May 7, 2007
The staff of the Committee on Open Government is authorized to issue advisory opinions. The ensuing staff advisory opinion is based solely upon the facts presented in your correspondence, unless otherwise indicated.
We are in receipt of your inquiry concerning application of the Freedom of Information Law to requests made by Cablevision to the Village of Grand View-On-Hudson for a statement filed by Verizon to substantiate its fourth quarter 2006 franchise fee paid to the Village. You submitted a copy of a communication from Verizon requesting that the Village maintain this record confidentially under §§87(2)(d) and 89(5) of the Freedom of Information Law and asked whether the Village should release the document to Cablevision. Subsequent to your request, this office received similar requests for advisory opinions from other municipalities, as well as McGuire Woods, counsel to Verizon. In fairness to all parties, and in an effort to address all of the issues raised, we offer the following comments.
First, notwithstanding the following comments with respect to §87(2)(d), commonly known as “the trade secret”exception, as a possible basis for denial of access, we believe that a municipality has the authority to disclose the requested statement.
In our opinion, even when a local government may deny access to such a statement, the Freedom of Information Law would not require the municipality to withhold that record, for that statute is permissive. With one exception, an agency has the discretionary authority to disclose records, even when records or portions thereof fall within one or more of the grounds for denial of access [see Capital Newspapers v. Burns, 109 AD2d 92, aff’d 67 NY2d 562 (1986)]. The only instance in which an agency would not have the authority to disclose would involve a situation in which a statute forbids disclosure. We know of no statute that would forbid disclosure in this instance.
Second, as you are likely aware, 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 (j) of the Law. Section 87(2)(d) authorizes 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 involves the extent to which disclosure would cause substantial injury to Verizon’s competitive position in the cable television market.
In our 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 the decision cited by Verizon’s attorneys in which the Court of Appeals, 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)], 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 the 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...
...[A]s 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 Verizon’s words, the report requested from the Village shows, “for each of the three months of the fourth quarter of 2006, Verizon’s revenues for monthly recurring cable service charges, usage-based charges, and certain other miscellaneous revenues. Also shown, as offsets, are sales taxes collected, if any, and any uncollectibles and deferrals.” The breakdown of the information in this report shows how Verizon’s customer base in the Village changed over the course of three months, the mix of services that it sold, and the revenues it derived from those sales. In sum, this report contains geographically limited sales information, apparently not available through any other source.
In further support of its opinion that disclosure of such material would cause substantial injury to Verizon’s competitive position, Verizon relies on federal case law, cases from other state jurisdictions, and a New York case, NYS Electric & Gas Corp. v. NYS Energy Planning Board, 221 AD2d 121, 645 NYS2d 145 (3d Dept 1996), in which the Appellate Division, Third Department, upheld the agency’s denial of access to records. The court in NYS Electric & Gas determined that disclosure of production and efficiency data could result in the ability to infer essential aspects of a commercial entity’s production costs fundamental to projecting future costs. In an environment where the potential for competition is evident, release of such data could cause competitive damage, the court ruled, upholding the denial of access. In our opinion, the ability to predict future costs of a competitor, albeit advantageous, is not analogous to possible predictions or advantages gained from information pertaining to recent sales in the cable television industry.
We note a recent decision, Markowitz v. Serio, New York County Supreme Court, April 5, 2007, in which the court determined that the NYS Insurance Department could deny access to reports containing an insurer’s market share and growth trend data by ZIP code, that was not otherwise available to the insurer’s competitors. Information submitted in the reports included lists of insurance policies issued, received, not renewed or cancelled within each zip code as well as any applications for which the company refused to issue a policy. Disclosure, the court found, could permit competitors to target areas where the reporting insurer was most vulnerable while avoiding areas where the insurer was strongest, thus causing substantial injury to the competitive position of the reporting insurer. Although at first glance this ruling would seem to support Verizon’s request for non-disclosure, we believe that the markets involved in the two situations can be distinguished, and that the decision may be of little significance here.
The cable television industry is rapidly changing, and aggressive marketing tactics are employed not only within the cable television market, but also in relation to satellite and perhaps internet service providers. On a daily basis, the public is subject to radio, television, internet and direct mail advertising, which likely has varying degrees of impact and success. Unlike insurance plans, it is our understanding that cable television subscriptions may be purchased on a month-to-month basis, coupled with incentives offered to switch providers at no cost and/or perhaps with credits or rebates. The opportunity to take advantage of an offer is not prohibited by annual or even biannual subscription contracts, and a flexibility exists in that area of commerce that is not available from insurance carriers. The ongoing offers, made on an almost continual basis, in our opinion, indicates the lack of harm that may result from providers ascertaining actual sales. That being so, Verizon in our view has not offered clearly persuasive evidence that disclosure would result in substantial competitive harm to itself or any one particular provider.
