March 3, 2004
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.
I have received your letter in which you sought an advisory opinion concerning rights of access to waiver applications submitted by "establishments" to Oneida County pursuant to Article 13-E of the Public Health Law concerning the "Regulation of Smoking in Certain Public Areas."
You wrote that:
"Oneida County’s waiver application requires establishments to include basic information about the establishment’s business, information about either financial hardship or other factors which would render compliance unreasonable, and a plan to minimize the adverse effects of the waiver upon persons subject to involuntary exposure to second-hand smoke. In addition, applicant establishments must also submit New York State sales tax statements proving a reduction in business and a business certificate for the establishment."
You added that it is your initial view that "every aspect of the application should be available for public access, with the exception of privacy-sensitive items such as tax identification and social security numbers..."
I am in general agreement with your opinion, and based on a review of Article 13-E, the waiver application used by the County, the Freedom of Information Law and its judicial construction, 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.
In my opinion, most significant in analyzing the extent to which the application must be disclosed is §87(2)(d). That provision 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..."
Having reviewed the application, it appears that the only element of its content that relates to §87(2)(d) would be Section C, part 3, which requires an applicant to provide the following documentation:
"Exact copies of New York State sales tax statements that were submitted by the establishment to the State of New York, which show at least a ten percent (10%) reduction in New York State sales tax receipts from the sale of food and beverages for a period of three (3) consecutive months during which the facility has operated smoke-free as compared to the combined average of such receipts during the same three (3) month period in the two (2) years prior to smoke-free operation."
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" 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]). 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 consideration of the foregoing and the nature of establishments that would likely apply for waivers, it is doubtful in my opinion, with the exception of the particular "privacy sensitive" items to which you referred, could justifiably be withheld. As you are aware, when an agency denies access to records and the denial is challenged in a judicial proceeding, §89(4)(b) of the Freedom of Information Law states that the agency has the burden of proving that the records withheld fall within one or more of the exceptions to rights of access. Moreover, the courts have consistently held that the exceptions must be construed narrowly. As stated by the Court of Appeals when expressing its general view of the intent of that statute in Gould v. New York City Police Department [89 NY2d 267 (1996)]:
"To ensure maximum access to government records, the 'exemptions are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for exemption' (Matter of Hanig v. State of New York Dept. of Motor Vehicles, 79 N.Y.2d 106, 109, 580 N.Y.S.2d 715, 588 N.E.2d 750 see, Public Officers Law § 89[b]). As this Court has stated, '[o]nly where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld' (Matter of Fink v. Lefkowitz, 47 N.Y.2d, 567, 571, 419 N.Y.S.2d 467, 393 N.E.2d 463)" (id., 275).
The Court also offered guidance to agencies and lower courts in determining rights of access and referred to several decisions it had previously rendered, stating that:
"...to invoke one of the exemptions of section 87(2), the agency must articulate 'particularized and specific justification' for not disclosing requested documents (Matter of Fink v. Lefkowitz, supra, 47 N.Y.2d, at 571, 419 N.Y.S.2d 467, 393 N.E.2d 463). If the court is unable to determine whether withheld documents fall entirely within the scope of the asserted exemption, it should conduct an in camera inspection of representative documents and order disclosure of all nonexempt, appropriately redacted material (see, Matter of Xerox Corp. v. Town of Webster, 65 N.Y.2d 131, 133, 490 N.Y.S. 2d, 488, 480 N.E.2d 74; Matter of Farbman & Sons v. New York City Health & Hosps. Corp., supra, 62 N.Y.2d, at 83, 476 N.Y.S.2d 69, 464 N.E.2d 437)" (id.).
The applicants for waivers operate their establishments in full view of the public. The prices they charge are known; their incentives, i.e., "happy hours", are known and often publicized; the general level of business activity can be known by any member of the public simply by entering the premises during business hours. The figures presented with the waiver application involve a relatively short period of time, three months. Although it has been contended in other contexts that tax records submitted by a taxpayer, whether individual or by a business enterprise, to the State Department of Taxation and Finance or the Internal Revenue Service (IRS) are confidential [see e.g., Tax Law, §697(e)], in an effort to obtain expert advice on the matter, I have in the past contacted the Disclosure Litigation Division of the Office of Chief Counsel at the Internal Revenue Service and the Office of Counsel at the NYS Department of Taxation and Finance to discuss the issue. I was informed that the statutes requiring confidentiality pertain to records received and maintained by those agencies; those statutes do not pertain to records kept by an individual taxpayer [see e.g., Stokwitz v. Naval Investigation Service, 831 F.2d 893 (1987)], by an employer or that are submitted by a taxpayer to a government agency, as in this situation.
In sum, other than the "privacy-sensitive items such as tax identification and social security numbers" to which you referred, I believe that the waiver applications submitted to the County are accessible. Social security or tax identification numbers may in my view be withheld on the ground that disclosure would constitute an unwarranted invasion of personal privacy [§87(2)(b)] with respect to individuals or under §87(2)(d) regarding business entities. Because a tax identification number can be used as a means of acquiring information absent the authority to do so or potentially engaging in fraud or criminal acts, I believe that the County would be justified in deleting those items.
I hope that I have been of assistance. Should any further questions arise, please feel free to contact me.
Robert J. Freeman