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May 7, 2001

FOIL-AO-12656

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.

Dear

I have received your letter of January 8, 2001 and related materials. According to your letter
and the correspondence between you and the State University at Albany Records Access Officer,
Stephen Beditz, and the Records Appeal Officer, L. Jeffrey Perez, Ph.D., you requested from the
University at Albany certain contracts between the University Auxiliary Services, Inc. (UAS) and
campus vendors, and the UAS operating budget. You have received portions of contracts between
UAS and some campus vendors, i.e., Barnes & Noble, Chartwells, and Coca-Cola. However, you
have questioned the propriety of deletions made prior to their disclosure.

The November 27, 2000 letter to you regarding the Barnes & Noble contract from the
Appeals Officer states in pertinent part that:

"Your appeal challenges the University's redaction of certain portions
of the contract between UAS and B&N and its failure to provide you
copies of the current UAS operating budget, the food services
contracts between UAS and Chartwells and copies of contract for
other providers of student services at the University (e.g., Pizza Hut,
Coca-Cola and the hair salon). I am affirming Mr. Beditz' response
to your request for the following reasons:

"It is my understanding from consultation with University
representatives that certain financial information in the contract
between UAS and B&N had been redacted, as Mr. Beditz stated,
based upon B&N's claim that disclosure of such information would
cause substantial injury to its competitive position. The redaction of
such information was undertaken in accordance with the provisions
of section 87(2)(d) of the Public Officers Law which allows denials
of access to records or parts thereof which, if disclosed, would cause
substantial injury to the competitive position of the person or entity
from whom the information was obtained.

"B&N has claimed that release of certain information contained in its
contract with UAS would have a substantial impact upon its
competitive position because each contract is unique and contains
certain proprietary information. B&N has further indicated that each
contract is negotiated independently with certain benefits and
concessions afforded to the host campus, such as mark-ups,
guarantees and expenditures, depending upon circumstances
particular to that campus. Release of the information redacted from
the copy provided to you, B&N contended, would adversely impact
its negotiating position with other campuses as well as place it at a
competitive disadvantage with respect to competing local and
national bookstores. Since competition in business turns on the
relative costs and opportunities faced by each competitor, the
provisions of section 87(2)(d) advance the public policy of the State
to further its economic development efforts and attract business by
protecting businesses from the deleterious consequences of the
disclosure of confidential commercial information."

The November 30, 2000 letter to you from Mr. Beditz regarding the Chartwells contract also
indicated that "certain financial information in that document has been redacted based on Chartwells'
claim that disclosure of such information would cause substantial injury to its competitive position."
Similarly, his letter of January 25, 2001 stated that the Coca-Cola contract was provided "with trade
secret information redacted."

In this regard, I offer the following comments.

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). The University, through its responses to you, has indicated that portions
of the records have been withheld on that basis.

I question whether either §87(2)(d) or, therefore, §89(5) would be applicable at all. The
redactions involve the terms of negotiated agreements developed by the parties to those agreements;
they are not records that were submitted to SUNY by a commercial enterprise. If that is so, I do not
believe that §87(2)(d) would be applicable or that it would serve as a basis for a denial of access.

Even if those provisions are applicable, I do not believe that a denial of access is justifiable.
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).

In my view, the redacted portions of the contracts (i.e., numeric figures) are not trade secrets
and likely would not cause substantial injury to the competitive position of the subject enterprises.
They are not analogous to a process, formula, or financial information which shows the strengths or
weaknesses of an entity. Rather, they indicate the amounts to be paid and received as the result of
negotiation between two parties, and I believe that that kind of information must be disclosed.

It has been held that vendors who choose to bid on contracts to provide service to public
agencies have no reasonable expectation of privacy, and that a successful bidder on a public contract
"had no reasonable expectation of not having its bid open to the public" (see Contracting Plumbers
Cooperative Restoration Corp. v. Ameruso, 430 NYS2d 196 (1980)].

