SCOTUS Makes it Easier for Government to Withhold Commercial or Financial Information

June 26, 2019By Anne K. Walsh & Ricardo Carvajal

In a 6-3 decision, the U.S. Supreme Court reversed and remanded the lower courts’ decision to publicly disclose commercial information that previously had been submitted to the government.  Given that FDA-regulated entities often submit to FDA commercial or financial information that those entities regard as privileged or confidential, this decision is notable because it upends FDA’s interpretation and application of Exemption 4 of the Freedom of Information Act (FOIA).  Exemption 4 permits the government to withhold from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. 552(b)(4).

In this case, a South Dakota newspaper (Argus Leader) filed a FOIA request with the U.S. Department of Agriculture (USDA) for data related to the national food-stamp program (called SNAP).  The newspaper asked for annual redemption data from each of the stores, and USDA invoked FOIA Exemption 4 in declining to disclose the data.  The lower court applied the generally accepted “substantial competitive harm” test to determine whether the commercial information is “confidential.”  That test, first adopted by the D.C. Circuit in 1974 in National Parks & Conservation Association v. Morton, provides that Exemption 4 prevents disclosure of information required to be submitted to the government only if disclosure is likely “(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.”   Although the court agreed that “revealing store-level SNAP data could work some competitive harm, the court could not say that disclosure would rise to the level of causing ‘substantial competitive harm,’ and thus ordered disclosure.”

Although USDA declined to appeal, the Food Marketing Institute (FMI) (a grocery retailers’ trade association) appealed the decision to the Eighth Circuit, which rejected FMI’s argument to discard the National Parks “substantial competitive harm” test and affirmed.  FMI then appealed to the Supreme Court.

Justice Gorsuch, in the Supreme Court opinion, noted that the statute does not define the term “confidential,” and thus focused on the term’s “ordinary, contemporary, common meaning” when Congress enacted FOIA.  The Court noted that contemporary dictionary definitions of “confidential” established that at least one condition has to be met for information to qualify as “confidential” – namely, the information “must be at customarily kept private, or at least closely held, by the person imparting it.”  An additional condition might also have to be met – namely, the party receiving the information must provide “some assurance that it will remain secret.”  The Court declined to resolve that question because both conditions were met in the instant case.  The grocery stores clearly treated the SNAP data as private, and USDA had provided the stores with an assurance that the agency would treat the information as such.  The Court firmly rejected the application of the “substantial competitive harm” requirement set forth in National Parks, characterizing the approach taken in that decision as “a relic from a ‘bygone era of statutory construction,’” and other courts’ subsequent application of this standard as a “casual disregard of the rules of statutory interpretation.”

Thus, the Court greatly expanded the ability of the government to withhold information from the public:

At least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is “confidential” within the meaning of Exemption 4.

(Emphasis ours.)  In an accompanying opinion concurring in part and dissenting in part, Justice Breyer maintained that the Court’s reading of Exemption 4 is at odds with the “whole point” of FOIA: “to give the public access to information it cannot otherwise obtain.” Otherwise FOIA would be unnecessary, because Google searches could suffice to obtain information that is already publicly available.  He warned that the Court’s reading will “deprive the public of information for reasons no better than convenience, skittishness, or bureaucratic inertia.”

The importance of this decision to FDA-regulated entities cannot be overstated.  Now, an FDA-regulated company that is required to submit commercial or financial information to FDA only needs to show its efforts to keep the information private, and the assurances from FDA that it would treat the information as such (and, as noted above, even the latter criterion might not apply).  There is no requirement for showing any harm from the disclosure of that information, whether substantial or negligible.  Although FDA regulation largely tracks the broad definition of confidential commercial or financial information (“valuable data or information which is used in one’s business and is of a type customarily held in strict confidence or regarded as privileged and not disclosed to any member of the public by the person to whom it belongs”), 21 C.F.R. § 20.61, FDA may need to scrub the reference to “competitive harm” in discussing its assessment of whether to provide notice to the submitter of commercial or financial information about a request for that information.

Further, the Court’s decision points toward adoption of a single standard for determining whether information qualifies as confidential, thereby eradicating the esoteric distinction between information that is required to be submitted (which was governed by the “substantial competitive harm” standard elucidated in National Parks) and information that is voluntarily submitted (which was governed by the less demanding standard elucidated in Critical Mass Energy Project v. NRC, i.e., “information qualifies as confidential ‘if it is of a kind that would customarily not be released to the public by the person from whom it was obtained’”).  While declining to articulate that single standard, the Court noted that it could not “discern a persuasive reason to afford the same statutory term to two such radically different constructions.”