Picture this situation: your company is submitting a bid on a public contract, whether a technology acquisition, software development project, construction project, insurance quote, or financial services contract, to name but a few. Or picture responding to state and federal regulatory authorities that require disclosing company information concerning approval and licensing of your gaming establishment or approval of your oil and gas exploration project. Then also picture a legal framework that requires governmental agencies, whether state or federal, to disclose public records to all who ask—even competitors.
Essentially, your company has just disclosed proprietary information that is not normally open to the public, and could include sales margins or profits, personnel lists, undisclosed proprietary technology, customer lists and supplier information, to name but a few. And those governmental agencies could be required to disclose that proprietary information to anyone who requests it.
This is not just a mental exercise.
The last few years have been marked by increases in businesses seeking to obtain information on their competitors by filing public record requests. Companies have found that seeking such public documentation is a relatively inexpensive and easy way to scout out their competitors, requesting production of all competitor’s documents filed with public entities.
What, if anything, can be done to protect your confidential and proprietary information from disclosure to the public or other entities? Fortunately, state and federal law typically provide for certain levels of protection for third party trade secrets. But such protection in some cases requires court involvement and litigation expense in order to achieve such protection.
If the agency to which you have supplied trade secrets is a federal agency, any protection afforded that information is governed by the Freedom of Information Act, embodied at 5 U.S.C. § 552 (“FOIA”). Under FOIA, the public, subject to a number of specific exemptions, is given the right to request and obtain copies of documents in files of the federal government. One of the specific exemptions from public disclosure allows the agency to withhold from production any documents that are “trade secrets and commercial or financial information obtained from a person and privileged or confidential”. 5 U.S.C. § 552(b)(4).
Under FOIA’s framework, determining whether a third-party document meets the trade secret remains with the agency responding to the request from the public. The agency also has no obligation to notify third parties of a request for their information, and once an agency decides to release information, third parties have very little at their disposal to stop the production. While a third party who receives advance notice of a decision to produce information might file a challenge to the agency’s decision under the Administrative Procedures Act, the standard to overturn an agency decision is a formidable hurdle to overcome. Thus, when businesses are requested to furnish information thought to be confidential trade secrets, they must consider the business implications if such information were disclosed to the public.
Similarly, documents furnished to state agencies can also be requested by the public. Unfortunately, laws exempting certain information from production vary greatly from state to state. For instance, in Louisiana, La. Rev. Stat. § 44:3.2 protects proprietary or trade secret information “pertaining to any code, pattern, formula, design, device, method or process which is proprietary or trade secret information which has been submitted to a public body by a developer, owner, or manufacturer of a code, pattern, formula, design, device, method, or process in order to obtain or retain approval of such code, pattern, formula, design, device, method or process for sale or use in this state.” The statute further exempts proprietary or trade secret information “which has been submitted to a public body in order to facilitate the further research, development or commercialization of such code, pattern, formula, design, device, method or process.” Chapter 44 also exempts a variety of other types of records including economic development negotiations, geophysical surveys, personal data records, and medical records, among others.
These definitions afford a relatively narrower protection than protection of all trade secrets or confidential information. Furthermore, the statute requires that all business records containing proprietary or trade secret information include a cover sheet advising the agency about the nature of the document. But Louisiana law does require the agency to notify the third party of a request for information that has been marked proprietary or trade secret information, as well as the state agency’s determination of whether the information is subject to disclosure.
In Mississippi, the protection afforded confidential and trade secret information appears broader. Miss. Code Ann. § 25-61-9 provides that records containing trade secrets or confidential commercial financial information are not subject to inspection and production until reasonable notice has been given to the third party, who must be afforded the opportunity to seek a court order protecting the records as confidential. This statute does not mandate the form of documenting records as confidential, but certain agencies, with respect to requests for proposals, have been known to formulate a method of identifying confidential records. In any event, the agency is not required to make a determination of the confidential nature of the documents — that responsibility is placed upon the business submitting the documents to the agency. Seeking court protection can be expensive and inconvenient, even if the designation of materials as “confidential” is not challenged by the agency or the party requesting the documents.
These are just two examples of how states approach the same issue differently. Other states have their own procedure for protecting trade secrets from public disclosure, which — if not followed properly — could have devastating effects.
In light of the very real risk that competitors, the press, or other parties might well seek the production of documents furnished to public bodies, what should a business do?
- Consider the ramifications if the documents were required to be disclosed.
- Determine whether producing the documents is absolutely necessary to comply with an agency’s request.
- Seek legal advice as to the treatment of confidential information in each state in which a submission is anticipated.
- Follow all mandated guidelines for labeling or otherwise identifying information as confidential.
- If these guidelines don’t exist, consider differentiating confidential and non-confidential information by furnishing documents on different colored paper or labeling pages as confidential trade secrets.
- Have a contingency plan in place in case you are advised that the documents may be produced by the agency.
- Consider incorporating a prominent request for notification and an opportunity to comment if documents have been sought by others.
In summary, the notions of public disclosure and access to governmental records are largely inconsistent with the protection of confidential and proprietary trade secrets of private businesses. While both the federal government and states attempt to accommodate these competing interests, businesses should be very careful when producing documents to public entities and should have a plan to minimize their exposure if such documents must be produced.