The Appeals Officer wrote that each contract is "unique" and "is negotiated independently
with certain benefits and concessions afforded to the host campus, such as mark-ups, guarantees and
expenditures, depending upon circumstances particular to that campus." If indeed the contracts are
unique, the deleted portions would have limited commercial value, if any, and their disclosure could
not adversely impact negotiating positions on other campuses. Consequently, providing the redacted
portions would not substantially injure the competitive position of the subject enterprises. Moreover,
the contracts are not related to the enhancement of economic development or attracting business.
Rather, they fulfill an aspect of SUNY's mission.

Revealing the terms of public contracts fosters the purpose of the Freedom of Information
Law "to shed light on government decisionmaking, which in turn both permits the electorate to make
informed choices regarding governmental activities and facilitates exposure of waste, negligence and
abuse" (see Encore, supra).

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), an 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 of proof or does not have sufficient knowledge or information to ascertain the merits of the
commercial entity's contentions, it must 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 procedural 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 conclusion 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 SUNY essentially forces the applicant for the record
to expend time, effort and money to seek judicial review of the agency's denial of access to the
information redacted from the contracts. As an alternative, the agency, under §89(5), in recognition
of the presumption of access, could grant the applicant's request, and thereby shift the burden of
proof to the vendors. 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 case 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.

It is also your view that SUNY should provide you with additional documents pertaining to
the UAS operating budget. The December 29, 2000 letter from Mr. Beditz states in relevant part
that:

"On November 30, 2000 I wrote in response to your earlier request
for information under the New York State Public Officers Law,
Freedom of Information. In that correspondence, I transmitted the
University Auxiliary Services Corporation's current budget in
summary form, and indicated that detailed information was available
should you desire. You subsequently telephoned my office, seeking
that additional information.

"In conducting additional research to identify the specific records you
seek, I have determined that those additional documents are not
records as defined in the Law. The NYS Public Officers Law, Article
6, Section 86.4 defines a record as ‘...an information kept, held, filed,
produced or reproduced by, with or for an agency...' Indeed, the
summary budget I transmitted is kept on file in the University's
Controller's Office and therefore meets the definition of a public
record, and is accessible. However, the detailed records that are used
to compile that document are not held by or for the Controller or any
other University office. Accordingly, access to such documents is not
reached under the provisions of Section 87 and its exceptions."

It is emphasized that §86(4) of the Freedom of Information Law defines the term "record"
expansively to include:

"any information kept, held, filed, produced, reproduced by, with or
for an agency or the state legislature, in any physical form whatsoever
including, but not limited to, reports, statements, examinations,
memoranda, opinions, folders, files, books, manuals, pamphlets,
forms, papers, designs, drawings, maps, photos, letters, microfilms,
computer tapes or discs, rules, regulations or codes."

Based upon the language quoted above, documents need not be in the physical possession of an
agency to constitute agency records; so long as they are produced, kept or filed for an agency, the
courts have held they constitute "agency records", even if they are maintained apart from an agency's
premises.

For instance, it has been found that records maintained by an attorney retained by an
industrial development agency were subject to the Freedom of Information Law, even though an
agency did not possess the records and the attorney's fees were paid by applicants before the agency.
The Court determined that the fees were generated in his capacity as counsel to the agency, that the
agency was his client, that "he comes under the authority of the Industrial Development Agency" and
that, therefore, records of payment in his possession were subject to rights of access conferred by the
Freedom of Information Law (see C.B. Smith v. County of Rensselaer, Supreme Court, Rensselaer
County, May 13, 1993).

Most importantly, in Encore (supra, 417) it was found that materials received by a
corporation providing services for a branch of the State University that were kept on behalf of the
University constituted "records" falling with the coverage of the Freedom of Information Law. I
point out that the Court rejected "SUNY's contention that disclosure turns on whether the requested
information is in the physical possession of the agency", for such a view "ignores the plain language
of the FOIL definition of 'records' as information kept or held 'by, with or for an agency'" [see Encore
College Bookstores, Inc. v. Auxiliary Services Corporation of the State University of New York at
Farmingdale, 87 NY 2d 410. 417 (1995)].

Based on the foregoing, insofar as the records sought are maintained by or for UAS, I believe
that they are, in essence, SUNY's records, and that SUNY would be required to direct the custodian
of the records to disclose them in accordance with the Freedom of Information Law, or obtain them
in order to disclose them to you to the extent required by law.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: L. Jeffrey Perez, Ph.D.
Stephen J. Beditz