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October 11, 2001

 

Mr. William Cherry
Schoharie County Treasurer
P.O. Box 9
Schoharie, NY 12157

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. Cherry:

I have received your letter of September 10 in which you referred to an advisory opinion of
August 30 addressed to Stanley France, the Director of Data Processing for Schoharie County. In
brief, based on the information provided by Mr. France, it was advised that software developed by
the County constitutes a "record" subject to the Freedom of Information Law and that it must be
disclosed.

In his letter to me, Mr. France indicated that the software was developed "partially with grant
money" and "partially with county funds." You wrote, however, that the grant money totaled just
over $37,000, while the County's funding was nearly $827,000. Additionally, Mr. France wrote that
the software was or would be developed "with the intent that it be freely shared with other counties."
Nevertheless, you wrote that the software in question was offered in an RFP process initiated by
Albany County, and that Albany County in fact selected the software at issue. In consideration of
the information that you have offered, you asked whether my opinion would change.

Two points were made in the opinion of August 30. First, it was advised that software
constitutes a "record" that falls within the coverage of the Freedom of Information Law, and I
continue to believe that to be so. Second, it was also advised that the Freedom of Information Law
is based on a presumption of access and that none of the grounds for a denial of access would apply
"based on the facts that [Mr. France] presented." It was suggested, however, that when a
government agency "acts, in essence, as a competitor with private entities", §87(2)(d) might serve
as a basis for withholding. While Mr. France inferred that the County would not be acting as
competitor in a marketplace with private entities, according to your letter, that is not so. Based on
the information that you have provided, the exception cited above might be asserted as a means of
a denying a request for the software if it is sought under the Freedom of Information Law.

As indicated in the opinion addressed to Mr. France, §87(2)(d) 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."

It was also stated that when a government agency carries out certain of its functions as an entity in
competition with private firms, there is precedent stating that 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).

For purposes of offering guidance concerning the scope of §87(2)(d) and by way of
background, 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 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)."

In sum, if it can be concluded that the software developed by Schoharie County is being used
as a commercial product in a competitive market, it would appear that it might justifiably be
withheld pursuant to §87(2)(d).
I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Stanley France