February 8, 1996
Mr. Peter Quinn Energy Analyst Long Island Progressive Coalition Citizen Action on Long Island 90 Pennsylvania Avenue Massapequa, NY 11758-4978
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 Mr. Quinn:
I have received your letter of January 24 and the correspondence attached to it. You have sought an advisory opinion concerning rights of access to certain records of the Long Island Power Authority.
In November of last year, you sought a list of the companies or persons that submitted responses to the Authority's Request for Information ("RFI"). In response, Stanley B. Klimberg, General Counsel to the Authority, disclosed the names of a dozen persons or firms that responded. He denied access to the names of the remainder of the firms that responded, stating that disclosure "would impair present or imminent contract awards, and/or cause substantial injury to the competitive positions of the subject enterprise." It is your view that disclosure of the names of some but not all of the submitters is arbitrary.
You also referred to a second request for the names of consultants retained by the Authority, "how much money each consultant company is receiving and what their billable hour charges are." As of the date of your letter to this office, you had not received a response to that request.
In this regard, I offer the following comments.
First, 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.
Second, typically, I believe that the names of persons or firms who respond to an agency's solicitation of bids, requests for proposals or, as in this case, requests for information, must be disclosed, so long as the deadline for the submission of bids, proposals or responses has been reached. For that reason, I contacted Mr. Klimberg to attempt to acquire additional information concerning the rationale for his response to your request. He explained that the RFI's relate to what may be groundbreaking activities in emerging new industries, and that the disclosure of the name alone of a firm that may be considering entering a new field or expanding might adversely affect its marketing ability if its plans become known to competitors. Similarly, he suggested that if competitors are able to know of a firm's interest in pursuing an opportunity in one area, that knowledge could affect public and industry perceptions in terms of the firm's efforts in seeking business in other parts of the country. In short, it is his view, based on contacts with all of those that responded, that disclosure of the names of those persons of firms in question would cause substantial injury to their competitive position under §87(2)(d) of the Freedom of Information Law. If that is so, an ancillary basis for denial, §87(2)(c), involving the impairment of the Authority's ability to engage in optimal contractual arrangements, would also likely apply.
I do not have sufficient knowledge of the industry to advise with certainty as to the accuracy of Mr. Klimberg's contentions. Section 87(2)(d) 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."
As such, the question under §87(2)(d) involves the extent, if any, to which disclosure would "cause substantial injury to the competitive position" of commercial entities that have responded to the RFI.
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.
Also relevant to the analysis is a recent 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, ___ NY2d ___, December 27, 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.).
"The reasoning underlying these considerations is consistent with the policy behind (2)(b)--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 (see, McKinney's 1990 Sessions Laws of New York, ch 289, at 2412 [Memorandum of State Department of Economic Development]). The analogous Federal standard would advance these goals, and we adopt it as the test for determining whether 'substantial injury to the competitive position of the subject enterprise' would ensue from disclosure of commercial information under FOIL."
It is noted that the courts have consistently interpreted the Freedom of Information Law in a manner that fosters maximum access. As stated by the Court of Appeals more than decade ago:
"To be sure, the balance is presumptively struck in favor of disclosure, but in eight specific, narrowly constructed instances where the governmental agency convincingly demonstrates its need, disclosure will not be ordered (Public Officers Law, section 87, subd 2). Thus, the agency does not have carte blanche to withhold any information it pleases. Rather, it is required to articulate particularized and specific justification and,if necessary, submit the requested materials to the courts for in camera inspection, to exempt its records from disclosure (see Church of Scientology of N.Y. v. State of New York, 46 NY 2d 906, 908). Only where the material requested falls squarely within the ambit of one of these statutory exemptions may disclosure be withheld" [Fink v. Lefkowitz, 47 NY 2d 567, 571 (1979)]."
In another decision rendered by the Court of Appeals, it was held that:
"Exemptions are to be narrowly construed to provide maximum access, and the agency seeking to prevent disclosure carries the burden of demonstrating that the requested material falls squarely within a FOIL exemption by articulating a particularized and specific justification for denying access" [Capital Newspapers v. Burns, 67 NY 2d 562, 566 (1986); see also, Farbman & Sons v. New York City, 62 NY 2d 75, 80 (1984); and Fink v. Lefkowitz, 47 NY 2d 567, 571 (1979)].
Moreover, in the same decision, in a statement regarding the intent and utility of the Freedom of Information Law, it was found that:
"The Freedom of Information Law expresses this State's strong commitment to open government and public accountability and imposes a broad standard of disclosure upon the State and its agencies (see, Matter of Farbman & Sons v New York City Health and Hosps. Corp., 62 NY 2d 75, 79). The statute, enacted in furtherance of the public's vested and inherent 'right to know', affords all citizens the means to obtain information concerning the day-to-day functioning of State and local government thus providing the electorate with sufficient information 'to make intelligent, informed choices with respect to both the direction and scope of governmental activities' and with an effective tool for exposing waste, negligence and abuse on the part of government officers" (id., 565-566).
Lastly, I believe that the Authority is required to disclose the names of consultants that it has retained, as well as records indicating payments to consultants. In short, I do not believe that any of the grounds for denial could be asserted to withhold those kinds of records.
I hope that I have been of assistance.
Robert J. Freeman
cc: Stanley B. Klimberg, General Counsel