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February 17, 1995

 

Ms. Rachel Ross
Project Manager
Inside Healthcare Computing
3842 College Avenue #2
Culver City, CA 90232

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 Ms. Ross:

I have received your letter of January 20, which pertains to a request for records of the State Department of Health, specifically, "copies of new and renewal contracts for house-wide or multi-departmental patient care or clinical information systems signed in the last three years between Helen Hayes Hospital and computer software and hardware vendors for the purchase, licensing, installation, use and maintenance of systems." Helen Hayes Hospital is under the aegis of the Department of Health.

In response to the request, you were informed by Donald Macdonald, the Department's records access officer, that two such contracts had been awarded. However, the contracts were withheld pursuant to §87(2)(d) of the Freedom of Information Law, and you were informed that the procedural requirements of §89(5) would be initiated. You have sought an advisory opinion concerning the propriety of the denial.

In this regard, 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. The only relevant ground for denial under the circumstances is §87(2)(d), which enables 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."

In my opinion, the question under §87(2)(d) involves the extent, if any, to which disclosure would "cause substantial injury to the competitive position" of firms that have contracted with the Department.

As indicated earlier, related provisions of the Freedom of Information Law pertain to the protection of records that might be withheld under §87(2)(d). Those provisions, which appear in §89(5), prescribe a procedure that may be utilized by a commercial enterprise in certain circumstances and that must be carried out by an agency in those circumstances. Specifically, the cited provision states in part that:

"(1) A person acting pursuant to law or regulation who, subsequently to the effective date of this subdivision, submits any information to any state agency may, at the time of submission, request that the agency except such information from disclosure under paragraph (d) of subdivision two of section eighty-seven of this article. Where the request itself contains information which if disclosed would defeat the purpose for which the exception is sought, such information shall also be excepted from disclosure.

(2) The request for an exception shall be in writing and state the reasons why the information should be excepted from disclosure.

(3) Information submitted as provided in subparagraph one of this paragraph shall be excepted from disclosure and be maintained apart by the agency from all other records until fifteen days after the entitlement to such exception has been finally determined or such further time as ordered by a court of competent jurisdiction."

Based on the foregoing, at the time that a commercial entity submits records to a state agency pursuant to law or regulation, it may ask that the records or portions thereof be excepted from disclosure in accordance with §87(2)(d). The two firms that contracted with the Department apparently requested exceptions from disclosure.

From my perspective, a contract is not ordinarily a record submitted by a commercial enterprise, but rather is a document produced jointly by the agency and the enterprise. Consequently, §89(5) typically would not serve to delay a determination to grant or deny access. However, in the case of the particular records sought, Mr. Macdonald informed me that portions of the records initially submitted for which exceptions from disclosure were requested were incorporated into the contracts. To that extent, it would seem reasonable to confer the procedural protection accorded by §89(5) on those aspects of the contracts.

With respect to the substance of the matter, 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 the records, the area of commerce in which a profit-making 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 of the records 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.

Without additional knowledge, I cannot advise with certainty as to the propriety of the Department's denial. However, having reviewed Mr. Macdonald's letter to you of February 15 and letters sent to him by the firms in question, it appears that various aspects of the records could properly be withheld. I direct your attention to a portion of a letter of February 3 transmitted to Mr. Macdonald by First Data Corp. (FD). Specifically, it was contended that:

"The extent to which FD may negotiate certain contractual terms and pricing is very confidential and one of the factors that allows FD to remain a leader in the very competitive hospital information systems market. The pricing for hospital information systems is extremely competitive. FD's ability to continue to compete in its market is almost totally dependent on its ability to provide competitive pricing to each of its customers. Although FD, like all other competitors in the market, publishes list prices for its products, the actual price agreed to by each of its customers is the most heavily negotiated portion of any agreement. If the prices for FD's customers are released to IHC for publication, FD's competitors can undercut such pricing and gain a greater market share to FD's expense. In addition, if any of the heavily negotiated terms in an agreement are disclosed to the general public, then FD's ability to control the amount of risk that it undertakes may be severely limited. If as a result of the disclosure of negotiated terms, FD is required to undertake more risk than its competitors, the FD's competitiveness in its market will be severely hampered."

Assuming that the claims asserted in the passage quoted above can be justified, it would appear that certain portions of the contract could properly be withheld under §87(2)(d). However, due to my lack of knowledge of the industry or the specific contents of the records, I cannot ascertain or advise as to whether each aspect of the contracts so far excepted from disclosure could properly be withheld.

I regret that I cannot be of greater assistance. Should any further questions arise, please feel free to contact me.

Sincerely,

 

Robert J. Freeman
Executive Director

RJF:jm

cc: Donald Macdonald
Lois Utley