Freedom of Information Act Guide, May 2004

Exemption 4 of the FOIA protects "trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential." ⁽¹⁾ This exemption is intended to protect the interests of both the government and submitters of information. Its very existence encourages submitters to voluntarily furnish useful commercial or financial information to the government and it correspondingly provides the government with an assurance that such information will be reliable. The exemption also affords protection to those submitters who are required to furnish commercial or financial information to the government by safeguarding them from the competitive disadvantages that could result from disclosure. ⁽²⁾ The exemption covers two broad categories of information in federal agency records: (1) trade secrets; and (2) information that is (a) commercial or financial, and (b) obtained from a person, and (c) privileged or confidential.

Trade Secrets

For purposes of Exemption 4, the Court of Appeals for the District of Columbia Circuit in Public Citizen Health Research Group v. FDA, ⁽³⁾ has adopted a narrow "common law" definition of the term "trade secret" that differs from the broad definition used in the Restatement of Torts. The D.C. Circuit's decision in Public Citizen represented a distinct departure from what until then had been almost universally accepted by the courts -- that "trade secret" is a broad term extending to virtually any information that provides a competitive advantage. In Public Citizen, the term "trade secret" was narrowly defined as "a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort." ⁽⁴⁾ This definition requires that there be a "direct relationship" between the trade secret and the productive process. ⁽⁵⁾

The Court of Appeals for the Tenth Circuit has expressly adopted the D.C. Circuit's narrow definition of the term "trade secret," finding it "more consistent with the policies behind the FOIA than the broad Restatement definition." ⁽⁶⁾ In so doing, the Tenth Circuit noted that adoption of the broader Restatement definition "would render superfluous" the remaining category of Exemption 4 information "because there would be no category of information falling within the latter" category that would be "outside" the reach of the trade secret category. ⁽⁷⁾ Like the D.C. Circuit, the Tenth Circuit was "reluctant to construe the FOIA in such a manner." ⁽⁸⁾ Recently, the Tenth Circuit declined to "address whether [it] should supplement" this narrower trade secret definition "to require a governmental showing that the documents in question are actually owned by the submitting entity or by any other party," finding that in the case before it, involving plans and specifications for an antique aircraft, the agency had shown a "corporate 'chain of ownership'" for the requested documents, leading from "the original owner and submitter" to the company currently claiming "trade secret" protection for them. ⁽⁹⁾

Trade secret protection has been recognized for product manufacturing and design information, ⁽¹⁰⁾ but has been denied for general information concerning a product's physical or performance characteristics or a product formula when release would not reveal the actual formula itself. ⁽¹¹⁾ Moreover, one appellate court has concluded that "where the submitter or owner of documents held by the government grants the government permission to loan or release those documents to the public, those documents are no longer 'secret' for purposes of [trade secret protection under] Exemption 4" and so must be released. ⁽¹²⁾

Commercial or Financial Information

The overwhelming bulk of Exemption 4 cases focus on whether the withheld information falls within its second, much larger category. To do so, the information must be commercial or financial, obtained from a person, and privileged or confidential. ⁽¹³⁾

If information relates to business or trade, courts have little difficulty in considering it "commercial or financial." ⁽¹⁴⁾ The Court of Appeals for the District of Columbia Circuit has firmly held that these terms should be given their "ordinary meanings" and has specifically rejected the argument that the term "commercial" be confined to records that "reveal basic commercial operations," holding instead that records are commercial so long as the submitter has a "commercial interest" in them. ⁽¹⁵⁾ Such a commercial interest has been found, for example, for information pertaining to water rights held by Indian tribes in light of the tribes' interest in "maximizing" their position vis-a-vis this valuable resource. ⁽¹⁶⁾

More than twenty-five years ago, in a case involving a request for employee authorization cards submitted by a labor union, the Court of Appeals for the Second Circuit articulated a straightforward definition of the term "commercial," declaring that "surely [it] means anything pertaining or relating to or dealing with commerce." ⁽¹⁷⁾ In doing so, it categorically rejected the requester's argument that the information was "not commercial because the [labor union did] not have profit as its primary aim." ⁽¹⁸⁾ The Second Circuit declared that such an "interpretation [would give] much too narrow a construction to the phrase in question." ⁽¹⁹⁾ Instead, the Second Circuit focused on the union's relationship with "commerce" and found that "[l]abor unions, and their representation of employees, quite obviously pertain to or are related to commerce and deal with the commercial life of the country." ⁽²⁰⁾ Accordingly, the employee authorization cards were readily deemed to be "commercial." ⁽²¹⁾ Likewise, the D.C. Circuit has squarely held that a submitter's "nonprofit status is not determinative of the character of the information it reports," holding instead that "information may qualify as 'commercial' even if the provider's . . . interest in gathering, processing, and reporting the information is noncommercial." ⁽²²⁾

Despite the widely accepted breadth of the term "commercial or financial," it is not without meaning and nevertheless remains a necessary element of Exemption 4 protection. For example, the D.C. Circuit recently rejected an agency's rather strained argument that data pertaining to the location of endangered pygmy owls qualified as "commercial or financial" information "simply because it was submitted pursuant to a government-to-government cooperative agreement" whereby a state agency provided "access to its database in return for money" from the federal government. ⁽²³⁾ The D.C. Circuit reasoned that "[s]uch a quid-pro-quo exchange between governmental entities does not constitute a commercial transaction in the ordinary sense." ⁽²⁴⁾ Moreover, the D.C. Circuit found, the requested "owl-sighting data itself [was] commercial neither by its nature (having been created by the government rather than in connection with a commercial enterprise) nor its function (as there [was] no evidence that the parties who supplied the owl-sighting information [had] a commercial interest at stake in its disclosure)." ⁽²⁵⁾ Consequently, the D.C. Circuit was "unpersuaded" that Exemption 4 applied. ⁽²⁶⁾

Similarly, a district court rejected an agency's attempt to convert "factual information regarding the nature and frequency of in-flight medical emergencies" ⁽²⁷⁾ into "commercial information" for purposes of Exemption 4, finding instead that the "medical emergencies detailed in the [requested] documents [did] not naturally flow from commercial flight operations, but rather [were] chance events which happened to occur while the airplanes were in flight." ⁽²⁸⁾ In delimiting the scope of the term "commercial," the court opined that "[t]he mere fact that an event occurs in connection with a commercial operation does not automatically transform documents regarding that event into commercial information." ⁽²⁹⁾

Conversely, in a highly questionable ruling, the District Court for the Southern District of New York inexplicably held that documents submitted by the General Electric Company (GE) to EPA supporting GE's alternative Hudson River dredging plan -- which would have been less costly to GE than the plan scheduled to be imposed on it by EPA -- were somehow not "commercial" under Exemption 4. ⁽³⁰⁾ Despite the fact that GE "had a financial stake" in the matter and provided the documents in an effort "to convince the EPA to adopt its less expensive remedy," the court nonetheless held that EPA had "failed to establish that the information [had] any intrinsic commercial value." ⁽³¹⁾

Interestingly, such a failure by the agency to establish the "commercial" character of the requested information precluded Exemption 4 protection in the only decision to address the protection of information submitted in connection with a grant application. ⁽³²⁾ In that case, the D.C. Circuit found that research designs submitted as part of a grant application were not "commercial," despite claims that "[t]heir misappropriation," which "would be facilitated by premature disclosure, [would] deprive[ the researcher] of the career advancement and attendant material rewards in which the academic and scientific market deals." ⁽³³⁾ Finding that "the reach" of Exemption 4 "is not necessarily coextensive with the existence of competition in any form," the D.C. Circuit declared that "a noncommercial scientist's research design is not literally a trade secret or item of commercial information, for it defies common sense to pretend that the scientist is engaged in trade or commerce." ⁽³⁴⁾ Although recognizing that a scientist may have "a preference for or an interest in nondisclosure of his research design," the D.C. Circuit held that if that interest is "founded on professional recognition and reward, it is surely more the interest of an employee than of an enterprise" and so is beyond the reach of Exemption 4. ⁽³⁵⁾ Significantly, the D.C. Circuit noted that it certainly was possible for a given grantee "to have a commercial or trade interest in his research design," but it emphasized that "the burden of showing" such an interest "was on the agency." ⁽³⁶⁾ Because the agency "did not introduce a single fact relating to the commercial character of any specific research project," the D.C. Circuit concluded that in that case, the agency had entirely failed to "carr[y] its burden on this point." ⁽³⁷⁾

Lastly, protection for financial information is not limited to economic data generated solely by corporations or other business entities, but rather has been held to apply to personal financial information as well. ⁽³⁸⁾ Examples of items regarded as commercial or financial information include: business sales statistics; research data; technical designs; customer and supplier lists; profit and loss data; overhead and operating costs; and information on financial condition. ⁽³⁹⁾

Obtained from a "Person"

The second of Exemption 4's specific criteria, that the information be "obtained from a person," is quite easily met in almost all circumstances. The term "person" refers to a wide range of entities, ⁽⁴⁰⁾ including corporations, banks, state governments, agencies of foreign governments, and Native American tribes or nations, who provide information to the government. ⁽⁴¹⁾ The reach of Exemption 4 is "sufficiently broad to encompass financial and commercial information concerning a third party" and protection is therefore available regardless of whether the information pertains directly to the commercial interests of the party that provided it -- as is typically the case -- or pertains to the commercial interests of another. ⁽⁴²⁾ The courts have held, however, that information generated by the federal government itself is not "obtained from a person" and is therefore excluded from Exemption 4's coverage. ⁽⁴³⁾ Such information might possibly be protectible under Exemption 5, though, which incorporates a qualified privilege for sensitive commercial or financial information generated by the government. ⁽⁴⁴⁾ (For a further discussion of the "commercial privilege," see Exemption 5, Other Privileges, below.)

Documents prepared by the government can still come within Exemption 4, however, if they simply contain summaries or reformulations of information supplied by a source outside the government, ⁽⁴⁵⁾ or contain information obtained through a plant inspection. ⁽⁴⁶⁾ Moreover, the mere fact that the government supervises or directs the preparation of information submitted by sources outside the government does not preclude that information from being "obtained from a person." ⁽⁴⁷⁾ Similarly, the District Court for the District of Columbia has held that the fact that particular information is "arrived at through negotiation" with the government does not preclude it from being regarded as "obtained from a person." ⁽⁴⁸⁾

"Confidential" Information

The third requirement of Exemption 4 is met if information is "privileged or confidential." By far, most Exemption 4 litigation has focused on whether or not requested information is "confidential" for purposes of Exemption 4. In earlier years, courts based the application of Exemption 4 upon whether there was a promise of confidentiality by the government to the submitting party, ⁽⁴⁹⁾ or whether the information was of the type not customarily released to the public by the submitter. ⁽⁵⁰⁾

These earlier tests were then superseded by the rule of National Parks & Conservation Ass'n v. Morton, ⁽⁵¹⁾ long considered to be the leading case on the issue, which significantly altered the test for confidentiality under Exemption 4. In National Parks, the Court of Appeals for the District of Columbia Circuit held that the test for confidentiality was an objective one. ⁽⁵²⁾ Thus, whether information would customarily be disclosed to the public by the person from whom it was obtained was not considered dispositive. ⁽⁵³⁾ Likewise, an agency's promise that information would not be released was not considered dispositive. ⁽⁵⁴⁾ Instead, the D.C. Circuit declared in National Parks that the term "confidential" should be read to protect governmental interests as well as private ones, according to the following two-part test:

To summarize, commercial or financial matter is "confidential" for purposes of the exemption if disclosure of the information is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained. ⁽⁵⁵⁾

These two principal Exemption 4 tests, which apply disjunctively, have often been referred to in subsequent cases as the "impairment prong" and the "competitive harm prong." In National Parks, the D.C. Circuit expressly reserved the question of whether any other governmental interests -- such as compliance or program effectiveness -- might also be embodied in a "third prong" of the exemption. ⁽⁵⁶⁾ (For a further discussion of this point, see Exemption 4, Third Prong of National Parks, below.)

