Vol. VI, No. 1
Protecting Intrinsic Commercial Value
From time to time, federal agencies processing Freedom of Information Act requests for business-related records must confront the question of whether the "intrinsic commercial value" of such records can provide a basis for their nondisclosure under Exemption 4 of the FOIA, 5 U.S.C.
It has long been recognized that such materials as "formulae, designs, drawings, research data, etc.," can be "significant not as records but as items of valuable property." Attorney General's Memorandum on the Public Information Section of the Administrative Procedure Act (1967), at 34, reprinted in Freedom of Information Act Source Book: Legislative Materials, Cases, Articles, 93d Cong., 2d Sess. 233 (1974). Such an "intrinsically valuable" item of written work can be sold like any other commodity in the marketplace, bringing to its private owner the economic benefit of his proprietary interest. Yet this proprietary interest can be lost when the valuable document is submitted to the government and then requested under the FOIA, unless it is withheld as exempt.
For example, a company might design a new product or facility, prepare extensive design drawings of all or part of it at great expense, and then be required to submit those technical drawings to a federal regulatory agency. Given the nature of such technical drawings, such companies in certain instances would not seek to keep their contents secret. Rather, some companies readily sell or license such drawings to willing commercial purchasers for large sums of money, at whatever price the market will bear. Once they come into the possession of an agency, however, those drawings become subject to the FOIA, through which knowledgeable potential customers can seek to obtain them for nominal copying charges at a small fraction of their true market value. In such a situation, release under the FOIA would operate to diminish the company's market for its valuable documents and thereby cause it direct economic loss. See also Note, The Freedom of Nonfree Information: An Economic Proposal for Government Disclosure of Privately Submitted Commercial Information, 32 Stan. L. Rev. 339, 346 (1980).
Under Exemption 4 of the FOIA, agencies can withhold "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C.
First, it should be remembered that Exemption 4, by its express terms, can apply only to records "obtained" by the government from an outside record submitter. See Federal Open Market Committee v. Merrill, 443 U.S. 340, 360 (1979). Consequently, no "intrinsic value" protection is possible under Exemption 4 for any information generated within a federal agency, even for extremely valuable information generated at great expense. But see also FOIA Update, Fall 1983, at 14-15 (discussing the protection of valuable government-generated information based upon the "commercial privilege" recognized under Exemption 5). By the same token, however, any record containing information of private proprietary value should readily meet this "obtained" requirement.
Any commercially valuable information should also satisfy the further Exemption 4 standard of being "commercial" in character. The courts that have had occasion thus far to construe this standard have uniformly accorded it a broad, commonsense meaning: "'Commercial' surely means pertaining or relating to or dealing with commerce." American Airlines, Inc. v. National Mediation Board, 588 F.2d 863, 870 (2d Cir. 1978). See also, e.g., Miller, Anderson, Nash, Yerke & Wiener v. DOE, 499 F. Supp. 767. 770 (D. Or. 1980); Brockway v. Department of the Air Force, 370 F. Supp. 738, 740 (N.D. Iowa 1974), rev'd on other grounds, 518 F.2d 1184 (8th Cir. 1975). Indeed, the D.C. Circuit Court of Appeals recently rejected the suggestion that this term "should be confined to records that actually reveal basic commercial operations," holding instead that the standard was satisfied where a submitter held "a commercial interest" in the requested record. Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1290 (D.C. Cir. 1983); accord Washington Research Project, Inc. v. HEW, 504 F.2d 238, 244 n.6 (D.C. Cir. 1974) (recognizing that "a commercial or trade interest" in a record can be sufficient) (dicta), cert. denied, 421 U.S. 963 (1975). It simply stands to reason that a valuable document sold as a commodity in the marketplace should be regarded as "commercial" within the meaning of Exemption 4.
