FOIL-AO-18756

December 22, 2011

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.

Dear:

As you are aware, we have received a variety of material concerning your efforts in gaining access to records from the Empire State Development Corporation (ESDC).  Although some of the material that you requested has been determined to be available, that described as your “main request”, the amount of tax credit awarded to specific commercial entities, has been denied.

By way of background, a review of the correspondence indicates that your initial request was made on May 13 to the Governor’s Office of Motion Picture and Television Development.  I note that the request involved an attempt to obtain information by raising a series of questions.  In this regard, I point out that the Freedom of Information Law (FOIL) pertains to existing records.  That being so, an agency may provide information in response to questions, but in a technical sense, is not required to do so. In the future, it is suggested that requests made pursuant to that statute involve records rather than information sought by asking questions.

The records sought involve “Film Program participant companies that applied for and received Empire State Film Production Tax Credits.” Following a series of communications between yourself and Karanja Augustine, Assistant Counsel at the Empire State Development Corporation, various records were made available.  However, those reflective of production budgets per project and tax credits awarded on a project-by-project basis for the years 2003 through 2010 were withheld.

From my perspective, based on the judicial interpretation of FOIL coupled with attendant facts, it is unlikely that the denial of access by ESDC can be justified.  In this regard, I offer the following comments.

First, as a general matter, FOIL 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 (l) of the Law.

It is emphasized that the courts have consistently interpreted FOIL in a manner that fosters maximum access. As stated by the Court of Appeals, the state’s highest court, nearly thirty years ago:

“To be sure, the balance is presumptively struck in favor of disclosure, but in eight specific, narrowly constructed instances where the governmental agency convincingly demonstrates its need, disclosure will not be ordered (Public Officers Law, section 87, subd 2). Thus, the agency does not have carte blanche to withhold any information it pleases. Rather, it is required to articulate particularized and specific justification and, if necessary, submit the requested materials to the courts for in camera inspection, to exempt its records from disclosure (see Church of Scientology of N.Y. v. State of New York, 46 NY 2d 906, 908). Only where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld” [Fink v. Lefkowitz, 47 NY 2d 567, 571 (1979)].”

In another decision rendered by the Court of Appeals, it was held that:

“Exemptions are to be narrowly construed to provide maximum access, and the agency seeking to prevent disclosure carries the burden of demonstrating that the requested material falls squarely within a FOIL exemption by articulating a particularized and specific justification for denying access” [Capital Newspapers v. Burns, 67 NY 2d 562, 566 (1986); see also, Farbman & Sons v. New York City, 62 NY 2d 75, 80 (1984); and Fink v. Lefkowitz, 47 NY 2d 567, 571 (1979)].

Moreover, in the same decision, in a statement regarding the intent and utility of FOIL, it was found that:

“The Freedom of Information Law expresses this State’s strong commitment to open government and public accountability and imposes a broad standard of disclosure upon the State and its agencies (see, Matter of Farbman & Sons v New York City Health and Hosps. Corp., 62 NY 2d 75, 79). The statute, enacted in furtherance of the public’s vested and inherent ‘right to know’, affords all citizens the means to obtain information concerning the day-to-day functioning of State and local government thus providing the electorate with sufficient information ‘to make intelligent, informed choices with respect to both the direction and scope of governmental activities’ and with an effective tool for exposing waste, negligence and abuse on the part of government officers” (id., 565-566).

Second, the key exception in the context of your inquiry is §87(2)(d), 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...”

Therefore, 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 our 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.

Relevant to the analysis is a decision rendered by the Court of Appeals, which, for the first time, considered the phrase “substantial competitive injury” in 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]). 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 obtained.

“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... (id., 419-420).

Having reviewed your appeal, you specified that you “did not ask for a list of production budgets”, but rather emphasized that your “main request” involved a “List of Tax Credits Awarded.” In the justification for the denial of your request, Mr. Augustine cited contentions by several recipients of the tax credits.  The focus of those comments concerning the possibility of competitive harm relate to matters such as “production and overall budget costs”, “disclosure of past budgets” which if disclosed would “prejudice our negotiating position in the entertainment industry”, “cost of a production”, “knowing what a certain company spends”, and comments of a similar nature.  None of the contentions appear to relate to the amount of a tax credit that might have been granted.  Rather, the notion of substantial competitive harm as expressed by the entities involved appears to relate to their internal operations.  It is possible that disclosure of details of that nature might cause injury to the competitive positions of those entities.  However, it does not appear that their concerns involve the amounts of tax credits received.

Two other factors, in my view, diminish the ability of ESDC to justify its denial of access.

First, in applying §87(2)(d), the passage of time often reduces or eliminates the harm that might arise when a disclosure involves current or recently created information.  It may be that current, detailed information concerning the financial strength or weakness of a commercial entity, or its budgets and production costs would be devastating if disclosed now to a competitor.  If, however, the same records are requested years after the creation of those records, the harmful effects of disclosure will likely have diminished or disappeared.  Much of the information sought pertains to events that occurred years ago; few could be characterized as current.

Second, assuming the accuracy of the information that you provided, many states disclose information equivalent to that being sought from ESDC. In your appeal, you referred to a “poll of the states’ film incentive programs” by the University of California, San Francisco, in which it was found that “at least 18 states (47 percent of those states with active film subsidy programs) post online or make available, upon written request, recipient-specific data” regarding film production spending, qualifying production costs, and the amount of tax credits or spending rebates received relative to each production.  You added that “These eighteen open-disclosure states accounted for 61 percent (174/283) of top-grossing films released 2008-2010”, and you included a list of those states.

In consideration of the disclosures by states other than New York, I do not believe that the information sought, in terms of its nature, can be characterized as secret.  If disclosure would not cause “substantial injury to the competitive position” of companies in states accounting for 61 percent of the tax credits or rebates, once again, in my view, ESDC could not meet its burden of proving that §87(2)(d) may properly be asserted.  I note, too, that a recent determination concerning the applicability of that provision offered a series of rationales to reject claims that disclosure would result competitive harm was rejected by the New York State Department of Financial Services.  One involved the “fact that at least 12 other states disclose the same records at issue here without redaction.”

Lastly, it is reiterated that the courts, and particularly the Court of Appeals, have clearly confirmed that in order to meet the burden of proof in denying access to records, agencies must provide “persuasive evidence” that disclosure would cause the harm envisioned by an exception to rights of access, specifically, §87(2)(d), rather than a “speculative conclusion that disclosure might potentially cause harm” [Markowitz v. Serio, 11 NY3d 43, 51 (2008)].

In sum, based on my understanding of the matter, the records of your “primary interest” should be disclosed, for I do not believe that ESDC can demonstrate that disclosure would, in fact, cause substantial injury to the competitive position of a commercial enterprise.

In an effort to encourage ESDC to reconsider its determination, a copy of this opinion will be sent to Mr. Augustine.

I hope that I have been of assistance.

cc:

Sincerely,

Robert J. Freeman

Executive Director

RJF:sb