Seventeen years later, in a surprising development, D.C. Circuit Court Judge Randolph, joined by Circuit Court Judge Williams, suggested in a concurring opinion in Critical Mass Energy Project v. NRC, that if it were a question of first impression, they would "apply the common meaning of [the word] 'confidential' and [would] reject" the National Parks test altogether. ⁽⁵⁷⁾ Judges Randolph and Williams contended that there was no "legitimate basis" for the D.C. Circuit's addition of "some two-pronged 'objective' test" for determining if material was "confidential" in light of the unambiguous language of the exemption. ⁽⁵⁸⁾ Nevertheless, they recognized that they "were not at liberty" to apply their "common sense" definition because the D.C. Circuit had "endorsed the National Parks definition many times," thus compelling them to follow it as well. ⁽⁵⁹⁾ Thereafter, the government petitioned for, and was granted, an en banc rehearing in Critical Mass ⁽⁶⁰⁾ so that the full D.C. Circuit could have an opportunity to consider whether the definition of confidentiality set forth in National Parks -- and followed by the panel majority in Critical Mass -- was indeed faithful to the language and legislative intent of Exemption 4. ⁽⁶¹⁾

More than a decade ago, the D.C. Circuit issued its en banc decision in Critical Mass. After examining the "arguments in favor of overturning National Parks, [the court] conclude[d] that none justifies the abandonment of so well established a precedent." ⁽⁶²⁾ This ruling was founded on the principle of stare decisis -- which counsels against the overruling of an established precedent. ⁽⁶³⁾ The D.C. Circuit determined that "[i]n obedience to" stare decisis, it would not "set aside circuit precedent of almost twenty years' standing." ⁽⁶⁴⁾ In so holding, it noted the "widespread acceptance of National Parks by [the] other circuits," the lack of any subsequent action by Congress that would remove the "'conceptual underpinnings'" of the decision, and the fact that the test had not proven to be "so flawed that [the court] would be justified in setting it aside." ⁽⁶⁵⁾

Although the National Parks test for confidentiality under Exemption 4 was thus reaffirmed, the full D.C. Circuit went on to "correct some misunderstandings as to its scope and application." ⁽⁶⁶⁾ Specifically, the court "confined" the reach of National Parks and established an entirely new standard to be used for determining whether information "voluntarily" submitted to an agency is "confidential." ⁽⁶⁷⁾ The United States Supreme Court declined to review the D.C. Circuit's en banc decision ⁽⁶⁸⁾ and it thus stands as the leading Exemption 4 case on this issue. ⁽⁶⁹⁾ Indeed, almost ten years after rendering its decision, the D.C. Circuit remarked that it had had numerous occasions to address the applicable standards to be used under Exemption 4, but by far "[t]he judgment of the court sitting en banc in Critical Mass [was its] most significant statement on the subject." ⁽⁷⁰⁾

The Critical Mass Decision

Through its en banc decision in Critical Mass Energy Project v. NRC, a seven-to-four majority of the Court of Appeals for the District of Columbia Circuit established two distinct standards to be used in determining whether commercial or financial information submitted to an agency is "confidential" under Exemption 4. ⁽⁷¹⁾ Specifically, the tests for confidentiality set forth in National Parks & Conservation Ass'n v. Morton, ⁽⁷²⁾ were confined "to the category of cases to which [they were] first applied; namely, those in which a FOIA request is made for financial or commercial information a person was obliged to furnish the Government." ⁽⁷³⁾ The D.C. Circuit announced an entirely new test for the protection of information that is "voluntarily" submitted: Such information is now categorically protected provided it is not "customarily" disclosed to the public by the submitter. ⁽⁷⁴⁾

In reaching this result, the D.C. Circuit first examined the bases for its decision in National Parks and then identified various interests of both the government and submitters of information that are protected by Exemption 4. ⁽⁷⁵⁾ By so doing, it found that different interests are implicated depending upon whether the requested information was submitted voluntarily or under compulsion. ⁽⁷⁶⁾ As to the government's interests, the D.C. Circuit found that when submission of the information is "compelled" by the government, the interest protected by nondisclosure is that of ensuring the continued reliability of the information. ⁽⁷⁷⁾ On the other hand, it concluded, when information is submitted on a "voluntary" basis, the governmental interest protected by nondisclosure is that of ensuring the continued and full availability of the information. ⁽⁷⁸⁾

The D.C. Circuit found that this same dichotomy between compelled and voluntary submissions applies to the submitter's interests as well: When submission of information is compelled, the harm to the submitter's interest is the "commercial disadvantage" that is recognized under the National Parks "competitive injury" prong. ⁽⁷⁹⁾ When information is volunteered, on the other hand, the exemption recognizes a different interest of the submitter, that of protecting information that "for whatever reason, 'would customarily not be released to the public by the person from whom it was obtained.'" ⁽⁸⁰⁾

Having delineated these various interests that are protected by Exemption 4, the D.C. Circuit then noted that the Supreme Court had "encouraged the development of categorical rules" in FOIA cases "whenever a particular set of facts will lead to a generally predictable application." ⁽⁸¹⁾ The court found that the circumstances of the Critical Mass case -- which involved voluntarily submitted reports -- lent themselves to such "categorical" treatment. ⁽⁸²⁾

Accordingly, the D.C. Circuit held that it was reaffirming the National Parks test for "determining the confidentiality of information submitted under compulsion," but was announcing a categorical rule for the protection of information provided on a voluntary basis. ⁽⁸³⁾ It declared that such voluntarily provided information is "'confidential' for the purpose of Exemption 4 if it is of a kind that would customarily not be released to the public by the person from whom it was obtained." ⁽⁸⁴⁾ It also emphasized that this categorical test for voluntarily submitted information is "objective" and that the agency invoking it "must meet the burden of proving the provider's custom." ⁽⁸⁵⁾

Applying this test to the information at issue in the Critical Mass case, the D.C. Circuit agreed with the district court's conclusion that the reports were commercial in nature, that they were provided to the agency on a voluntary basis, and that the submitter did not customarily release them to the public. ⁽⁸⁶⁾ Thus, the reports were found to be confidential and exempt from disclosure under this new test for Exemption 4. ⁽⁸⁷⁾

The D.C. Circuit concluded its opinion by observing the objection raised by the requester in the case that the new test announced by the court "may lead government agencies and industry to conspire to keep information from the public by agreeing to the voluntary submission of information that the agency has the power to compel." ⁽⁸⁸⁾ The court dismissed this objection on the grounds that there is "no provision in FOIA that obliges agencies to exercise their regulatory authority in a manner that will maximize the amount of information that will be made available to the public through that Act" and that it did not "see any reason to interfere" with an agency's "exercise of its own discretion in determining how it can best secure the information it needs." ⁽⁸⁹⁾

The pivotal issue that has arisen as a result of the decision in Critical Mass Energy Project v. NRC, ⁽⁹⁰⁾ is the distinction that the court drew between information "required" to be submitted to an agency and information provided "voluntarily." Although the Court of Appeals for the District of Columbia Circuit never expressly articulated a definition of these two terms in its opinion in Critical Mass, the Department of Justice has issued policy guidance on this subject based upon an extensive analysis of the underlying rationale of the D.C. Circuit's decision, as well as several other indications of the court's intent. ⁽⁹¹⁾

The Department of Justice has concluded that a submitter's voluntary participation in an activity -- such as seeking a government contract or applying for a grant or a loan -- does not govern whether any submissions made in connection with that activity are likewise "voluntary." ⁽⁹²⁾ Rather than examining the nature of a submitter's participation in an activity, agencies are advised to focus on whether submission of the information at issue was required by those who chose to participate. ⁽⁹³⁾ The Department of Justice's policy guidance also points out that information can be "required" to be submitted by a broad range of legal authorities, including informal mandates that call for submission as a condition of doing business with the government. ⁽⁹⁴⁾ Furthermore, the existence of agency authority to require submission of information does not automatically mean such a submission is "required"; the agency authority must actually be exercised in order for a particular submission to be deemed "required." ⁽⁹⁵⁾ By consistently applying these principles to each item of information requested, agencies can best ensure that they are analytically distinguishing "voluntary" submissions from those that are "required," consistent with the D.C. Circuit's direction that the test is "objective." ⁽⁹⁶⁾

The D.C. Circuit rendered its first decision containing an extensive analysis of Critical Mass just three years ago, in a case that did "not involve a typical voluntary information submission," but instead involved what the court characterized as a "mistaken submission." ⁽⁹⁷⁾ The case, Center for Auto Safety v. National Highway Traffic Safety Administration, concerned an agency "Information Request" that was issued to airbag manufacturers and importers, which "appeared mandatory on its face." ⁽⁹⁸⁾ Not only did the request state that the agency "require[d]" submission of the specified information, it also included language indicating that "[f]ailure to respond promptly and fully . . . could subject [the recipient] to civil penalties." ⁽⁹⁹⁾ Despite all of this, the D.C. Circuit upheld the district court's determination that this agency request had been issued in violation of the Paperwork Reduction Act, ⁽¹⁰⁰⁾ because the agency had failed to "obtain prior approval from OMB." ⁽¹⁰¹⁾ As a result, the court held, the request could "be ignored without penalty," could not be enforced by the agency, and consequently could not "be considered mandatory." ⁽¹⁰²⁾

In making this determination, the D.C. Circuit held that "actual legal authority, rather than the parties' beliefs or intentions, governs judicial assessments of the character of submissions." ⁽¹⁰³⁾ The court "reject[ed] the argument" that it "should look to subjective factors," such as the submitting parties' beliefs, or "whether the agency, at the time it issued the request for information, considered the request to be mandatory." ⁽¹⁰⁴⁾ Such a focus on the "parties' intentions," it declared, "would cause the court to engage in spurious inquiries into the mind" and would be at odds with the decision in Critical Mass, which emphasized that "the voluntary versus mandatory distinction [is] an objective test." ⁽¹⁰⁵⁾

In Center for Auto Safety the D.C. Circuit also rejected the "argument that if a recipient does not assert that a submission is voluntary before submitting" requested information, it has somehow "waived" its ability to assert that the submission was voluntary. ⁽¹⁰⁶⁾ This approach, too, was found to be at odds with Critical Mass, which recognized "an important policy interest in minimizing resistance" to agency requests for information. ⁽¹⁰⁷⁾ Any agency insistence that submitters "identify and air legal objections" before responding to an agency's request for information would, the court found, "tend to frustrate" submitter cooperation. ⁽¹⁰⁸⁾ The D.C. Circuit concluded that in this case, "the agency essentially 'flashed its badge' to gain entrance to a private sphere when it had no legal authority to do so," and that "[g]iven this unusual situation" it could not "treat the submissions as 'mandatory.'" ⁽¹⁰⁹⁾