Very simply, because we are not experts concerning the cable television market or the effects of disclosing the records at issue, we cannot advise either that the records must be disclosed, or that a municipality could meet the burden of proving that disclosure would indeed cause “substantial injury” to Verizon’s competitive position.
Third, we note that the provisions, time frames, and appeal mechanisms available to commercial entities that submit records to state agencies pursuant to §89(5) of the Freedom of Information Law do not apply when those entities submit records to municipalities, such as villages or towns. Section 89(5)(a)(1) specifically pertains to records submitted “to any state agency”. This is not to suggest that a commercial entity could not request that a municipality take into consideration the entity’s views when determining whether to disclose, but rather that the obligation to deny access to records, and the time frames and appeal mechanisms set forth in §89(5) do not apply to an entity submitting records to a municipality. In short, §89(5) provides standing to a commercial entity to attempt to preclude a state agency from disclosing. There is no similar vehicle that may be cited enabling such an entity to forbid a municipality from disclosing.
We are mindful of the decision rendered in 2005, Verizon New York, Inc. v. Bradbury [803 NYS2d 409 (2005)] in which Verizon initiated a proceeding pursuant to Article 78 to prohibit the Village of Rye Brook from disclosing documents that the Village sought to make available to the public. The court did not explain in any detail the means by which Verizon had standing to bring suit. Further, the court cited §89(5), stating that:
“Given the public interest in disclosure, the courts place the burden of proof on the party seeking to invoke the exemptions to prove entitlement thereto (Public Officers Law §89[e]...” (Id., 415).
While it is true that a commercial enterprise may have the burden of defending a denial of access at the conclusion of the procedure described in §89(5), it is emphasized that §89(5) is applicable only with respect to records submitted to state agencies; no similar procedure exists in the case of records submitted to local government agencies. In Verizon, there was no denial of access. While the issue of standing was apparently not considered by the court in Verizon, since §89(5) does not apply when records are submitted to local government agencies, it is questionable in our opinion whether the matter would have gone forward had the issue of standing been raised.
Based on the foregoing, “except as provided in subdivision five” of §89, it is reiterated that the Freedom of Information Law is permissive, and that the Court of Appeals and other courts have so held. Even when agencies may have the ability to deny access to records, they are not required to do so and may assert their discretionary authority to disclose.
Lastly, as you may be aware, the Court of Appeals has held that a request for or a promise of confidentiality is all but meaningless; unless one or more of the grounds for denial appearing in the Freedom of Information Law may appropriately be asserted, the record sought must be made available. In Washington Post v. Insurance Department [61 NY2d 557 (1984)], the controversy involved a claim of confidentiality with respect to records prepared by corporate boards furnished voluntarily to a state agency. The Court of Appeals reversed a finding that the documents were not "records" subject to the Freedom of Information Law, thereby rejecting a claim that the documents "were the private property of the intervenors, voluntarily put in the respondents' 'custody' for convenience under a promise of confidentiality" [Washington Post v. Insurance Department, 61 NY 2d 557, 564 (1984)]. Moreover, it was determined that:
“Respondent’s long-standing promise of confidentiality to the intervenors is irrelevant to whether the requested documents fit within the Legislature’s definition of ‘records’ under FOIL. The definition does not exclude or make any reference to information labeled as ‘confidential’ by the agency; confidentiality is relevant only when determining whether the record or a portion of it is exempt (see Matter of John P. v Whalen, 54 NY2d 89, 96; Matter of Fink v Lefkowitz, 47 NY2d 567, 571-572, supra; Church of Scientology v State of New York, 61 AD2d 942, 942-943, affd 46 NY2d 906; Matter of Belth v Insurance Dept., 95 Misc 2d 18, 19-20). Nor is it relevant that the documents originated outside the government.... Such a factor is not mentioned or implied in the statutory definition of records or in the statement of purpose....”
On behalf of the Committee on Open Government, we hope this is helpful to you.
Camille S. Jobin-Davis
cc: Marshal Beil