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July 24, 1997

 

 

 

Mr. John Culkin
49 Manor Oak Drive
Amherst, NY 14228

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,
unless otherwise indicated.

Dear Mr. Culkin:

As you are aware, I have reviewed your letter of June 30.
This also acknowledges the receipt of your correspondence
transmitted on July 19.

As I understand your commentary, an agency of the State claims
that it "functions as an insurance company...in competition with
other carriers licensed in the State." The question involves
rights of access to a marketing plan considered by its governing
body.

Having been contacted by the agency that appears to be the
subject of your inquiry, the State Insurance Fund, it is likely in
my view that the record in question may be withheld in part or
perhaps in its entirety, depending upon its contents and the
effects of the disclosure.

In this regard, I offer the following remarks.

First, as a general matter, 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.

Second, it appears that two of the grounds for denial,
paragraphs (d) and (g), are pertinent to an analysis of rights of
access. Section 87(2)(d) permits and 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..."

While the State Insurance 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. 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 agency in
possession of the record sought is engaged in competition with
private firms engaged in the same area of commercial activity, I
believe that §87(2)(d) would serve as a potential bases for a
denial of access.

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 recent 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]). 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. 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).

The other ground for denial of potential significance,
§87(2)(g), permits an agency to withhold records that:
"are inter-agency or intra-agency materials
which are not:

i. statistical or factual tabulations or
data;

ii. instructions to staff that affect the
public;

iii. final agency policy or determinations;
or

iv. external audits, including but not
limited to audits performed by the comptroller
and the federal government..."

It is noted that the language quoted above contains what in effect
is a double negative. While inter-agency or intra-agency materials
may be withheld, portions of such materials consisting of
statistical or factual information, instructions to staff that
affect the public, final agency policy or determinations or
external audits must be made available, unless a different ground
for denial could appropriately be asserted. Concurrently, those
portions of inter-agency or intra-agency materials that are
reflective of opinion, advice, recommendation and the like could in
my view be withheld.

A marketing plan developed by an agency would, in my view,
constitute "intra-agency material." Again the content of such
material represents the basis for determining the extent to which
that exception would apply.

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). To the extent that either
that provision or §87(2)(g) may justifiably be asserted in
accordance with the preceding commentary, the record sought could,
in my opinion, be withheld.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:tt

cc: Jacob Weintraub