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FOIL-AO-13830

January 21, 2003

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 and the correspondence attached to it. You have sought an opinion
concerning a denial of your request for certain records by the State Insurance Fund.

The request involved invoices submitted to the Fund by certain vendors for the third quarter
of 2000 and the first quarter of 2002. In response to an appeal, you were informed that disclosure would provide competitors "commercially valuable information about [the Fund's] business strategy" and that, therefore, the records could be withheld under §87(2)(d) of the Freedom of Information Law. In addition, you were told that the records sought "are scattered among thousands of individual files in twelve district offices" and that "[i]dentifying and retrieving those invoices would require an unreasonable degree of effort that is beyond what is required under FOIL."

In this regard, I offer the following comments.

In consideration of the latter contention first, the issue involves the extent to which the
request "reasonably describes" the records sought as required by §89(3) of the Freedom of
Information Law. I point out that it has been held by the Court of Appeals that to deny a request on the ground that it fails to reasonably describe the records, an agency must establish that "the
descriptions were insufficient for purposes of locating and identifying the documents sought"
[Konigsberg v. Coughlin, 68 NY 2d 245, 249 (1986)].

The Court in Konigsberg found that the agency could not reject the request due to its breadth
and also stated that:

"respondents have failed to supply any proof whatsoever as to the
nature - or even the existence - of their indexing system: whether the
Department's files were indexed in a manner that would enable the
identification and location of documents in their possession (cf.
National Cable Tel. Assn. v Federal Communications Commn., 479
F2d 183, 192 [Bazelon, J.] [plausible claim of nonidentifiability
under Federal Freedom of Information Act, 5 USC section 552 (a)
(3), may be presented where agency's indexing system was such that
'the requested documents could not be identified by retracing a path
already trodden. It would have required a wholly new enterprise,
potentially requiring a search of every file in the possession of the
agency'])" (id. at 250).

In my view, whether a request reasonably describes the records sought, as suggested by the Court of Appeals, may be dependent upon the terms of a request, as well as the nature of an agency's filing or record-keeping system. In Konigsberg, it appears that the agency was able to locate the records on the basis of an inmate's name and identification number.

While I am unfamiliar with the recordkeeping systems of the Fund, to extent that the records
sought can be located with reasonable effort, I believe that the request would have met the
requirement of reasonably describing the records. On the other hand, if the records are not
maintained in a manner that permits their retrieval except by reviewing perhaps hundreds or even
thousands of records individually in an effort to locate those falling within the scope of the request,
to that extent, the request would not in my opinion meet the standard of reasonably describing the
records.

Second, with respect to rights of access, 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 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.
Most pertinent to the matter, I note 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, assuming that the Fund is engaged in competition with private firms engaged in the same area of commercial activity, I believe that §87(2)(d), the so-called "trade secret" exception would serve as a potential basis for a denial of access.

As you may be aware, the cited provision 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."

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"
[(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, I believe that the State Insurance Fund could in the context of the preceding remarks
be characterized as a commercial entity and therefore, assert §87(2)(d). This is not to suggest that
the Fund's records necessarily may be withheld in their entirety, but rather that those records or
portions of records that fall within the scope of §87(2)(d) may be withheld in accordance with the
preceding commentary.

I hope that I have been of assistance.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Kenneth J. Ross
Jeffrey R. Ritter