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September 23, 2000

FOIL-AO-12328

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

As you are aware, I have received a variety of material pertaining to your efforts in
obtaining "proof of coverage" records from the New York State Workers' Compensation
Board. It is your contention that there "can be no valid reason" for the Board to withhold the
records, and you wrote that:

"1) Any NY citizen or business can call 518-474-6967 and
confirm coverage on one or more businesses. The data has been
public record for decades for a variety of good public interest
reasons.

2) Advertising from the NY bureau (the states collection agent)
clearly shows they seek expiration date lists via IBBSNET.

3) A copy of Mitchell Pearlman's final decision that the CT
Workers Compensation Commission must disclose proof of
coverage records for which the industry owned bureau acts as
compiling agent."

Since our initial discussion of the matter, I have conferred with a variety of officials,
and although the statement quoted above had been accurate, that is no longer so.

As you may recall, I indicated to you that I met with attorneys for the Board in
relation to your inquiry and shared with them the marketing materials published by IBBSnet.
I asked at that time whether IBBSnet acquired or made available data in the aggregate, or
rather whether information was acquired or made available only on the basis of a single name
search. My suggestion at the time was that if IBBSnet or any other entity has the capacity to
acquire data in the aggregate, that your firm should have the same opportunity, and that the
Board would likely be required to disclose the records of your interest. Upon further inquiry,
I learned that the primary repository of what may be characterized as policyholder data is the
New York Compensation Rating Board. Soon thereafter, I was informed, as were the
Workers' Compensation Board and the State Insurance Fund for the first time, that the
Compensation Rating Board provided policyholder data in the aggregate to IBBSnet for
marketing purposes. Upon obtaining that information, the Executive Director of the State
Insurance Fund, who serves as a member of the Compensation Rating Board, contended that
the dissemination of the data to IBBSnet was unauthorized and improper, and the
Compensation Rating Board immediately suspended its disclosure of data to IBBSnet. It my
understanding that data will no longer be made available to IBBSnet, except on a one by one,
per policyholder, basis.

The reason for the quick suspension of the disclosure the data to IBBSnet was due, in
my view, to the status of the State Insurance Fund as a New York State agency, as well as an
insurer and competitor in the marketplace with other insurance companies. Further, as you
may be aware, the State Insurance Fund is the essentially the insurer of last resort; it must
write and offer insurance coverage for any employer in New York. The wholesale disclosure
of data involving the clients of the State Insurance Fund, particularly the expiration dates of
their coverage, would be and was, according to its Executive Director, damaging to the
Fund's competitive position.

Since you referred to the State of Connecticut and a determination rendered by its
Freedom of Information Commission requiring the disclosure of equivalent data, I point out
that there are twenty-seven states that have established entities analogous to the State
Insurance Fund in New York. Connecticut, however, is not among them. Consequently, the
considerations pertinent to the operation of the State Insurance Fund appear to be different
from those relevant in Connecticut. Further, the language of the law dealing with access to
records differs from one state to another.

In New York, 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. Relevant to an analysis of rights of access is
§87(2)(d), which 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."

Again, 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. I note, too, 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, since the Fund 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 basis 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 decision rendered by the Court of Appeals, the
State's highest court, 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])...

"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)."

If IBBSnet or any other entity could obtain policyholder data in the array as of right
under the Freedom of Information Law, I would agree that your company should have the
same opportunity. Nevertheless, based on several conversations, the disclosure of aggregate
data to IBBSnet represented an error and was not authorized by the members of the
Compensation Ratings Board. To reiterate, when it was learned that the Board had been
disclosing the data to IBBSnet, that practice was suspended in an effort to protect the
competitive position of the State Insurance Fund. In my opinion, the erroneous disclosure
did not create a right of access to equivalent information in the future. On the contrary, it
appears that disclosure of the data would "cause substantial injury to the competitive
position" of the State Insurance Fund and that, therefore, the Workers' Compensation Board
could justifiably deny your request. At the present time, it is my understanding that no entity
is acquiring policyholder data in the array; rather, the data is being disclosed, as it always has
been disclosed by the Board, based on a search using the name of a particular policyholder.

I hope that the foregoing serves to clarify your understanding of the matter and that I
have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Neal Conolly
Peter J. Molinaro
Monte Almer