The final and most significant element of Exemption 4 to be considered in this regard is the requirement that the record be "confidential." (An alternate basis for Exemption 4 protection, available for records found "privileged" from civil discovery disclosure, is not applicable here.) Although the D.C. Circuit Court of Appeals in National Parks seemingly construed this term somewhat narrowly through the two-pronged test set forth above that has come to be applied routinely in Exemption 4 cases -- it at the same time did specifically suggest that a broader range of interests can be accommodated under the exemption's "confidentiality" standard. See FOIA Update, Fall 1983, at 15, citing 498 F.2d at 770 n.17.
More recently, in 9 to 5 Organization for Women Office Workers v. Board of Governors of the Federal Reserve System, 721 F.2d 1 (1st Cir. 1983), the First Circuit Court of Appeals elaborated further upon this point. It flatly rejected the argument that National Parks "impos[ed] a limitation on the number of legitimate interests which are protected by exemption 4," holding instead that National Parks simply highlighted "the two interests which are most frequently threatened" by commercial information disclosure under the FOIA. 721 F.2d at 9. In 9 to 5, the First Circuit emphasized that the appropriate inquiry in each case should be on whether a requested FOIA disclosure "will harm an identifiable private or governmental interest which the Congress sought to protect by enacting exemption 4 of the FOIA." Id. at 10.
This line of authority strongly supports the conclusion that "intrinsically valuable" documents can be regarded as "confidential" within the intended meaning of that term under Exemption 4. Plainly, the withholding of such documents on that basis preserves private proprietary interests by ensuring that the government (through the FOIA) does not disrupt the normal operations of the marketplace. Such disruption is precisely what Congress sought to avoid through Exemption 4, the legislative history of which contains ample evidence of Congress' intent that the FOIA not be used to alter the traditional ground rules of business. Indeed, both the Senate and House reports specify that Exemption 4 protection was intended to be accorded to information "which would customarily not be released to the public by the person from whom it was obtained." S. Rep. No. 813, 89th Cong., 1st Sess. 9 (1965); see H.R. Rep. No. 1497, 89th Cong., 2d Sess. 10 (1966). Inasmuch as owners of marketable documents surely do not "customarily" release copies of them to the public without receiving payment of their market value, it is entirely appropriate that such documents be regarded as eligible for Exemption 4 protection. See also Attorney General's Memorandum on the Public Information Section of the Administrative Procedure Act, supra ("There is no indication anywhere in the consideration of this legislation that the Congress intended
The fact that Exemption 4 is potentially available to documents holding "intrinsic commercial value," however, does not mean that all such documents should be withheld as properly exempt. As the First Circuit cautioned in 9 to 5, "the emphasis
Where it is concluded by an agency that the loss of market value resulting from FOIA disclosure would be substantial, Exemption 4 should be invoked to prevent that result. On the other hand, where an agency determines that no substantial market value loss is threatened, there is no such justification for nondisclosure. Such an approach, pivoting on "substantial adverse market effect." has already been set forth by the Office of Information and Privacy as the proper one to be applied to any copyrighted document requested under the FOIA. See FOIA Update, Fall 1983, at 3-5, citing 17 U.S.C.
In sum, such materials as technical design drawings, expensive copyrighted documents, or any other record holding substantial market value, can retain their full proprietary value only if protected against relatively low-cost FOIA availability. Fortunately, the protection of documents holding "intrinsic commercial value" is firmly rooted in the structure of Exemption 4, its legislative history, and even in the National Parks decision, especially as further amplified upon by the First Circuit in the more recent 9 to 5 case. Such protection is therefore entirely appropriate under existing law. To conclude otherwise would be to allow the ready vitiation of substantial private proprietary interests in valuable documents submitted to the government. a result surely not intended by Congress in enacting the FOIA. Cf. Worthington Compressors, Inc. v. Costle, 662 F.2d 45, 51 (D.C. Cir. 1981). Only upon careful consideration of the applicability of Exemption 4 to such documents, according to whether FOIA release would likely cause a substantial loss of market value, can such an unintended abuse of the FOIA prevented.
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