NY.gov Portal State Agency Listing

 

August 15, 2001

 

FOIL-AO-12890

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 your letter in which you sought an advisory opinion
concerning rights of access to the contents of two forms that are maintained by the State Department
of Economic Development ("the Department") and the Buffalo Economic Renaissance Corporation
("the Corporation").

The forms are completed by business entities that have applied for or have been certified for
participation in the "Empire Zones" program. You enclosed both forms, one of which is an
"Application for Joint Certification of an Empire Zone Business Enterprise"; the other is a "Business
Annual Report." I note that I have been contacted by Mr. John Heffron, Director of the Corporation,
concerning your request, and have discussed the matter with the Department's records access officer,
George M. Kazanjian, and Robert Ryan, the Department's Empire Zones attorney. Based on my
conversations with them, the terms of the Freedom of Information Law, and the judicial
interpretation of that statute, I offer the following comments.

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.

It is emphasized that the courts have consistently interpreted the Freedom of Information Law
in a manner that fosters maximum access. As stated by the Court of Appeals, the state's highest
court, more than twenty 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 the Freedom of
Information Law, 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 in my view 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.

From my perspective, in some circumstances, that exception might be properly asserted with
respect to part B of the Application for Joint Certification, entitled "Investment To Be Made In Zone
Facility (Actual or Projected)"; similar information appears in box B of the Business Annual Report
and might also be withheld in toto or in part, depending on the attendant facts.

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.

Perhaps most 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. 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).

In discussing the matter with representatives of the Department, it was suggested that
disclosure of the information contained in the portions of the forms identified earlier could be
damaging to firms, for the information could enable competitors to ascertain the geographical areas
where a particular firm intends to locate or expand its business, as well as the nature of a firm's
investments. Disclosure might also enable competitors to gauge an area as a potential market,
thereby providing information that could encourage them enter a particular market to the detriment
of a firm participating or seeking to participate in the Empire Zones program.

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). According to the Department staff with whom I spoke, some firms indicated
that they would not participate in the program unless there was a likelihood that the information at
issue could be withheld from competitors and others. In consideration of the overall public policy
of the state concerning the goal of enhancing economic development, I believe that the portions of
the forms at issue, subject to certain conditions, may be withheld.

Those conditions largely relate to the occurrence of particular events or, very simply, the
passage of time.

Both forms include reference to the purchase of real property. If a purchase is "projected",
if it is part of the business plan or strategy of a firm, those portions of the forms containing
information regarding investments in real property could, in my view, be withheld under §87(2)(d).
On the other hand, if real property has been purchased, if such a transaction has been consummated,
I believe that entries regarding investments in real property would be accessible. In short, the
purchase or sale of real property is not secret; records pertaining a transaction of that nature are
accessible to any person at an office of a county clerk or a municipal assessor.

With respect to time, the intent of §87(2)(d), as well as the other exceptions to rights of
access appearing in the Freedom of Information Law, is, in general, to authorize government
agencies to withhold records insofar as disclosure would result in some sort of harm. The focus of
the exception at issue involves the possibility that disclosure would "cause substantial injury to the
competitive position" of a commercial enterprise. Although records involving a firm's current
financial condition or its investment plans for the future could be extremely valuable to a competitor
if disclosed, and conversely, extremely damaging to the subject enterprise, records containing the
same information prepared years ago likely would be of little value. In that circumstance, I do not
believe that an agency could demonstrate that the harmful effects of disclosure sought to be avoided
by the assertion of §87(2)(d) would arise. While I could not advise as to the precise period of time
that must pass before the ability to assert the exception would essentially disappear, I believe that
the value of the information to competitors, and, therefore, the potentially harmful effects of
disclosure, continually diminish with the passage of time.

An analogous analysis would be applicable with regard to item 14 in part of A of the
Application dealing with "Total Annual Sales Projected for Zone Facility." Again, a figure of that
nature if projected or current could likely be withheld. If, however, it appears in applications
prepared previously, it may be accessible.

Lastly, in box A of the Annual Report is an "Employer ID Number", and in items 11, 12 and
13 of the Application are, respectively, a firm's federal taxpayer and workers' compensation
identification numbers, and a New York State unemployment insurance registration number. Those
items might, if disclosed, enable the recipient to use them to gain unauthorized access to a variety
of records. I note that records identifiable to claimants of workers' compensation and unemployment
insurance benefits are exempted from disclosure by statute (see respectively, Workers'
Compensation Law, §110-a; Labor Law, §537). Those identification or registration numbers could
be used to obtain information of a personal nature or other information to which there is no right of
public access.

I note, too, that §87(2)(i) of the Freedom of Information Law permits an agency to withhold
"computer access codes." While the numbers at issue might not have been created for the purpose
of being access codes, frequently, because they are unique, they are used as access codes. When that
is so, they might be used to gain unauthorized access to information that typically is inaccessible to
the public or to transmit viruses that could alter the contents of or disable an electronic information
system.

In consideration of the foregoing, I believe that the remainder of the forms must be disclosed.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: George M. Kazanjian
Robert Ryan
John Heffron