appropriately redacted material (see, Matter of Xerox Corp. v. Town of Webster, 65 N.Y.2d 131, 133, 490 N.Y.S. 2d, 488, 480 N.E.2d 74; Matter of Farbman & Sons v. New York City Health & Hosps. Corp., supra, 62 N.Y.2d, at 83, 476 N.Y.S.2d 69, 464 N.E.2d 437)" (id.).
If indeed an agency may withhold a record based solely on a contention or finding that it constitutes a “trade secret”, I believe that so doing would be contrary to the direction provided by the Court of Appeals. In short, it would serve as “categorical” denial of access with no particularized demonstration of the reason.
Perhaps most significant is the Court of Appeals decision rendered in Markowitz v. Serio [11 NY3d 43 (2008)] in which the Court included reference to both “prongs”, without considering them separately, in its determination. The Court discussed and quoted from §87(2)(d) as follows:
“…the Department ‘may deny access to records or portions therof that . . . are trade secretes or are submitted . . . by a commercial enterprise . . . and which of disclosed would cause substantial injury to the competitive position of the subject enterprise.’ As the parties seeking the exemption, the Department and insurers are charged with the burden of proving their entitlement to it (see Public Officers Law §89  [b]b;  [e]), meaning that they must demonstrate that the reports ‘ ‘fall [ ] squarely within a FOIL exemption by articulating a particularized and specific justification for denying access’ (Matter of Data Tree, LLC v. Romaine, 9 NY3d 454, 462-463 , quoting Matter of Capital Newspapers Div. of Hearst Corp. Burns, 67 NY2d 562, 566 ). Because the overall purpose of FOIL is to ensure that the public is afforded greater access to governmental records, FOIL exemptions are to be interpreted narrowly (see Matter of Washington Post Co. v . New York State Ins. Dept., 61 NY2d 557,564 ). To meet its burden, the party seeking exemption must present specific, persuasive evidence that disclosure will cause it suffer a competitive injury; it cannot merely rest on a speculative conclusion that disclosure might potentially cause harm” (Markowitz, supra, 50-51; emphasis mine).
The state’s highest court did not distinguish the two prongs or refer only to the latter. On the contrary, it required that those resisting disclosure must demonstrate that actual harm would arise by means of disclosure.
The Verizon decision discussed at length the 1990 amendment to §89(2)(d), which in its initial form was limited to records “maintained for the regulation of commercial enterprise.” That clause was removed, and new language involving information derived from records submitted to an agency by a commercial entity was added. The decision seems to suggest that the change in some way indicates that trade secrets were to be considered separately from other records that might fall within the exception; however, I know of nothing in the legislative history that would lead to a conclusion of that nature.
Prior to action on the bill that became law, I was asked by Evan Davis, Counsel to Governor Mario Cuomo, to offer my views regarding the legislation. Enclosed is a copy of the memorandum, which refers to discussions with “the proponents of the legislation”, as well as those that “expressed unspecific misgivings” regarding the bill.
Throughout the memorandum, reference is made to a standard that is based on “the effects of disclosure” and my belief that “the authority to withhold is restricted to those situations in which disclosure would cause substantial injury to the competitive position of a commercial enterprise”, and that “[a]bsent such a standard, the legislation, from my perspective, would be objectionable.”
An additional point was offered in the memorandum which appears to have been largely overlooked in Verizon. It was advised that “when a ground for denial is based on the effects of disclosure, the capacity to withhold is flexible and may change due to the passage of time or the occurrence of events”, and that “[r]ecords submitted recently to an agency by a commercial enterprise or the agency’s analysis of the contents of those records might if disclosed now result in substantial damage to a firm’s competitive position. However, at some point in the future, due to the nature of an industry, developments within that industry or perhaps merely the passage of time, the harmful effects of disclosure will likely disappear.”
Stated differently, disclosure of current commercial information, whether characterized as a trade secret or otherwise, might be damaging today, but the same information might become common knowledge within an area of commerce tomorrow. Again, to suggest that a record characterized as a trade secret, without more and without consideration of the effects of disclosure, is, in my opinion, contrary to the intent of FOIL and its interpretation by the Court of Appeals.
Lastly, syntax is important, and especially so in §87(2)(d). If the Legislature included a comma, so that the exception would apply to “trade secrets, or are submitted to an agency…, it might be effectively contended that the presence of the comma was intended to treat trade secrets separately and independent of the phrase, “would cause substantial injury”. Nevertheless, the Legislature chose not to do so. Consequently, I believe that the phrase quoted in the preceding sentence is intended to modify “trade secrets” and that actual harm must be demonstrated to justify a denial of access under §87(2)(d).
I hope that I have been of assistance.
Robert J. Freeman