March 10, 1998

Mr. Matthew Lee
Executive Director
Inner City Press
1919 Washington Avenue
Bronx, NY 10457

The staff of the Committee on Open Government is authorized to issue
advisory opinions. The ensuing staff advisory opinion is based solely upon the
information presented in your correspondence.

Dear Mr. Lee:

I have received your letter of February 19, as well as the materials
relating to it. You have sought my views concerning the propriety of a partial
denial of your request for records of the New York State Banking Department
regarding applications submitted to the Department by the North Fork
Bancorporation and the North Fork Bank.

The banking industry is not among my areas of expertise, and the
extent to which the denial of access of was consistent with law is unknown to
me. However, I hope that the principles and guidance offered in the following
commentary will be useful to you.

As you are aware, the Freedom of Information Law is based upon a
presumption of access. Stated differently, all records of an agency are
available, except to the extent that records or portions thereof fall within one
or more grounds for denial appearing in §87(2)(a) through (i) of the Law.

The ground for denial at issue, §87(2)(d), 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..."

In my view, the question under §87(2)(d) involves the extent, if any,
to which disclosure would "cause substantial injury to the competitive
position" of a commercial entity.

The concept and parameters of what might constitute a "trade secret"
were discussed in Kewanee Oil Co. v. Bicron Corp., which was decided by
the United States Supreme Court in 1973 (416 (U.S. 470). Central to the
issue was a definition of "trade secret" upon which reliance is often based.
Specifically, the Court cited the Restatement of Torts, section 757, comment
b (1939), which states that:

"[a] trade secret may consist of 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. It may be a formula for a chemical
compound, a process of manufacturing,
treating or preserving materials, a pattern for
a machine or other device, or a list of
customers" (id. at 474, 475).

In its review of the definition, the court stated that "[T]he subject of a trade
secret must be secret, and must not be of public knowledge or of a general
knowledge in the trade or business" (id.). The phrase "trade secret" is more
extensively defined in 104 NY Jur 2d 234 to mean:

"...a formula, process, device or compilation of
information used in one's business which
confers a competitive advantage over those in
similar businesses who do not know it or use
it. A trade secret, like any other secret, is
something known to only one or a few and
kept from the general public, and not
susceptible to general knowledge. Six factors
are to be considered in determining whether a
trade secret exists: (1) the extent to which the
information is known outside the business; (2)
the extent to which it is known by a business'
employees and others involved in the business;
(3) the extent of measures taken by a business
to guard the secrecy of the information; (4) the
value of the information to a business and to
its competitors; (5) the amount of effort or
money expended by a business in developing
the information; and (6) the ease or difficulty
with which the information could be properly
acquired or duplicated by others. If there has
been a voluntary disclosure by the plaintiff, or
if the facts pertaining to the matter are a
subject of general knowledge in the trade, then
any property right has evaporated."

From my perspective, the nature of record, the area of commerce in
which a commercial entity is involved and the presence of the conditions
described above that must be found to characterize records as trade secrets
would be the factors used to determine the extent to which disclosure would
"cause substantial injury to the competitive position" of a commercial
enterprise. Therefore, the proper assertion of §87(2)(d) would be dependent
upon the facts and, again, the effect of disclosure upon the competitive
position of the entity to which the records relate.

Relevant to the analysis is a decision that you cited rendered by the
Court of Appeals, which, for the first time, considered the phrase "substantial
competitive injury" [(Encore College Bookstores, Inc. v. Auxiliary Service
Corporation of the State University of New York at Farmingdale, 87 NY2d
410 (1995)]. In that decision, the Court reviewed the legislative history of
the Freedom of Information Law as it pertains to §87(2)(d), and due to the
analogous nature of equivalent exception in the federal Freedom of
Information Act (5 U.S.C. §552), it relied in part upon federal judicial

In its discussion of the issue, the Court stated that:

"FOIL fails to define substantial competitive
injury. Nor has this Court previously
interpreted the statutory phrase. FOIA,
however, contains a similar exemption for
'commercial or financial information obtained
from a person and privileged or confidential'
(see, 5 USC § 552[b][4]). Commercial
information, moreover, is 'confidential' if it
would impair the government's ability to obtain
necessary information in the future or cause
'substantial harm to the competitive position'
of the person from whom the information was

"As established in Worthington Compressors
v Costle (662 F2d 45, 51 [DC Cir]), whether
'substantial competitive harm' exists for
purposes of FOIA's exemption for commercial
information turns on the commercial value of
the requested information to competitors and
the cost of acquiring it through other means.
Because the submitting business can suffer
competitive harm only if the desired material
has commercial value to its competitors,
courts must consider how valuable the
information will be to the competing business,
as well as the resultant damage to the
submitting enterprise. Where FOIA disclosure
is the sole means by which competitors can
obtain the requested information, the inquiry
ends here.

"Where, however, the material is available
from other sources at little or no cost, its
disclosure is unlikely to cause competitive
damage to the submitting commercial
enterprise. On the other hand, as explained in

Because competition in
business turns on the relative
costs and opportunities faced
by members of the same
industry, there is a potential
windfall for competitors to
whom valuable information is
released under FOIA. If those
competitors are charged only
minimal FOIA retrieval costs
for the information, rather than
the considerable costs of
private reproduction, they may
be getting quite a bargain.
Such bargains could easily
have competitive consequences
not contemplated as part of
FOIA's principal aim of
promoting openness in
government (id., 419-420).

The Court also observed that the reasoning underlying these
considerations is consistent with the policy behind §87(2)(d) to protect
businesses from the deleterious consequences of disclosing confidential
commercial information so as to further the state's economic development
efforts and attract business to New York (id.). In applying those
considerations to Encore's request, the Court concluded that the submitting
enterprise was not required to establish actual competitive harm; rather, it was
required, in the words of Gulf and Western Industries v. United States, 615
F.2d 527, 530 (D.C. Cir., 1979) to show "actual competition and the
likelihood of substantial competitive injury" (id., at 421).

I hope that I have been of assistance.


Robert J. Freeman
Executive Director


cc: Kristin H. Smith, Secretary to the Banking Board