When presented with a case involving virtually the opposite factual situation, the District Court for the District of Columbia applied this "objective test" and held that a submission made by a grant recipient was "required" -- even though it was submitted in response to an agency letter that, on its face, "merely requested, but did not require," that the information be provided. ⁽¹¹⁰⁾ The district court rejected the agency's argument that it "'did not send th[e] letter under any statutory or regulatory authority,'" that it did not consider it a "'demand [or] a threat,'" and that it viewed its letter as "'merely a request for information.'" ⁽¹¹¹⁾ Rather, the court declared, it would "not attempt to discern the authors' intent in sending the letter" -- as the agency urged it to do -- "because [that] would require the [c]ourt to employ the exact [subjective] approach rejected by the Court of Appeals" in Center for Auto Safety. ⁽¹¹²⁾ Examining the submission under an "objective test," the court concluded that because the agency had by regulation a "right of access" to any relevant documents maintained by grant recipients, it did in fact have "the legal authority to compel" the requested grant recipient's response. ⁽¹¹³⁾ Moreover, the court found, the letter sent to the grant recipient sufficed as the agency's "exercise" of that authority. ⁽¹¹⁴⁾ Accordingly, the court refused to look at the agency's subjective intent in sending the letter, and it held that because "the agency here did in fact send a letter requesting information that it had the legal authority to compel," the submission "was required." ⁽¹¹⁵⁾

In a recent decision that relied extensively on the approach adopted by the D.C. Circuit in Center for Auto Safety, the District Court for the District of Columbia rejected the requester's argument that draft severance agreements provided by a Deputy Secretary nominee "were not voluntarily provided" to the agency, and instead it found particularly "persuasive" the agency's argument that although it had authority to require a nominee "to submit a description of [his] severance agreements," it had no "actual legal authority to compel him to submit" copies of them. ⁽¹¹⁶⁾ The agency explained that if it had found the nominee's description of a given severance agreement to be lacking, "'the most [it] could have required him to do was to provide a more detailed description of the agreement's terms.'" ⁽¹¹⁷⁾ In light of these facts, and utilizing "the objective test set forth in Center for Auto Safety," the court concluded that submission of the requested draft severance agreements themselves "must be considered voluntary." ⁽¹¹⁸⁾

There are numerous other district court decisions that have applied the Critical Mass distinction between "voluntary" and "required" submissions. In one of the first such cases, involving an application for approval to transfer a contract, the District Court for the District of Columbia found that the submission had been required both by the agency's statute -- which did not, on its face, apply to the submission at issue, but was found to apply based upon the agency's longstanding practice of interpreting the statute more broadly -- and by the agency's letter to the submitters which required them to "submit the documents as a condition necessary to receiving approval of their application." ⁽¹¹⁹⁾ Using the same approach as the Department of Justice's Critical Mass guidance, the court specifically held that "[u]nder Critical Mass, submissions that are required to realize the benefits of a voluntary program are to be considered mandatory." ⁽¹²⁰⁾ Similarly, when the FDA conditioned its approval of a new drug on the manufacturer's submission of a post-marketing study, the protocol for that study (i.e., its design, hypotheses, and objectives) was deemed a required submission (even in the absence of agency regulations requiring manufacturers to conduct such post-marketing studies) because submission for that particular manufacturer had, in fact, been "necessary in order to obtain FDA approval" for the drug and that rendered it "required." ⁽¹²¹⁾

In another case which also used the same approach as the Department of Justice's Critical Mass guidance, the District Court for the District of New Jersey found that when a submitter provided documents to agency officials during a meeting concerning its tax status, it did so voluntarily, because "if the submission of the documents were obligatory, there would be a controlling statute, regulation or written order." ⁽¹²²⁾ In the absence of any such "mandate," the court concluded that the submission was voluntary. ⁽¹²³⁾

In that case, the court rejected an argument advanced by the requester that despite the absence of a mandate requiring the submission, the court should "rule as a matter of law" that the documents were "required" to be submitted because submission was for the "benefit" of the submitter. ⁽¹²⁴⁾ Finding that such an approach "results in putting the cart before the horse," the court noted that in Critical Mass, the D.C. Circuit decided first whether a submission was voluntary and only then did it apply the "less stringent standard for nondisclosure under the FOIA as an incentive for voluntary submitters to provide accurate and reliable information." ⁽¹²⁵⁾ The requester's proposed test was "flawed," the court found, because it relied "too heavily on hindsight" and the court could "envision cases where someone at the time of submitting the documents is clearly doing so on a voluntary basis, but when a benefit analysis . . . is performed thereafter, the incorrect result is reached that the submission was compulsory." ⁽¹²⁶⁾

Earlier this year, the District Court for the District of Columbia readily found documents provided by three different companies all to have been "voluntarily submitted," based primarily upon the representations made to the agency by the companies. ⁽¹²⁷⁾ The court noted that the first submitter had "informed" the agency that its documents were provided "'as a voluntary public service with the view that these independent studies might be useful.'" ⁽¹²⁸⁾ Similarly, the second submitter had "indicated" that its document was provided voluntarily "in order to resolve disputes with the government." ⁽¹²⁹⁾ By contrast, the third submitter admitted that it was not "'certain[]'" how the agency "'came into possession of the report,'" but was able to state that the report had not been "'requested'" or paid for by any federal agency and that it did know that it had sent "courtesy" copies of it "to various government officials." ⁽¹³⁰⁾ Despite the requester's argument that as to this third submission the agency was unable to "state specifically how" the report was "obtained by the government," the court "agree[d]" with the agency's "conclusion" -- which was based upon the submitter's representations -- that the documents were indeed "voluntarily provided." ⁽¹³¹⁾

Another submission was deemed to be "voluntary" in a case involving a submitter which promptly "cooperated with agency officials" and provided agency inspectors "all the information" they requested "prior to the issuance of any subpoenas or warrants," which in turn ensured that the investigation "was neither delayed nor impeded in any manner." ⁽¹³²⁾ In yet another case, a submission was found to be "voluntary" where the requester sought copies of the comments that a submitter had provided to the agency in response to the notice that it had been given concerning a FOIA request that had been made for its information. ⁽¹³³⁾ In finding that such comments had been "voluntarily submitted" to the agency, the court focused on the agency's submitter-notice regulations and found that they "clearly did not require . . . [the submitter] to provide any comments whatsoever." ⁽¹³⁴⁾ The court noted that under those regulations, the failure to submit objections to the disclosure of requested information did "not constitute a waiver" and that the agency was still obligated to review the information to determine whether release was appropriate. ⁽¹³⁵⁾

Other agencies do, in fact, expressly require submitters of information to provide comments if they have any objection to disclosure of their information in response to a FOIA request. ⁽¹³⁶⁾ Such an approach is consistent with the submitter-notification process mandated by Executive Order 12,600, ⁽¹³⁷⁾ and it ensures that when an agency is analyzing sensitive business information for Exemption 4 applicability it has the benefit of the submitter's expertise and viewpoint. ⁽¹³⁸⁾ (These "required" submitter comments are themselves, of course, still entitled to all available Exemption 4 protection under the several tests for confidentiality set out in National Parks & Conservation Ass'n v. Morton. ⁽¹³⁹⁾ For a complete discussion of these tests, see Exemption 4, Impairment Prong of National Parks; Exemption 4, Competitive Harm Prong of National Parks; and Exemption 4, Third Prong of National Parks, below.)

There have been other decisions in which the wording of an agency's regulation was the key factor in determining whether a submission was "voluntary." The District Court for the District of Columbia has held that an agency properly determined that certain information relating to proposed pipeline projects was submitted "voluntarily," because the agency's regulations detailed specific items that were "required" to be included in the pipeline right-of-way applications, but then also specified items that an applicant "may submit" to "assist" in the processing of the application. ⁽¹⁴⁰⁾ Because the information at issue did not fall within the list of items "required" for an application, the court concluded that it was "submitted voluntarily." ⁽¹⁴¹⁾

In another case that turned on the wording of an agency's regulation, the same court found that the agency had demonstrated that the submission of information by kidney dialysis centers was voluntary and that the regulation relied on by the requester -- in support of its contention that the submission was required -- did not actually "require" the centers "to provide any particular information" and instead merely stated, "without further elaboration," that information "must be provided in the manner specified" by the agency's Secretary. ⁽¹⁴²⁾ In that regard, the court found persuasive the agency's declaration that stated "unequivocally that the information was produced voluntarily and not subject to a statutory requirement." ⁽¹⁴³⁾ By contrast, summary judgment was denied in another case when the agency's declaration entirely failed to indicate how the agency had received the requested documents. ⁽¹⁴⁴⁾

In a ruling that arguably takes the characterization of "voluntary" to its outermost reaches, the District Court for the Eastern District of Missouri held that a submission was voluntary even though the agency not only had the authority to issue a subpoena for the documents, but had in fact exercised that authority by actually issuing such a subpoena. ⁽¹⁴⁵⁾ The court flatly rejected the agency's argument that the issuance of the subpoena rendered the submission "required," finding that that "conclusion ignore[d] the fact that subpoenaed parties may challenge [the subpoena], both administratively and through objections to enforcement proceedings." ⁽¹⁴⁶⁾ Although no challenge to the subpoena was actually brought, the court found it "highly likely" that such a challenge would have been successful given the fact that the court had previously ruled that the same documents were privileged and hence did not have to be disclosed to private parties who were in litigation with the submitter. ⁽¹⁴⁷⁾ "This," the court declared, "shows that the production in fact was voluntary, not required." ⁽¹⁴⁸⁾

Significantly, the District Court for the District of Columbia has issued a total of seven decisions that all hold -- consistent with the Department of Justice's policy guidance on this issue -- that prices submitted in conjunction with a government contract are "required" submissions. ⁽¹⁴⁹⁾ In the first of these decisions, the court held that the submitter "had no choice but to submit the unit price information once it chose to submit its proposal," as the terms of the Request for Proposals (RFP) "compelled [it] to submit its unit prices." ⁽¹⁵⁰⁾ Relying on that decision, the court reiterated in the second case that a contract "bidder only provides confidential information because the agency requires it [and that] once a firm has elected to bid, it must submit the mandatory information if it hopes to win the contract." ⁽¹⁵¹⁾

In the third decision (which was subsequently vacated when the FOIA request was withdrawn while the case was on appeal), ⁽¹⁵²⁾ the court again relied on the terms of the agency's RFP, which, it noted, "used language of compulsion in reference to pricing information." ⁽¹⁵³⁾ There, the court also rejected as "temptingly simple" the submitter's argument that because it "did not have to enter into a contract, no information within the contract [should] be considered mandatory." ⁽¹⁵⁴⁾ This "rather simplistic approach" was flatly rejected by the court as it "would result in classifying all government contractors as per se volunteers whose pricing information could easily be withheld from the public domain." ⁽¹⁵⁵⁾

In the fourth decision, after analyzing the Critical Mass decision, the court expressly concluded "as a matter of law" that "the price elements necessary to win a government contract are not voluntary." ⁽¹⁵⁶⁾ Once again faced with an argument by the submitter that its submission of a proposal and its entry into a government contract were "obviously voluntary acts," the court found that such contentions were simply "inapposite." ⁽¹⁵⁷⁾ Declaring that "no one disputes that the process of offer and acceptance giving rise to contractual obligations is voluntary," the court held that the "focal point" must be "the information itself" and that there was no question that the agency "required that the contract itemize the prices for specific services." ⁽¹⁵⁸⁾ The court then went on to somewhat sarcastically note that the submitter was "not doing the government a favor by providing the most basic information in a contract -- price" -- and it then observed that if "contractors want to win lucrative government contracts they must provide [agencies] with specific pricing elements for their goods and services." ⁽¹⁵⁹⁾

