November 5, 2009
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.
As you are aware, I have received your letter in which you sought an advisory opinion concerning rights of access to “dairy farm reports, compiled and maintained by certified milk inspectors (CMI’s)” under the Freedom of Information Law.
In brief, section 71-n of the Agriculture and Markets Law states that entities that produce milk or milk products for sale or distribution must meet sanitary requirements as evidenced by a satisfactory inspection conducted by Department staff or a CMI. Further, the Department’s regulations, 1 NYCRR section 2.6(a)(2), require that CMI’s “accurately record and maintain the results of each inspection and provide a copy of an inspection report to the Department when requested to do so”, and inform dairy farmers when his/her farm is not in compliance with sanitary standards.
The Director of the Department’s Division of Milk Control and Dairy Services, which supervises and regulates the state’s dairy industry, contends that “since the dairy farm inspection reports contain sensitive business-related information about a farm’s operation, the release of those reports would have a profound and detrimental effect on the Division’s milk sanitation regulatory program.” You added that he has expressed the view that “if a farm’s competitor is able to obtain information about a farm’s business activities simply by making a freedom of information request to the Department, it is possible that the farm and its CMI might be less thorough and forthright in compiling and maintaining the dairy farm inspection reports which are vital tools for the Division in ensuring that the State’s milk supply is safe and wholesome for consumers.”
In this regard, I offer the following comments.
First, the Freedom of Information Law includes all agency records within its coverage, and section 86(4) of that statute defines the term “record” to include:
"any information kept, held, filed, produced, reproduced by, with or for an agency or the state legislature, in any physical form whatsoever including, but not limited to, reports, statements, examinations, memoranda, opinions, folders, files, books, manuals, pamphlets, forms, papers, designs, drawings, maps, photos, letters, microfilms, computer tapes or discs, rules, regulations or codes."
Based on our conversation, it is the Department’s view that reports at issue constitute Department records, even if they do not come into the physical possession of the Department. Based on the direction provided in the Agriculture and Markets Law and the Department’s regulations, the reports are produced and maintained “for” the Department and, therefore, are Department records.
Second, 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 (j) of the Law. It is emphasized that the ability to withhold records “or portions thereof” indicates that an agency is required to review records sought in their entirety to determine which portions, if any, may justifiably be withheld.
In consideration of the Division Director’s contentions, pertinent is §87(2)(d), which 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 a 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 are key 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, 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])...
"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).”
I am unaware of the specific contents of the inspection reports prepared by CMI’s. However, insofar as it can be demonstrated that they contain “sensitive business-related information about a farm’s operation”, the disclosure of which would provide a significant advantage to competitors of the subjects of those reports, and concurrently, substantial harm to the competitive position of the subjects of the reports, I would agree that section 87(2)(d) might properly be asserted.
From my perspective, “business-related information” might include financial details relating to a farm’s operation indicating strength or weakness, debt or reserves, or perhaps practices or procedures that are unique to the industry. I do not believe that it would include portions of records indicating findings of failures to meet quality standards required by the Department. In any situation in which it is found that an entity overseen or regulated by a government agency has failed to meet safety or sanitation standards, such findings are, in my view, accessible. Disclosure in those instances serve as a means of protecting consumers and encouraging compliance with applicable requirements. In short, it may be that portions of the reports might properly be withheld in accordance with section 87(2)(d), but that the remainder must be disclosed.
Lastly, when an agency’s denial of access to records is challenged in a judicial proceeding, the agency has the burden of proving that an exception to rights of access has justifiably been asserted. In rejecting a claim that records could be withheld under section 87(2)(d), the Court of Appeals in Markowitz v. Serio determined that, to uphold a denial of access, the denial “cannot merely rest upon a speculative conclusion that disclosure might potentially cause harm” [11 NY3d 43, 50 (2008)], or that such a claim is merely “theoretical” (id., 51). Rather, for purposes of asserting section 87(2)(d), it must be proven that disclosure would, in fact, cause substantial injury to the competitive position of a farm that is the subject of a report.
If you would like to discuss the matter, please feel free to contact me. I hope that I have been of assistance.
Robert J. Freeman