July 5, 2000


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


I have received your letter of May 30 in which you questioned the propriety of a
denial of your request by the State Insurance Fund for a copy of its budget. You wrote that
the denial was based on a claim that disclosure would give the Fund's competitors "a
substantial competitive advantage." It is your view that the Fund is "neither a ‘commercial
enterprise'[,] nor was its budget submitted by a ‘commercial enterprise'[,] nor is the budget a
‘trade secret.'"

In this regard, as I understand its functions, the Fund essentially operates as an
insurance company in competition with other insurance carriers licensed to do business in the
state. While the Fund as a state agency is not typical of commercial enterprises, my
understanding is that, in many respects, it carries out many of its duties as an entity in
competition with private firms in the insurance industry. Most pertinent to the matter, I note
that there is case law indicating that when a governmental entity performs functions
essentially commercial in nature in competition with private, profit making entities, it may
withhold records pursuant to §87(2)(d) in appropriate circumstances (Syracuse & Oswego
Motor Lines, Inc. v. Frank, Sup. Ct., Onondaga Cty., October 15, 1985). In this instance,
assuming that the Fund is engaged in competition with private firms engaged in the same
area of commercial activity, I believe that §87(2)(d), the so-called "trade secret" exception
would serve as a potential basis for a denial of access.

As you are aware, the cited provision permits an agency to withhold records 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."

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."

In my view, 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.

Also relevant to the analysis is a decision rendered by the Court of Appeals, the
State's highest court, 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 precedent.

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])...

"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 Worthington:

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)."

In sum, I believe that the State Insurance Fund could in the context of the preceding
remarks be characterized as a commercial entity and therefore, assert §87(2)(d). This is not
to suggest that the Fund's annual budget necessarily could be withheld in its entirety, but
rather that those portions that fall within the scope of §87(2)(d) may be withheld in
accordance with the preceding commentary.

I hope that I have been of assistance.



Robert J. Freeman
Executive Director


cc: Jacob Weintraub, Counsel