In the fifth decision, the court held that although the D.C. Circuit "has yet to address the issue, district court precedent in this Circuit uniformly and firmly points to the conclusion that the financial/commercial information found in the [submitter's] contracts was 'required' in the National Parks sense of the term by [the] Federal Acquisition Regulation[] . . . and therefore [was] subject to the National Parks test." ⁽¹⁶⁰⁾ In so holding, the district court again noted that "[w]hether to compete for [the agency's] business at all was, of course, [the submitter's] option, but having elected to do so it was required to submit the information [the agency] insisted on having if it hoped to win the contract." ⁽¹⁶¹⁾

The court relied on this case law in the sixth decision and held that "the relevant inquiry is whether the specific price elements and other information provided by [the submitter] were required to be submitted before [the agency] would award the contract." ⁽¹⁶²⁾ Because the contract solicitation "included several statements indicating that bidders must submit certain information," the court determined that the agency "did not exceed the bounds of reasonableness in concluding that [the submitter] was 'required' to submit" the requested pricing information. ⁽¹⁶³⁾

Finally, in the most recent of these decisions, the court readily upheld the agency's determination that the requested contract pricing information was "not provided voluntarily." ⁽¹⁶⁴⁾ After finding that the submitter "was required to provide its cost and pricing information in order to complete the Air Force's Request for Proposal and be considered for the contract," the court reasoned that such a "factual situation is distinctly different" from that presented in the Critical Mass case, where information had been volunteered "despite the fact that the disclosing entity was under no obligation to provide the government with information." ⁽¹⁶⁵⁾ By contrast, the court firmly held, "[b]ecause contractors are required to submit cost and pricing information if they wish to bid on a government contract, cases in this district have found price and cost requirements to be compulsory, not voluntary, submissions." ⁽¹⁶⁶⁾

Two other recent decisions by the District Court for the District of Columbia -- while not directly ruling on the issue -- continue this cogent line of reasoning. In one case, in the course of distinguishing rebate and incentive information from unit prices, the court declared that "it is beyond dispute that unit pricing data is required to be submitted in order to compete for a government contract." ⁽¹⁶⁷⁾ In the other case, the court, while holding that computer matrices containing millions of pricing elements were not unit prices, nonetheless conducted an alternative analysis as if they were -- and it did so by utilizing the National Parks competitive harm test, after earlier describing the matrices' submission to the agency as having been "required" in order to obtain the contract. ⁽¹⁶⁸⁾

The District Courts for the Eastern District of Missouri ⁽¹⁶⁹⁾ and the District of Colorado ⁽¹⁷⁰⁾ likewise have ruled that contract submissions were not provided voluntarily and that, as a consequence, the greater protection afforded by Critical Mass for voluntary submissions was not applicable. In so holding, the Colorado court also specifically rejected the argument advanced by the submitter that because it had "voluntarily entered into the contract with the Government" the contract submission should be considered "voluntary." ⁽¹⁷¹⁾ In contrast, two cases decided in the Eastern District of Virginia immediately after Critical Mass reached the opposite conclusion and held that contract submissions were voluntarily provided. ⁽¹⁷²⁾ (As noted below, however, one of those cases later was expressly repudiated by a subsequent court in that same district for failing to provide any justification whatsoever for its conclusion. ⁽¹⁷³⁾)

Two years after the decision in Critical Mass, a case involving government contract prices reached the D.C. Circuit -- after having been decided by the lower court prior to the Critical Mass decision. ⁽¹⁷⁴⁾ The D.C. Circuit, however, elected not to opine on the meaning of Critical Mass, or its applicability to government contract submissions, and instead remanded the case to the district court with instructions for that court to "reexamine the applicability of exemption 4 to the contract prices at issue under our holding in Critical Mass." ⁽¹⁷⁵⁾ (On remand, the district court found Critical Mass to be inapplicable to a government contract submission. ⁽¹⁷⁶⁾) Similarly, another case was remanded back to the agency -- which had made its Exemption 4 determination prior to the issuance of Critical Mass -- so that any voluntarily submitted information could be identified and then analyzed under the Critical Mass standards. ⁽¹⁷⁷⁾

In McDonnell Douglas Corp. v. NASA, the D.C. Circuit once again eschewed an opportunity to analyze this issue. ⁽¹⁷⁸⁾ Although the submitter argued that "its submission of bidding information [was] part and parcel of the voluntary act of submitting a bid," the D.C. Circuit found that it was not necessary to decide that issue because "assuming arguendo" that the submission was "required," the court "believe[d that] the disputed line item price information [was] confidential commercial or financial information under the National Parks test" in any event. ⁽¹⁷⁹⁾

There now have been two decisions by the District Court for the District of Columbia that have differentiated between discrete items contained in a government contract. In the first case, the court found that General and Administrative (G & A) rate ceilings were voluntarily provided to the government even though submission of actual G & A rates was "undisputed[ly] . . . a mandatory component" of an offeror's submission. ⁽¹⁸⁰⁾ In so holding, the court rejected the agency's argument that because "submission of a cost proposal, including actual G & A rates was mandatory in order to compete for the contract," the G & A rate ceilings -- which had been requested by the contracting officer during negotiations -- "were also a mandatory part of the cost proposal." ⁽¹⁸¹⁾ Because the contract solicitation was "silent as to G & A rate ceilings," and in the absence of any firm evidence that the submitter "was required to provide G & A rate ceilings in order to continue to compete for the contract," the court concluded that their submission had been voluntary. ⁽¹⁸²⁾

Relying on this decision, the court in the second such case similarly rejected the agency's argument that "'all of the information submitted in an effort to win a government contract should be viewed as having been required by the contract solicitation.'" ⁽¹⁸³⁾ Instead, the court distinguished those items that the contract solicitation stated "should" be included in a proposal from those that the solicitation stated "must" be included. ⁽¹⁸⁴⁾ The court found that the rebate and incentive information at issue "may have made the bid more appealing or valuable to the government," but because it was not included within the list of items that the solicitation stated "must" be provided, it "was not required to be submitted within the meaning of Critical Mass." ⁽¹⁸⁵⁾

Other cases decided subsequent to Critical Mass have applied the voluntary/required distinction, but they have done so with only limited rationale or analysis for their conclusions on this pivotal issue. Instead, the information at issue was summarily found either to have been voluntarily provided ⁽¹⁸⁶⁾ or, conversely, to have been required to be submitted. ⁽¹⁸⁷⁾ The D.C. Circuit had occasion to review one of these cases on appeal, but its unpublished opinion did not provide any further guidance on the Critical Mass distinction and instead merely affirmed the lower court's already terse decision on that point. ⁽¹⁸⁸⁾

In a case involving rather unusual factual circumstances, the District Court for the District of Columbia discussed the applicability of the Critical Mass distinction to documents that had been provided to the agency not by their originator, but as a result of the unauthorized action of a confidential source. ⁽¹⁸⁹⁾ Although these documents were not actually at issue in the case, the court nevertheless elected to analyze their status under Critical Mass. ⁽¹⁹⁰⁾ The court first noted that the decision in Critical Mass provided it with "little guidance" as those documents "had been produced voluntarily by the originator, without any intervening espionage." ⁽¹⁹¹⁾ The court nevertheless opined that in its case "the secret, unauthorized delivery" of the documents at issue made the submission "'involuntary' in the purest sense," but that application of the "more stringent standard for involuntary transfer would contravene the spirit" of Critical Mass. ⁽¹⁹²⁾ Thus, the court declared that in such circumstances the proper test for determining the confidentiality of the documents should be the "more permissive standard" of Critical Mass, i.e., protection would be afforded if the information was of a kind that is not customarily released to the public by the submitter. ⁽¹⁹³⁾

The District Courts for the District of Maine, the Eastern District of Virginia, and most recently for the Southern District of New York and the Central District of California all have issued decisions that expressly declined to consider the possible applicability of Critical Mass to the information at issue because the Critical Mass distinction has not yet been adopted by their respective courts of appeals. ⁽¹⁹⁴⁾ In so holding, the District Court for the Eastern District of Virginia noted that although a previous decision arising out of that same district had, in fact, "adopted the Critical Mass test," in its view that earlier opinion "provided little justification for its conclusion"; therefore, the court "decline[d] to follow" it. ⁽¹⁹⁵⁾ The District Court for the Southern District of New York similarly acknowledged that other courts in that district "have cited Critical Mass with approval," but nonetheless expressed the view that those other decisions gave "little justification for their conclusion." ⁽¹⁹⁶⁾

Years earlier, using a strictly pragmatic approach, the District Court for the Southern District of New York declared that it "need not decide whether Critical Mass is governing law in the Second Circuit" because the records at issue -- which were acquired by the FDIC by operation of law when it became receiver of a failed financial institution -- were "not produced voluntarily [and so] the Critical Mass standard simply [did] not apply." ⁽¹⁹⁷⁾ On appeal, the Court of Appeals for the Second Circuit agreed with the lower court on this point, stating that because the records at issue were not provided voluntarily, the Critical Mass test simply was "irrelevant to the issue presented" by the appeal. ⁽¹⁹⁸⁾ Similarly, the Court of Appeals for the Ninth Circuit has observed that the Critical Mass distinction between voluntary and required submissions "becomes relevant only when information is submitted to the government voluntarily." ⁽¹⁹⁹⁾ Finding that the records at issue in the case before it were required to be submitted by the terms of the agency's contract solicitation, the Ninth Circuit declared that in light of that fact, it "need not address" the Critical Mass distinction. ⁽²⁰⁰⁾ More recently, the Court of Appeals for the Fourth Circuit declined to "decide which test governs within" that circuit, in a case where it found the requested information to be properly withheld under Exemption 3 of the FOIA, ⁽²⁰¹⁾ which obviated any "need to reach the issue of Exemption 4's applicability." ⁽²⁰²⁾

By contrast, using language that denoted its approval of the Critical Mass distinction, the Court of Appeals for the Tenth Circuit began its analysis in a case by citing to Critical Mass and then declaring that the "first step in an Exemption Four analysis is determining whether the information submitted to the government agency was given voluntarily or involuntarily." ⁽²⁰³⁾ Like the decisions in the Second and Ninth Circuits, however, the Tenth Circuit had no opportunity to actually address the application of the standard, because the parties agreed that the submission in question was in fact "an involuntary one." ⁽²⁰⁴⁾

Under Critical Mass, once information is determined to be voluntarily provided, it is afforded protection as "confidential" information "if it is of a kind that would customarily not be released to the public by the person from whom it was obtained." ⁽²⁰⁵⁾ The D.C. Circuit observed in Critical Mass that this test was "objective" and that the agency invoking it "must meet the burden of proving the provider's custom." ⁽²⁰⁶⁾ The subsequent cases that have applied this "customary treatment" standard to information found to have been voluntarily submitted typically contain only perfunctory discussions of the showing necessary to satisfy it. ⁽²⁰⁷⁾

Nevertheless, there are several decisions that contain a more detailed analysis of the standard. Most recently, the evidence that was provided to demonstrate the submitter's customary treatment consisted of a declaration from the submitter that averred that the company considered the documents to be "'proprietary financial information that it [had] never made available to the public,'" and that it had provided them to the agency "only after" receiving assurances that they "would remain confidential." ⁽²⁰⁸⁾ Similarly, the standard was found satisfied by the attestations made by submitters that described the limited distribution within the company on a "need to know" basis and attached as exhibits the confidentiality agreements that were entered into with outside contractors. ⁽²⁰⁹⁾ In another case, the evidence identified by the court to establish customary treatment consisted of a consulting contract, a protective order, and markings on the documents -- which the court deemed "most persuasive." ⁽²¹⁰⁾ Similarly, the submitter's practice of "carefully guard[ing]" disclosure of the documents "even within the corporate structure," the markings on the documents, and the fact that the company "strenuously, and successfully, opposed their production in discovery in multiple civil cases" was found to establish customary treatment. ⁽²¹¹⁾

