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Supreme Court decision on FOIA is good news for federal contractors

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Every government contractor hesitates and ponders whether information confidential and valuable to its business that is disclosed – either voluntarily or by compulsion – in a submission to a U.S. Government agencywill be protected from release to a third party pursuant to that dreaded four-letter acronym: F-O-I-A. In a June 24, 2019, landmark decision, the U.S. Supreme Court, in Food Marketing Institute v. Argus Leader Media[1],has spoken for the first time on FOIA exemption covering such information – and the news is good for contractors seeking maximum protection of their valuable confidential IP and business information.

The Freedom of Information Act, 5 U.S.C. § 552 (FOIA), passed during the Johnson administration, has been the principal vehicle used by third parties seeking records in the possession of a Government agency. Those records include not only those generated by the agency itself but also all documents provided to the agency by persons, businesses and other institutions outside the Government.  FOIA has, of course, always exempted “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. § 552(b)(4).

The scope of Exemption 4 was the subject of long-standing debate among various federal courts of appeal. Some (such as the Eighth Circuit Court of Appeals, from which the petitioner Food Marketing Institutesought relief) held that commercial information cannot be deemed “confidential” (and thus exempt from a FOIA request) unless the disclosure is “likely … to cause substantial harm to the competitive position of the person from whom the information was obtained.” Argus Leader Media v. United States Department of Agriculture, 889 F. 3d 914, 915 (2018).  In a 6-3 decision, the U.S. Supreme Court overturned precedent articulated by the Eighth Circuit and dating back to the 1974 D.C. Circuit Court opinion in National Parks & Conservation v. Morton, 498 F. 2d 765, requiring a demonstration of competitive harm.  Justice Gorsuch in the majority opinion found that the “competitive harm” test was irreconcilable with the plain text of the statute itself, stating that because “confidential” means “‘private or secret,’” the exemption applies to commercial information that is not customarily disclosed to the public and which is communicated to the Government with the implicit or explicit assurance by the Government that it will be kept private.

The Court jettisoned the “competitive harm” requirement, calling it “a relic from a ‘bygone era of statutory construction.’” Because of the plain meaning of the statute itself, the Court stated there was no need to read the tea leaves left in the legislative history of the statute in order to interpret its meaning.

As a result, store-level redemption data of retailers participating in the national food stamp program known as SNAP (Supplemental NutritionAssistance Program) in the possession of the Department of Agriculture is now protected from the inquiring journalists of the South Dakota newspaper The Argus Leader.

More broadly – and most importantly – the case confirms that any private entity, including a government contractor, which submits commercially sensitive data to the Government under the express or implied assurance that such data will remain confidential need not demonstrate anything more than that it has maintained the confidentiality of the data in order to protect it from third parties seeking its release.

While there are statutory and regulatory prohibitions designed to prevent the disclosure of “contractor bid or proposal information” – broadly defined to include, among other things, cost or pricing data and proprietary information about “manufacturing processes, operations or techniques” (see 41 U.S.C. 21; FAR 3.104-4) – these prohibitions do not extend beyond the life cycle of a given procurement.  Exemption 4, now broadly defined, will continue to protect this information together with all additional proprietary commercial information – so long as the contractor has maintained the confidentiality of that information – from the reach of a FOIA request.  For both competitive and unsolicited proposals, the Federal Acquisition Regulation (FAR) ensures such protection (see, e.g., FAR 52.215-1; 15.609) but provides that it is contingent on the proper marking of such submissions with restrictive legends.

Beyond the realm of proposals and other information submitted in response to a Government solicitation, contractor proprietary trade secrets and commercial and financial information will receive protection from FOIA inquiries unencumbered by a need to demonstrate that the information is competitively sensitive. This includes a wide variety of submissions ranging from substantive responses to requests by auditors and investigators to marketing efforts to promote new technologies, products and services.  Contractors should, of course, mark all confidential and proprietary data submitted to the Government with a legend identifying that it is subject to FOIA Exemption 4 protection.

Contractors, in consultation with their counsel, should remain vigilant about and attuned to additional requirements to protect sensitive information and limitations on the protection of such information contained in other applicable laws and regulations. For instance, when delivering under a contract proprietary technical data and computer software as those terms are defined in FAR 52.227-14 (and for DoD procurements in DFARS 252.227-13 and 252.227-14), affirmative disclosures at the time of the release and special legends and markings are required in order to maintain the Government’s limited and restricted license rights to such data.  Moreover, under certain circumstances, such data can be disclosed to third parties, such as “Covered Government support contractors” (defined as contractors which provide advice to the agency in support of its management and oversight of a program), but will be subject to a nondisclosure agreement (NDA). See, e.g., DFARS 227.7103-7.

Practical Guidance

Let’s close with some simple, commonsense tips:

  1. At the outset, keep valuable information confidential! Mark it. Limit its scope. Obtain NDAs from all employees, consultants and contractors who have access to it.
  2. When disclosing to the Government, confirm that there is no expectation that the Government will disclose the information to the public or specific third parties without the protection of an NDA.
  3. Mark all proprietary information disclosed to the Government with the right legends, including but not limited to legends that specifically cite Exemption 4 to FOIA. Many statutes and/or regulations require “magic words” to ensure protection.
  4. Adapt to the 21st century!  Affix markings to all digital information in all forms. When appropriate, encrypt the files and/or use passwords, keys and other devices – tagged with the appropriate markings – When giving access to proprietary information. Consider using digital watermarks to identify, track and control changes to and printing of documents.
  5. Keep track of your proprietary information by keeping comprehensive logs of all disclosures. Know where your valuable IP, commercial and financial information is at all times.

The link to this article can be found at https://www.governmentcontractslaw.com/2019/06/good-news-for-federal-contractors-foia-exemption-4-protecting-confidential-information-gets-expansive-definition-by-u-s-supreme-court-in-food-marketing-institute-v-argus/