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October 14, 1999

 

Mr. Peter Henner
Attorney and Counselor at Law
P.O. Box 326
Clarksville, NY 12041-0326

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. Henner:

I have received your letter of August 27 in which you sought an advisory opinion
concerning a denial of access to records by the Office of Real Property Services (ORPS).

By way of background, in a request directed to ORPS, you sought records "which
pertain or relate to the decision of the [ORPS] to accelerate the 1999 state equalization relate
for ‘several municipalities across the state because of recognized equalization problems,'
including the City of Oswego School District." A variety of materials were made available
to you, but ORPS denied access to "several statistical analyses provided by Niagara Mohawk
Power Corporation [hereafter "NIMO"]." NIMO claimed that the record at issue maybe
withheld pursuant to §87(2)(d) of the Freedom of Information Law and asked ORPS to keep
it confidential in accordance with §89(5) of that statute. Based on a letter sent to ORPS by
NIMO, the record consists of "a computer program" developed by NIMO to evaluate
different taxation scenarios concerning NMPC's real property" that "projects future Niagara
Mohawk property taxes as a component of its operating costs". NIMO contended that
"release of the requested information could permit an unfair advantage to competitors and
cause substantial injury to the competitive position of Niagara Mohawk." NIMO also
contended that your request is "vague" and fails to indicate your purpose or the intended use
of the computer program. ORPS honored NIMO's request for confidentiality and indicated
that the latter's position creates "a triable issue of fact."

It is your view that NIMO "is not competing with any other entity generating
electrical power and that:

"Prior to the approval of Niagara Mohawk's Power Choice
plan by the Public Service Commission in 1998, Niagara
Mohawk must divest itself of all of the property in question.
Therefore, Niagara Mohawk never was competing with the
owners of generation assets, nor does Niagara Mohawk
presently compete with any other owner of real property.
Consequently, disclosure of this information will not injure
Niagara Mohawk's competitive position.

"Furthermore, information regarding the possible variations in
assessment of real property cannot be compared to
information pertaining to the pricing of insurance products.
Insurance products are sold in a competitive market; in
contrast, the assessment of property is not a competitive
activity, and, in any event, Niagara Mohawk did not have any
competitors who owned electrical generating facilities which
were also paying real property taxes."

In this regard, I offer the following comments.

First, the purpose for which the request was made is, in my opinion, irrelevant. In
brief, it has been held that when records are accessible under the Freedom of Information
Law, they must be made equally available "to any person, without regard to status or interest"
[Burke v. Yudelson, 51 AD2d 673 (1976); also Farbman v. New York City, 62 NY2d 75
(1984)]. As such, your intended use of the record is not pertinent to a determination of your
rights of access.

Second, 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. As suggested in the materials, the only ground of denial
of significance 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..."

Further, when a commercial entity is required to submit records to a state agency, pursuant
to §89(5), it may request, at the time of submission, that the records or portions thereof be
kept confidential in accordance with §87(2)(d), and ORPS, through its responses to you, has
indicated that the record is being withheld on that basis.

In my opinion, 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 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 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 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 do not have sufficient knowledge to suggest that §87(2)(d) would or would not be
applicable, but it appears that certain of your contentions may be accurate, i.e., that NIMO
may not be competing locally with generators of electrical power or with owners of real
property. However, a representative of ORPS has indicated that the ability of that agency to
function effectively on behalf of the public might be damaged if it could not obtain the record
or the kind of record at issue. As indicated by the Court of Appeals, commercial information
might properly be withheld if disclosure "would impair the government's ability to obtain
necessary information in the future." The extent to which that would be so is unknown to me.
Perhaps more importantly, while NIMO may not compete in the areas to which you referred,
as stated earlier, it has contended that the computer program "projects future...property taxes
as a component of its operating costs" and that, therefore, disclosure "could permit an unfair
advantage to competitors and cause substantial injury to [its] competitive position..."

Without greater knowledge of the industry in which NIMO functions, I cannot
evaluate the merits of its contentions. Nevertheless, I am in general agreement with your
suggestion that "ORPS cannot properly deny a FOIL request based on an assertion that
Niagara Mohawk's position creates ‘a triable issue of fact,' but instead, can only deny access
of ORPS believes that it can sustain the burden of proof with respect to any such ‘triable issue
of fact'". As I view §89(5) of the Freedom of Information Law, when a commercial
enterprise seeks a guarantee that the agency to which its records are submitted will not
disclose the records, and the agency confers confidentiality and upholds the guarantee of
confidentiality following an appeal by a person whose request for the record has been denied,
the agency has the burden of proof in its defense of the denial in any ensuing proceeding
commenced for review of the denial. Stated differently, to continue the protection accorded
by §89(5), and agency must believe that it can prove to a court that disclosure would, in fact,
cause substantial injury to the competitive position of the commercial enterprise that
submitted the record. If the agency does not believe that it can meet that burden proof or
does not have sufficient knowledge or information to ascertain the merits of the commercial
entity's contentions, I believe that it should indicate that the request to the person seeking the
record will be granted, in which case, following the exhaustion of administrative remedies,
the commercial entity that submitted the record has fifteen days to commence a proceeding
for the purpose of demonstrating to a court that disclosure would cause substantial injury to
its competitive position.

As indicated earlier, agency records are presumptively available under the Freedom
of Information Law, including those submitted to an agency by a commercial enterprise. In
my opinion, while §89(5) provides additional protection to commercial enterprises that are
required to submit records to state agencies, its terms preserve the presumption of access and
place the burden of defending secrecy either on a state agency based on its belief that
disclosure would cause substantial injury to the competitive possession of a commercial
enterprise, or on the commercial enterprise. It appears that the position taken by ORPS
essentially forces the applicant for the record to expend time, effort and money to seek
judicial review of the agency's denial of access. When the justification for the assertion of
§87(2)(d) involves a "triable issue of fact", rather than the agency's assertion that the
exception has been properly invoked and that it can meet the burden of proof, I believe that
the agency, under §89(5), in recognition of the presumption of access, is obliged to
conditionally grant the applicant's request. Thereafter, the commercial entity claiming that
disclosure would cause substantial injury to its competitive position may choose to initiate a
proceeding to defend against disclosure in which it would have the burden of proof. In that
event, the commercial enterprise, rather than the person seeking the records, would bear the
expense and burden of attempting to block disclosure and litigating the matter.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Richard J. Sinnott
Stephen J. Harrison
Lewis E. Gammon