In yet another case, the court found the standard satisfied by attestations made in agency affidavits, coupled with a detailed description of the documents that "reveal[ed] that they contain material that would not ordinarily be divulged to the general public." ⁽²¹²⁾ Lastly, a court provided useful elaboration on this issue by specifically noting and then rejecting as "vague hearsay," the requester's contention that there had been "prior, unrestricted disclosure" of the information at issue. ⁽²¹³⁾ In so doing, the court expressly found the requester's evidence to be "nonspecific" and lacking precision "regarding dates and times" of the alleged disclosures; conversely, it noted that the submitter had "provided specific, affirmative evidence that no unrestricted disclosure" had occurred. ⁽²¹⁴⁾ Accordingly, the court concluded that it had been "amply demonstrated" that the information satisfied the "customary treatment" standard of Critical Mass. ⁽²¹⁵⁾

In the course of remanding another case for further proceedings based on the district court's "flawed" application of the "customary treatment" standard, ⁽²¹⁶⁾ the D.C. Circuit nonetheless addressed several contentions concerning the standard. First, the court flatly rejected "the argument that the mere selling [of] a product on the open market can constitute evidence of customary disclosure." ⁽²¹⁷⁾ Second, it rejected the argument "that a difference in level of detail is inadequate to establish a difference in type of information," finding instead that "substantial differences in level of detail can produce a difference in type of information." ⁽²¹⁸⁾ Finally, the D.C. Circuit directed the district court to review the submitters' declarations "and any other relevant responses" that they might supply, thereby endorsing the use of, and reliance upon, submitter declarations to establish customary treatment. ⁽²¹⁹⁾

In creating this "customary treatment" standard, the D.C. Circuit in Critical Mass articulated the test as dependent upon the treatment afforded the information by the individual submitter and not the treatment afforded the information by an industry as a whole. ⁽²²⁰⁾ This approach has been followed by all the cases applying the "customary treatment" standard thus far, although one court also found it "relevant" that the requester -- who was a member of the same industry as the submitters -- had, "up until the eve of trial," taken the position that the type of information at issue ought not to be released. ⁽²²¹⁾ Further, as applied by the D.C. Circuit in Critical Mass, the "customary treatment" standard allows for some disclosures of the information to have been made, provided that such disclosures were not made to the general public. ⁽²²²⁾

As a matter of sound administrative practice, the Department of Justice has advised agencies to employ procedures analogous to those set forth in Executive Order 12,600 ⁽²²³⁾ when making determinations under the "customary treatment" standard. ⁽²²⁴⁾ (For further discussions of this executive order and its requirements, see Exemption 4, Competitive Harm Prong of National Parks, and "Reverse" FOIA, Executive Order 12,600, below.) Accordingly, whenever an agency is uncertain of a submitter's customary treatment of requested information, the submitter should be notified and given an opportunity to provide the agency with a description of its treatment of the information, including any disclosures that are customarily made and the conditions under which such disclosures occur. ⁽²²⁵⁾

Impairment Prong of National Parks

For information that is "required" to be submitted to an agency, the Court of Appeals for the District of Columbia Circuit has held that the tests for confidentiality originally established in National Parks & Conservation Ass'n v. Morton ⁽²²⁶⁾ continue to apply. ⁽²²⁷⁾ The first of these tests, the impairment prong, traditionally has been found to be satisfied when an agency demonstrates that the information at issue was provided voluntarily and that submitting entities would not provide such information in the future if it were subject to public disclosure. ⁽²²⁸⁾ Conversely, protection under the impairment prong traditionally has been denied when the court determines that disclosure will not, in fact, diminish the flow of information to the agency ⁽²²⁹⁾ -- for example, when it determines that the benefits associated with submission of particular information make it unlikely that the agency's ability to obtain future such submissions would be impaired. ⁽²³⁰⁾

Under the categorical test announced by the D.C. Circuit in Critical Mass Energy Project v. NRC, the voluntary character of an information submission is sufficient to render it exempt, provided the information would not be customarily released to the public by the submitter. ⁽²³¹⁾ (For a further discussion of this point, see Exemption 4, Applying Critical Mass, above.) In this regard, the D.C. Circuit has made it clear that an agency's unexercised authority, or mere "power to compel" submission of information, does not preclude such information from being provided to the agency "voluntarily." ⁽²³²⁾ This holding was compatible with several decisions rendered prior to Critical Mass that had protected information under the impairment prong despite the existence of agency authority that could have been used to compel its submission. ⁽²³³⁾

As a result of the D.C. Circuit's ruling in Critical Mass the significance of the impairment prong is undoubtedly diminished. ⁽²³⁴⁾ Nevertheless, the D.C. Circuit recognized that even when agencies require submission of information "there are circumstances in which disclosure could affect the reliability of such data." ⁽²³⁵⁾ Thus, after Critical Mass, the impairment prong of National Parks now applies to those more limited situations in which information is required to be provided, but where disclosure of that information under the FOIA will result in a diminution of the "reliability" or "quality" of what is submitted. ⁽²³⁶⁾

If an agency determines that release will not cause impairment, that decision should be given extraordinary deference by the courts. ⁽²³⁷⁾ In this regard there have been a few decisions addressing the feasibility of a submitter raising the issue of impairment on behalf of an agency. In one, the district court ruled that a submitter has "standing" to raise the issue of impairment. ⁽²³⁸⁾ Subsequently, however, the Court of Appeals for the Fourth Circuit refused to allow a submitter to make an impairment argument on the agency's behalf. ⁽²³⁹⁾ That appellate court decision was, in turn, subsequently relied on by a lower court which found that because "it is the government's interests that are protected" by the impairment prong, "it follows that it is the government that is best situated to make the determination of whether disclosure would inhibit future submissions." ⁽²⁴⁰⁾ That court reasoned that "it would be nonsense to block disclosure" of information "under the purported rationale of protecting government interests" when the government itself "wants to disclose" it. ⁽²⁴¹⁾

In Washington Post Co. v. HHS, the D.C. Circuit held that an agency must demonstrate that a threatened impairment is "significant," because a "minor" impairment is insufficient to overcome the general disclosure mandate of the FOIA. ⁽²⁴²⁾ Moreover, in Washington Post the D.C. Circuit held that the factual inquiry concerning the degree of impairment "necessarily involves a rough balancing of the extent of impairment and the importance of the information against the public interest in disclosure." ⁽²⁴³⁾ Because the case was remanded for further proceedings, the court found it unnecessary to decide the details of such a balancing test at that time. ⁽²⁴⁴⁾

Five years later, in the first panel decision in Critical Mass, the D.C. Circuit cited Washington Post to reiterate that a threatened impairment must be significant, but it made no mention whatsoever of a balancing test. ⁽²⁴⁵⁾ The notion of a balancing test was resurrected in a subsequent decision of the D.C. Circuit in the Washington Post case. ⁽²⁴⁶⁾ This time, the D.C. Circuit elaborated on the balancing test -- even suggesting that it might apply to all aspects of Exemption 4, not just the impairment prong -- and held that "information will be withheld only when the affirmative interests in disclosure on the one side are outweighed by the factors identified in National Parks I (and its progeny) militating against disclosure on the other side." ⁽²⁴⁷⁾ Because the case was remanded once again (and ultimately was settled), the court did not actually rule on the outcome of such a balancing process. ⁽²⁴⁸⁾

The district court decision in Critical Mass, on remand from the first panel decision of the D.C. Circuit, was the first decision to explicitly apply a balancing test under the impairment prong of Exemption 4. ⁽²⁴⁹⁾ (Other decisions have utilized or made reference to a balancing test in ruling under the competitive harm prong. For a further discussion of this point, see Exemption 4, Competitive Harm Prong of National Parks, below.) In Critical Mass, the district court held that a consumer organization requesting information bearing upon the safety of nuclear power plants had "no particularized need of its own" for access to the information and thus was "remitted to the general public interest in disclosure for disclosure's sake to support its request." ⁽²⁵⁰⁾ Although the court conceded that the public has an interest "of significantly greater moment than idle curiosity" in information concerning the safety of nuclear power plants, that same interest was shared by the NRC and the submitter of the information and their interest in preventing disclosure was deemed to be of "a much more immediate and direct nature." ⁽²⁵¹⁾ Curiously, when this decision in Critical Mass was subsequently reviewed by both a second panel of the D.C. Circuit and then by the entire D.C. Circuit sitting en banc, no mention was made of any balancing test under Exemption 4. ⁽²⁵²⁾

This issue appears to have been finally resolved by the D.C. Circuit in its decision in Public Citizen Health Research Group v. FDA. ⁽²⁵³⁾ There, the D.C. Circuit squarely rejected "a consequentialist approach to the public interest in disclosure" as "inconsistent with the '[b]alanc[e of] private and public interests' th[at] Congress struck in Exemption 4." ⁽²⁵⁴⁾ The court went on to state that "[t]hat balance is accurately reflected in the test of confidentiality" established by National Parks and that a requester cannot "bolster the case for disclosure by claiming an additional public benefit" in release. ⁽²⁵⁵⁾ "In other words," the D.C. Circuit declared, "the public interest side of the balance is not a function of the identity of the requester, . . . or of any potential negative consequences disclosure may have for the public, . . . nor likewise of any collateral benefits of disclosure." ⁽²⁵⁶⁾

Competitive Harm Prong of National Parks

The great majority of Exemption 4 cases have involved the competitive harm prong of the test for confidentiality established in National Parks & Conservation Ass'n v. Morton. ⁽²⁵⁷⁾ Information is "confidential" under this prong if disclosure "is likely . . . to cause substantial harm to the competitive position of the person from whom the information was obtained." ⁽²⁵⁸⁾ The Court of Appeals for the District of Columbia Circuit has "emphasize[d]" that the "'important point for competitive harm in the FOIA context . . . is that it be limited to harm flowing from the affirmative use of proprietary information by competitors'" and that this "'should not be taken to mean simply any injury to competitive position, as might flow from customer or employee disgruntlement.'" ⁽²⁵⁹⁾

In order for an agency to make a determination under this prong it is essential that the submitter of the requested information be given an opportunity to provide the agency with its views on the possible competitive harm that would be caused by disclosure. While such an opportunity had long been voluntarily afforded submitters by several agencies and had been recommended by the Department of Justice, ⁽²⁶⁰⁾ since 1987 it has been ex-pressly required by executive order.

Executive Order 12,600 ⁽²⁶¹⁾ provides for mandatory notification of submitters of confidential commercial information whenever an agency "determines that it may be required to disclose" such information under the FOIA. ⁽²⁶²⁾ Once submitters are notified, they must be given a reasonable period of time within which to object to disclosure of any of the requested information. ⁽²⁶³⁾ The executive order requires that agencies give careful consideration to the submitters' objections and provide them with a written statement explaining why any such objections are not sustained. ⁽²⁶⁴⁾ (For a further discussion of these procedures, see "Reverse" FOIA, Executive Order 12,600, below.)

As one court aptly emphasized, consultation with a submitter is "appropriate as one step in the evaluation process, [but it] is not sufficient to satisfy [an agency's] FOIA obligations." ⁽²⁶⁵⁾ Consequently, an agency is "required to determine for itself whether the information in question should be disclosed." ⁽²⁶⁶⁾ Indeed, when a submitter itself provided the requester with a copy of the requested document -- containing redactions made by the submitter, not by the agency -- the District Court for the District of Columbia held that the submitter's action "did not relieve" the agency of the obligation to make "an independent determination" as to the applicability of Exemption 4. ⁽²⁶⁷⁾ Without such an "independent assessment" by the agency "regarding the scope of [the submitter's] redactions," the court found that it could not properly make an Exemption 4 determination. ⁽²⁶⁸⁾

If an agency decides to invoke Exemption 4 and that decision is subsequently challenged in court by a FOIA requester, the submitter's objections to disclosure -- usually provided in an affidavit filed in conjunction with the agency's court papers, but sometimes provided separately if the submitter intervenes as a party in the lawsuit ⁽²⁶⁹⁾ -- will, in turn, be evaluated and relied upon by the court in determining the propriety of the exemption claim. ⁽²⁷⁰⁾ Courts have repeatedly rejected competitive harm claims -- and even have ordered disclosure -- when those claims were advanced by agencies on their own. ⁽²⁷¹⁾ The Court of Appeals for the Ninth Circuit did recently uphold a competitive harm determination that was justified solely by an agency declarant, but in doing so it emphasized that this particular agency declarant was ""very familiar'" with the industry at issue and that he had experience that "put him in 'almost daily contact' with" it, all of which was found to lend "considerable weight to his testimony." ⁽²⁷²⁾ "More importantly," the Ninth Circuit emphasized, in that case the agency declarant had supported his conclusions with "detailed and specific descriptions" of the withheld information, including "the ways in which each category of information could be turned to [the requester's] competitive advantage." ⁽²⁷³⁾

The courts have tended to resolve issues of competitive harm on a case-by-case basis rather than by establishing general guidelines. For example, in some contexts customer names have been withheld because disclosure would cause substantial competitive harm ⁽²⁷⁴⁾ and in other contexts customer names have been ordered released because disclosure would not cause substantial competitive harm. ⁽²⁷⁵⁾ Similarly, in one case the table of contents and introductions to certain documents were withheld because the court found that their disclosure would "provide valuable descriptions of proprietary information," ⁽²⁷⁶⁾ but in another case the court upheld an agency's decision to release a table of contents and other summary information because they revealed "only an outline" of the submitter's "operations and capabilities" and were "devoid of the detail which would be of value" to competitors. ⁽²⁷⁷⁾ The individualized and sometimes conflicting determinations indicative of competitive harm holdings is well illustrated in one case in which the D.C. Circuit originally affirmed a district court's decision which found that customer names of "CAT" scanner manufacturers were protected, ⁽²⁷⁸⁾ but subsequently vacated that decision upon the death of one of its judges. ⁽²⁷⁹⁾ On reconsideration, the newly constituted panel found that disclosure of the customer list raised a factual question as to the showing of competitive harm that precluded the granting of summary judgment after all. ⁽²⁸⁰⁾

Factual disputes concerning the likelihood that disclosure of requested information would cause competitive harm precluded a ruling on summary judgment motions in two cases decided seven years ago by the District Court for the District of Columbia. ⁽²⁸¹⁾ In the first case, after reviewing the "claims made by experts" representing both of the parties, the court concluded that because the claims were "contradictory," summary judgment was "an inappropriate vehicle" for resolution of the case, and the court instead scheduled a bench trial. ⁽²⁸²⁾ (The case ultimately was settled, however, and no trial took place. ⁽²⁸³⁾) In the second case, the court found that the rec-ord did "not present a clear picture as to the competitive injury, if any, that would result from releasing" the requested document -- a protocol (an outline of objectives and hypotheses) for a post-marketing study of a pharmaceutical drug. ⁽²⁸⁴⁾ Rather than proceeding to a trial, the court in that case ordered that the document and a memorandum supporting its withholding be submitted to the court in camera. ⁽²⁸⁵⁾ Thereafter, at the court's suggestion, ⁽²⁸⁶⁾ the document was also reviewed by "two experts identified by the parties and appointed by the court." ⁽²⁸⁷⁾ The experts then concluded, and the court agreed, that no competitive harm would "flow from the release" of the document and disclosure was ordered. ⁽²⁸⁸⁾

Actual competitive harm need not be demonstrated for purposes of the competitive harm prong; evidence of "actual competition and a likelihood of substantial competitive injury" is all that need be shown. ⁽²⁸⁹⁾ Al-though the requirement that a submitter face "actual competition" usually is readily satisfied, ⁽²⁹⁰⁾ the D.C. Circuit remanded a decision for further proceedings concerning the existence of "actual competition" and, in doing so, suggested that "a competitive injury is too remote for purposes of Exemption 4 if it can occur only in the occasional renegotiation of long-term contracts." ⁽²⁹¹⁾ In this regard, a submitter's "admittedly weakened financial position" has been held "not [to] amount to a complete inability to suffer competitive harm," inasmuch as a "struggling, perhaps even failing, business remains entitled to the protections that Exemption Four affords to any company." ⁽²⁹²⁾

In applying the competitive harm prong, one court has gone so far as to order disclosure based upon a "balancing test." Although it never expressly referred to it as such or cited to any supporting authority, this court found that disclosure of certain safety and effectiveness data pertaining to a medical device was "unquestionably in the public interest" and that the benefit of releasing this type of information "far outstrips the negligible competitive harm" alleged by the submitter. ⁽²⁹³⁾ In contrast, another court em-ployed a balancing test under Exemption 4, but that court balanced in favor of protection -- under both the impairment and competitive harm prongs -- declaring that "there is no countervailing public interest in disclosure [of the requested video conferencing software] because [the software] sheds no light whatsoever on [the agency's] performance of its duties." ⁽²⁹⁴⁾

The Court of Appeals for the Ninth Circuit has cited to National Parks and then declared that it "agree[d] with the D.C. Circuit" that in making an Exemption 4 determination it "must balance the strong public interest in favor of disclosure against the right of private businesses to protect sensitive information." ⁽²⁹⁵⁾ Although the Ninth Circuit thus used the term "balance," it did so in the context of holding that the agency had entirely failed to meet its burden of showing that disclosure of the very general information at issue was likely to cause "any potential for competitive harm, let alone substantial harm," and as a result, the court stated, rather colloquially, that the "FOIA's strong presumption in favor of disclosure trumps the contractors' right to privacy." ⁽²⁹⁶⁾

As discussed earlier, the D.C. Circuit appears to have dispositively resolved this issue in Public Citizen Health Research Group v. FDA, where it flatly rejected a requester's proposal that the court "should gauge whether the competitive harm done to the sponsor of an [Investigational New Drug] by the public disclosure of confidential information 'is outweighed by the strong public interest in safeguarding the health of human trial participants.'" ⁽²⁹⁷⁾ Declaring that a requester cannot "bolster the case for disclosure by claiming an additional public benefit" in release, the D.C. Circuit held that Congress has already struck the appropriate balance between public and private interests and that "[t]hat balance is accurately reflected in the test of confidentiality set forth in National Parks." ⁽²⁹⁸⁾ (For a further discussion of this point, see Exemption 4, Impairment Prong of National Parks, above.) Despite this firm ruling by the D.C. Circuit, the Court of Appeals for the Tenth Circuit, without making any reference to the D.C. Circuit decision or its reasoning, observed that a requester had made a "strong public policy argument in favor of a 'rough balancing of interests' test under Exemption Four." ⁽²⁹⁹⁾ The court went on to agree with the requester that "the public interest in disclosure of information regarding the handling, storage, and disposal of dangerous materials such as spent nuclear fuel is high." ⁽³⁰⁰⁾ However, because the competitive harm from disclosure was "overwhelming" in that case, the court concluded that it "need not reach the issue of whether a balancing test is appropriate under Exemption Four." ⁽³⁰¹⁾

In assessing whether a submitter would suffer competitive harm, courts have held that "elaborate antitrust proceedings" are not required. ⁽³⁰²⁾ On the other hand, mere conclusory allegations of harm are unacceptable. ⁽³⁰³⁾ For example, the Ninth Circuit reversed a competitive harm determination made by the lower court which had protected, on a standard government form, the "percentage and dollar amount of work subcontracted out" to small disadvantaged businesses. ⁽³⁰⁴⁾ In so deciding, the Ninth Circuit rejected the contention advanced by the submitting contractors that disclosure would allow their competitors to "undercut future bids," holding that their "rather conclusory statements" to that effect were insufficient as the data was "made up of too many fluctuating variables for competitors to gain any advantage from the disclosure." ⁽³⁰⁵⁾ Similarly, the District Court for the District of Columbia upheld an agency's decision to disclose three broad categories of information incorporated into a government contract -- specifically, "cost and fee information, including material, labor and overhead costs, as well as target costs, target profits and fixed fees"; "component and configuration prices, including unit pricing and contract line item numbers"; and "technical and management information, including subcontracting plans, asset allocation charts, and statements of the work necessary to accomplish certain system conversions" -- based upon the submitter's failure to specifically demonstrate that it would suffer competitive harm from their release. ⁽³⁰⁶⁾ In upholding release of this information, the court affirmed the agency's determination that "neither the revelation of cost and pricing data nor proprietary management strategies were likely to result in such egregious injury to [the submitter] as to disable it as an effective competitor for [the agency's] business in the future." ⁽³⁰⁷⁾

Some courts have utilized a "mosaic" approach to sustain a finding of competitive harm, thereby protecting information that would not in and of itself cause harm, but which would be harmful when combined with information already available to the requester. ⁽³⁰⁸⁾ In one case -- where it was found that a company's labor costs would be revealed by disclosure of its wage rate and manhour information -- the court took the opposite approach, and disaggregated the requested information, ordering release of the wage rates without the manhour information, because release of one without the other would not cause the company competitive harm. ⁽³⁰⁹⁾ In denying a competitive harm claim, another court noted that because the requested information pertained to every laboratory in a certain program, disclosure would not create a competitive advantage for any one of them because "each laboratory would have access to the same type of information as every other laboratory in the program." ⁽³¹⁰⁾

Many courts have held that if the information sought to be protected is itself publicly available through other sources, disclosure under the FOIA will not cause competitive harm and Exemption 4 is not applicable. ⁽³¹¹⁾ (The public availability of information has also defeated an agency's impairment claim, ⁽³¹²⁾ as well as a submitter's protection under Critical Mass Energy Project v. NRC, ⁽³¹³⁾ for a document that had been voluntarily provided. ⁽³¹⁴⁾) In addressing a claim of public availability, the District Court for the District of Columbia has declared that it is "[t]he party asserting public availability [who] must initially produce evidence to support its assertion, but the burden of persuasion remains on the opponent of disclosure." ⁽³¹⁵⁾

In applying this principle, one court has held that simply because individuals subject to a drug test had "a right of access to the performance and testing information" of the laboratory conducting their tests, that did "not make the [requested] information [concerning all certified laboratories] publicly available." ⁽³¹⁶⁾ Similarly, release of a summary of a safety and effectiveness study was found not to waive Exemption 4 protection for the underlying raw data because the disclosed information did not "match the withheld information." ⁽³¹⁷⁾ Significantly, when an agency had previously released data without the submitter's "knowledge or consent," the District Court for the District of Columbia rejected the agency's argument that that data was "now in the public domain and no longer entitled to confidential treatment." ⁽³¹⁸⁾ In rebuffing that proposition, the court held that "[t]he prior release of information to a limited number of requesters does not necessarily make the information a matter of common public knowledge, nor does it lessen the likelihood that [the submitter] might suffer competitive harm if it is disclosed again." ⁽³¹⁹⁾

Confidentiality was also upheld in a case where the requester argued that some of the withheld material had been disclosed "collaterally." ⁽³²⁰⁾ First, the D.C. Circuit declared that "assuming that certain information is available publicly," it saw "little reason why the government must go through the expense and burden of producing the information now; there is no benefit to . . . [the requester] or to the public that can be gained by imposing such a duplicative function on the government." ⁽³²¹⁾ As to the requester's argument that there was "value to be gained from the juxtaposition" of that "public information within" the submitter's materials, the D.C. Circuit found that the requester's own argument "concedes the confidentiality" of the material, because the requester clearly wanted "not only the collaterally disclosed information, but the proprietary manner with which" it had been utilized. ⁽³²²⁾

The feasibility of "reverse engineering" (i.e., the process of independently recreating the requested information -- for example, by obtaining a finished product and dismantling it to learn its constituent elements) has been considered in evaluating a showing of competitive harm because it "is germane to the question whether information is in the public domain (and thus whether a showing of competitive harm can be made)." ⁽³²³⁾ (Although in one case the court declined to even consider the requester's contention that reverse engineering was possible for information protected as a "trade secret" under Exemption 4, ⁽³²⁴⁾ in a more recent "trade secret" decision the court did consider such a claim. ⁽³²⁵⁾)

In Worthington Compressors, Inc. v. Costle, ⁽³²⁶⁾ the D.C. Circuit held that the cost of reverse engineering is a pertinent inquiry and that the test should be "whether release of the requested information, given its commercial value to competitors and the cost of acquiring it through other means, will cause substantial competitive harm to the business that submitted it." ⁽³²⁷⁾ In that case, the D.C. Circuit pointed out that agency disclosures of information that benefit competitors at the expense of submitters deserve "close attention" by the courts. ⁽³²⁸⁾  As the court of appeals observed:

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. ⁽³²⁹⁾

An agency's assertion of competitive harm for portions of a pesticide formula -- which admittedly was capable of being reverse engineered -- was rejected when the agency failed to explain "how difficult and costly" it would be to do so because, as the party "seeking to avoid disclosure," the agency was found not to have sustained its burden of "production and persuasion on that point." ⁽³³⁰⁾ Likewise, when information was found to be "freely or cheaply available from other sources," a court rejected a competitive harm claim, declaring that such information "cannot be considered protected confidential information." ⁽³³¹⁾

Neither the willingness of the requester to restrict circulation of the information ⁽³³²⁾ nor a claim by the requester that it is not a competitor of the submitter ⁽³³³⁾ should logically defeat a showing of competitive harm. ⁽³³⁴⁾ The question is whether "public disclosure" would cause harm; there is no "middle ground between disclosure and nondisclosure." ⁽³³⁵⁾ Additionally, the passage of time, while usually eroding the likelihood of competitive injury, ⁽³³⁶⁾ does not necessarily defeat Exemption 4 protection, provided that disclosure of the material would still be likely to cause substantial competitive harm. ⁽³³⁷⁾ Finally, the D.C. Circuit has emphasized that it is incumbent upon the courts -- and, logically, upon agencies in the first instance -- to consider whether it is possible to redact requested information "in order to avoid application of Exemption 4." ⁽³³⁸⁾ (See the further discussions of this point under Procedural Requirements, "Reasonably Segregable" Obligation, above, and Litigation Considerations, "Reasonably Segregable" Requirements, below.)

Numerous types of competitive injury have been identified by the courts as properly cognizable under the competitive harm prong, including the harms generally caused by disclosure of: detailed financial information such as a company's assets, liabilities, and net worth; ⁽³³⁹⁾ a company's actual costs, break-even calculations, profits and profit rates; ⁽³⁴⁰⁾ data describing a company's workforce which would reveal labor costs, profit margins and competitive vulnerability; ⁽³⁴¹⁾ a company's selling prices, purchase activity and freight charges; ⁽³⁴²⁾ shipper and importer names, type and quantity of freight hauled, routing systems, cost of raw materials, and information constituting the "bread and butter" of a manufacturing company; ⁽³⁴³⁾ type and volume of sales; ⁽³⁴⁴⁾ "currently unannounced and future products, proprietary technical information, pricing strategy and subcontractor information"; ⁽³⁴⁵⁾ raw research data used to support a pharmaceutical drug's safety and effectiveness, information regarding an unapproved application to market the drug in a different manner, and sales and distribution data of a drug manufacturer; ⁽³⁴⁶⁾ and technical proposals which are submitted, or could be used, in conjunction with offers on government contracts. ⁽³⁴⁷⁾

The Tenth Circuit has upheld protection under the competitive harm prong for a lease entered into by a fuel storage company and the Skull Valley Band of Goshute Indians that would allow the company to store "spent nuclear fuel" on land owned by the Band. ⁽³⁴⁸⁾ Although the requester colorfully argued that "given 'the dangerous nature of the material [that] is the subject of the [l]ease . . . [most] regions would be about as anxious to attract a chance to store spent nuclear fuel as they would be to encourage an outbreak of leprosy,'" the Tenth Circuit found that competitive harm had been established because disclosure of the lease would weaken the negotiating positions of both the company and the Band in future such deals with other partners. ⁽³⁴⁹⁾ Similarly, protection has been recognized for information related to water rights held by Indian tribes inasmuch as disclosure would hurt their "negotiating position" in "real estate transactions, water leasing, and other commercial dealings." ⁽³⁵⁰⁾

The District Court for the Southern District of New York has recognized protection under the competitive harm prong for documents pertaining to a proposed real estate venture, despite the fact that the harm that would flow from disclosure would come from a citizens group, rather than from competing real estate developers. ⁽³⁵¹⁾ The court made its finding in light of the fact that the "avowed goal" of that group was "to drive the joint venture out of business." ⁽³⁵²⁾ The court found that irrespective of the identity of the requester, "the economic injury they may inflict on the joint venture is nonetheless a competitive injury" that would "jeopardize both the venture's relative position vis-a-vis other New York City real estate developers and its solvency." ⁽³⁵³⁾ This holding was affirmed by the Court of Appeals for the Second Circuit, which reiterated that "[t]he fact that [the] harm would result from active hindrance by the [requester] rather than directly by potential competitors does not affect the fairness considerations that underlie Exemption Four." ⁽³⁵⁴⁾

The Second Circuit was faced with another "unusual question" concerning the applicability of the competitive harm prong when it decided a case involving a FOIA requester who "already [had] knowledge of the confidential information contained in the withheld documents." ⁽³⁵⁵⁾ The case concerned a request for design drawings that had been submitted by two companies seeking approval to manufacture aircraft parts. ⁽³⁵⁶⁾ Those companies sought approval pursuant to "identicality" regulations, which permit a manufacturer to obtain approval for its parts based upon a showing that those parts are "identical" to parts which have already been approved; in this case, the approved parts were manufactured by the requester. ⁽³⁵⁷⁾ The requester argued that because the requested documents were "identical in all respects to the drawings" that it itself had previously submitted, they could not "be 'confidential' as to [the requester] within the meaning of FOIA Exemption 4." ⁽³⁵⁸⁾ In rejecting that contention, the Second Circuit first noted that "[i]t is a basic principle under FOIA that the individuating circumstances of a requester are not to be considered in deciding whether a particular document should be disclosed." ⁽³⁵⁹⁾ Accordingly, the fact that the requester "already ha[d] knowledge of the information contained in the withheld documents" was found to be "irrelevant." ⁽³⁶⁰⁾ The Second Circuit also rejected the requester's argument that the Supreme Court's decision in United States Department of Justice v. Julian, ⁽³⁶¹⁾ supported its contention "that confidentiality under Exemption 4 should be examined on a requester-specific basis," holding that because the requester was "not the party for whom the protections of Exemption 4 were intended, it ha[d] no claim of special access." ⁽³⁶²⁾ Inasmuch as the requester "'freely concede[d]' that it [could not] prevail if it must proceed" as if it were "any other member of the general public," the Second Circuit upheld the agency's decision to withhold the information. ⁽³⁶³⁾

On the other hand, protection under the competitive harm prong has been denied when the prospect of injury is remote ⁽³⁶⁴⁾ -- for example, when a government contract is not awarded competitively ⁽³⁶⁵⁾ -- or when the requested information is too general in nature. ⁽³⁶⁶⁾ In addition, the D.C. Circuit, as well as several other courts, have held that the harms flowing from "embarrassing disclosure[s]," ⁽³⁶⁷⁾ or disclosures which could cause "customer or employee disgruntlement," are not cognizable under the competitive harm prong of Exemption 4. ⁽³⁶⁸⁾ (Moreover, such harms would not be cognizable under Exemption 6 either, for it is well established that businesses have no "corporate privacy." ⁽³⁶⁹⁾ For a further discussion of this point, see Exemption 6, Privacy Considerations, below.) Nevertheless, the D.C. Circuit skirted this issue and expressly did not decide whether an allegation of harm flowing only from the embarrassing publicity associated with disclosure of a submitter's illegal payments to government officials would be sufficient to establish competitive harm. ⁽³⁷⁰⁾ The court did go on to declare, however, that the submitter's "right to an exemption, if any, depends upon the competitive significance of whatever information may be contained in the documents" and that the submitter's motive for seeking confidential treatment, even if it was to avoid embarrassing publicity, was "simply irrelevant." ⁽³⁷¹⁾

Despite a wealth of case law supporting disclosure of government contract prices submitted as part of negotiated procurements -- including a decision issued just two years ago by the District Court for the District of Columbia ⁽³⁷²⁾ -- (all discussed below), the D.C. Circuit rendered a decision five years ago in McDonnell Douglas Corp. v. NASA, that abruptly set aside NASA's disclosure determination for just such information. ⁽³⁷³⁾ The District Court for the District of Columbia had upheld NASA's decision to release contract prices based on the agency's thorough rebuttal of McDonnell Douglas's claims that release would cause it competitive harm. ⁽³⁷⁴⁾ The lower court reiterated the numerous grounds for NASA's disclosure decision, including the fact that release of contract pricing information "furthers the goals of FOIA." ⁽³⁷⁵⁾ In addition, the court held that NASA had effectively disputed McDonnell Douglas's contentions regarding competitive harm when it determined that contractors "compete on a variety of factors other than price," that foreign competitors were "not likely to be substantially aided by release," and that "any difficulty" McDonnell Douglas "may face in future commercial contract negotiations [did] not qualify as a substantial competitive injury and should be viewed as the cost of doing business with the Government." ⁽³⁷⁶⁾

The D.C. Circuit tersely reversed, however, dismissively characterizing NASA's responses to McDonnell Douglas as "silly," "mystifying," "convoluted," and "even astonishing." ⁽³⁷⁷⁾ Without reference to any of the prior appellate court rulings on the issue, ⁽³⁷⁸⁾ or even to its own prior decisions limiting the type of harm recognized under the competitive harm prong to harm flowing from affirmative use of the information by competitors, ⁽³⁷⁹⁾ the D.C. Circuit perfunctorily declared McDonnell Douglas's arguments -- that release "would permit its commercial customers to bargain down ('ratchet down') its prices more effectively" and "would help its domestic and international competitors to underbid it" -- to be "indisputable." ⁽³⁸⁰⁾

In response to the government's petition for rehearing -- which was denied -- D.C. Circuit Court Judge Silberman, the author of the opinion, ameliorated the government's concerns regarding prior D.C. Circuit precedent by first expressly clarifying that the McDonnell Douglas v. NASA decision did not hold that "line item pricing would invariably" be protected. ⁽³⁸¹⁾ Rather, he explained, the court had held "only that the agency's explanation of its position [in that particular case] bordered on the ridiculous." ⁽³⁸²⁾ Second, Judge Silberman seemingly sought to reconcile prior D.C. Circuit cases with the McDonnell Douglas v. NASA decision by commenting that "[o]ther than in a monopoly situation[,] anything that undermines a supplier's relationship with its customers must necessarily aid its competitors." ⁽³⁸³⁾ Inasmuch as Judge Silberman made clear that the court's decision in McDonnell Douglas v. NASA did not establish a "per se" rule governing disclosure of unit prices, and because the clear focus of the decision was on the "explanation of the agency's position," it is imperative that agency personnel conscientiously follow their agency submitter-notice regulations and carefully evaluate, on a case-by-case basis, any claims of competitive harm that might be made by submitters regarding their unit prices. ⁽³⁸⁴⁾

By following just such an approach to a request for unit prices the Department of the Air Force prevailed in a challenge made to its decision to release contract prices in the first case to date to distinguish the results of McDonnell Douglas v. NASA. ⁽³⁸⁵⁾ In McDonnell Douglas v. Air Force, the District Court for the District of Columbia began its analysis by emphasizing that an "agency is not required to prove that its predictions of the effect of disclosure are superior" to those of the submitter's, but rather that "[i]t is enough that the agency's position is as plausible as the [submitter's] position." ⁽³⁸⁶⁾ The court than analyzed each of the three categories of prices that were at issue in the case -- option prices, vendor prices, and "over and above" prices -- and found that the Air Force had "presented reasoned accounts of the effect of disclosure based on its experiences with government contracting." ⁽³⁸⁷⁾ The court concluded that the Air Force's "accounts are at least as compelling as [the submitter's"] accounts" and so readily upheld the Air Force's decision to disclose all three categories of prices, based upon its determination that disclosure would not be likely to cause substantial competitive harm. ⁽³⁸⁸⁾

Most significantly, in issuing this ruling the court specifically found that the D.C. Circuit's McDonnell Douglas v. NASA decision did not require a different result. ⁽³⁸⁹⁾ The submitter had pressed such a position in its challenge to the Air Force's decision to release option prices, arguing that the D.C. Circuit had "rejected" the "exact argument" made by the Air Force to support its decision to release. ⁽³⁹⁰⁾ The court soundly rejected the submitter's contention and found that the arguments that were made by the Air Force regarding disclosure of option prices, based upon its administrative record, "differ[ed] markedly" from those put forth by NASA in that earlier D.C. Circuit case. ⁽³⁹¹⁾

First, whereas NASA had argued in its case that "'underbidding due to the disclosure would not occur because price is only one of the many factors used by the government in awarding contracts,'" the Air Force by contrast reached the conclusion that "even if underbidding were to occur, the fact that price is just one of many factors means that the effect of the underbidding would be diluted by the other factors, and subsequently, the likelihood of competitive harm resulting from disclosure would be greatly reduced." ⁽³⁹²⁾ Second, the Air Force "also concluded that economic uncertainty about the future, coupled with all of the variables that are not in the contract that one would need in order to deduce sensitive information, cast serious doubt on the likelihood that any of the disputed information would be likely to cause substantial harm." ⁽³⁹³⁾ Thus, the court found that the Air Force did not make the "types of conclusory claims" that had been made by NASA in its case and "instead," it found, the Air Force "offered a reasoned account for its position." ⁽³⁹⁴⁾ This opinion now stands as a prime illustration of the benefits to agencies of conscientiously following their submitter-notice procedures to best position themselves in the event a challenge is made to their disclosure decision. ⁽³⁹⁵⁾

Subsequent to the issuance of McDonnell Douglas v. NASA, but before the decision in McDonnell Douglas v. Air Force, the District Court for the District of Columbia rendered an opinion in MCI Worldcom, Inc. v. GSA, that contained an alternative holding addressing the issue of disclosure of unit prices. ⁽³⁹⁶⁾ At issue in MCI Worldcom were tables containing complex matrices specifying millions of "pricing elements" for telecommunications services provided by contractors to the government. ⁽³⁹⁷⁾ The agency had informed the submitters that pursuant to a new policy, "it would now publicly disclose all 'contract unit prices'" pursuant to the disclosure provisions of the Federal Acquisition Regulation (FAR). ⁽³⁹⁸⁾ In overturning that agency decision, the court first ruled that the tables did not, in fact, contain "unit prices," but instead "more closely resemble[d] 'cost breakdowns,' which," it noted, "are specifically prohibited from disclosure by the very FAR provision relied upon" by the agency. ⁽³⁹⁹⁾ Noting the absence of any "standard definition of 'unit price'" in the FAR or in the case law, the court found that because the "pricing elements and components" at issue were "not separately purchased, ordered or billed to the government," they did not constitute the "price" for a "'good or service.'" ⁽⁴⁰⁰⁾ Accordingly, the court concluded that the tables did not contain "'unit price' information" within the meaning of the FAR. ⁽⁴⁰¹⁾

Although the court could have finished its decision with that holding, it nonetheless went on to rule that "even assuming" that the tables did contain "'unit price' information," the FAR did not "permit their disclosure." ⁽⁴⁰²⁾ Focusing on language contained in both of the FAR provisions relied on by the agency -- that prohibited "release of information that is confidential, trade secret, or otherwise exempt under FOIA Exemption 4" -- the court determined that the "unmistakable meaning" of the FAR provisions was that unit price information could be disclosed "only insofar as it" is not otherwise exempt from disclosure. ⁽⁴⁰³⁾ Moving to an analysis of whether the tables were protected under Exemption 4, the court relied on the D.C. Circuit's decision in McDonnell Douglas v. NASA, finding that the submitters had "set forth detailed facts" establishing that they would suffer "precisely the injuries that led [the D.C.] Circuit to declare that line item pricing was confidential information and not disclosable." ⁽⁴⁰⁴⁾ Most significantly, in making this determination, the court was greatly influenced by the fact that the agency was unable to "point[] to anything in the administrative record that establishes that the information is not confidential," as it had "never made any findings" on that issue. ⁽⁴⁰⁵⁾

Thus, the net effect of these two post-McDonnell Douglas v. NASA decisions is that agencies are best advised both to notify all submitters of unit price information in order to obtain any objections to disclosure and to then conduct a thorough competitive harm analysis on a case-by-case basis, thereby ensuring that they always have a sufficient administrative record on which to base and support their decisions. ⁽⁴⁰⁶⁾

There are many well-reasoned decisions upholding agency determinations to disclose unit prices in the absence of convincing evidence of competitive harm. In one, the submitter provided only "conclusory and generalized assertions" of harm, that "mainly detailed measures it took to guard and protect its pricing information," that the court found were "simply not relevant to the National Parks analysis." ⁽⁴⁰⁷⁾ An additional argument -- that the submitter would suffer harm because the "contract contemplates option years and may be rebid," was not raised before the agency and so was considered to be "outside the scope of the administrative record." ⁽⁴⁰⁸⁾ Nonetheless, the court addressed it in the alternative, finding it "unpersuasive," as the precedent primarily relied on by the submitter concerned the possibility of "rebidding a contract for unperformed work," a situation deemed "factually and legally distinguishable from" the case at hand. ⁽⁴⁰⁹⁾

A similar challenge to an agency's decision to disclose, among other things, a contractor's unit price information was soundly rejected in yet another decision by the District Court for the District of Columbia. ⁽⁴¹⁰⁾ In upholding the agency's decision to release the information, the court rejected the submitter's contention that disclosure would enable its competitors "to predict its costs and profit margin, significantly enhancing their ability to underbid." ⁽⁴¹¹⁾ Declaring that "[t]he public, including competitors who lost the business to the winning bidder, is entitled to know just how and why a government agency decided to spend public funds as it did; to be assured that the competition was fair; and indeed, even to learn how to be more effective competitors in the future," the court upheld the agency's decision to release the information because the submitter had "simply failed to demonstrate" how it would be competitively harmed by the information's disclosure. ⁽⁴¹²⁾ Although noting that the submitter "might prefer that less be known about its operations, and that the reasons for its past successes remain a mystery to be solved by the competitors on their own," the court held that the submitter had not shown "that it will in fact be unable to duplicate those successes unless [the agency] acquiesces in keeping the competition in the dark." ⁽⁴¹³⁾

The outcome of that case was consistent with the outcome in four cases concerning contract price information that were decided previously -- all of which were brought by submitters challenging agency decisions to disclose such information -- and in which none of the submitters were able to convince the court that disclosure of the prices charged the government would cause them to suffer competitive harm. ⁽⁴¹⁴⁾ One of the cases was remanded back to the agency for further factfinding on that issue, ⁽⁴¹⁵⁾ but in the remaining three cases the competitive harm arguments were rejected outright by the court. ⁽⁴¹⁶⁾ (One of these cases subsequently was vacated after the FOIA request was withdrawn while the case was on appeal. ⁽⁴¹⁷⁾)

Additionally, there are three other cases which contain a thorough analysis of the possible effects of disclosure of unit prices -- including two appellate decisions -- and in all three of these cases the courts likewise denied Exemption 4 protection, finding that disclosure of the prices would not directly reveal confidential proprietary information, such as a company's overhead, profit rates, or multiplier, and that the possibility of competitive harm was thus too speculative. ⁽⁴¹⁸⁾ For example, the Court of Appeals for the Ninth Circuit denied Exemption 4 protection for the unit prices provided by a successful offeror despite the offeror's contention that competitors would be able to determine its profit margin by simply subtracting from the unit price the other component parts which are either set by statute or standardized within the industry. ⁽⁴¹⁹⁾ The Ninth Circuit upheld the agency's determination that competitors would not be able to make this type of calculation, because the component figures making up the unit price were not, in fact, standardized, but instead were subject to fluctuation. ⁽⁴²⁰⁾

Nearly a quarter-century ago, in the absence of a showing of competitive harm, the District Court for the District of Columbia denied Exemption 4 protection for the prices charged the government for computer equipment, and in so doing stated that "[d]isclosure of prices charged the Government is a cost of doing business with the Government." ⁽⁴²¹⁾ This "cost of doing business" principle was later expressly recognized by the District Court for the District of Columbia as a "general proposition" that agencies may reasonably follow. ⁽⁴²²⁾ Although it is not applicable "to every case that arises," ⁽⁴²³⁾ the court nevertheless found that it is "incumbent upon" a submitter challenging a contract price disclosure decision to "demonstrate that [an agency's] decision to follow this general proposition" -- namely, that disclosure of contract prices is a cost of doing business with the government -- is somehow arbitrary or capricious. ⁽⁴²⁴⁾ This ruling comports with the court's decision in an earlier unit price case in which it had recognized the "strong public interest in release of component and aggregate prices in Government contract awards." ⁽⁴²⁵⁾

Similarly, in a case involving unexercised option prices rather than "ordinary" unit prices the court expressly stated that it "generally agrees that '[d]isclosure of prices charged the Government is a cost of doing business with the Government.'" ⁽⁴²⁶⁾ It then upheld the agency's decision to release the option prices because "competitively sensitive information such as cost, overhead, or profit identifiers would not be revealed." ⁽⁴²⁷⁾ This decision was subsequently vacated by the D.C. Circuit, however, ⁽⁴²⁸⁾ after the FOIA requester withdrew its request while the case was pending on appeal. In the absence of a FOIA requester seeking access to the information, the court held that the case had become moot. ⁽⁴²⁹⁾

The D.C. Circuit in McDonnell Douglas v. NASA noted that NASA had advised the submitter "that publication of line item prices is the 'price of doing business' with the government," but the court characterized the statement as one that "either assumes the conclusion, or else assumes a legal duty or authority on the government to publicize these prices," which NASA did not assert it had. ⁽⁴³⁰⁾ Nonetheless, the "cost of doing business" principle was again cited with approval by the District Court for the District of Columbia in an opinion issued two years ago that o