United States: The Supreme Court Streamlines FOIA Exemption 4

The Supreme Court has addressed the test under which companies may seek to prevent disclosure under the Freedom of Information Act (FOIA) of business records submitted to the government that contain trade secrets or confidential commercial or financial information. In Food Marketing Institute v. Argus Leader Media, dba Argus Leader,¹ the Court unanimously² overturned a 45-year old D.C. Circuit precedent that required submitting companies to demonstrate that disclosure would be likely to cause them substantial competitive harm.

After Argus, "confidential" in the context of Exemption 4 means only that the information was "customarily and actually treated as private by its owner, and provided to the government under an assurance of privacy."³ No proof of harm to either the submitter or the government's ability to obtain similar information need be offered. The Court was clear that, in order to be protected, the information must at least be treated as private. The Court left open, however, whether Exemption 4 also requires that privately held information must be submitted to the government with an assurance of confidentiality.

Context: FOIA Exemption 4 Before Argus

FOIA provides that all federal agency records are accessible to the public unless specifically exempt from disclosure, and permits the public a broad right to request information from federal agencies.⁴ Recognizing that some information must legitimately be kept confidential, FOIA includes nine exemptions, covering personal information, internal government deliberations, and other categories.⁵ Exemption 4 requires agencies to withhold from release any documents containing "trade secrets and commercial or financial information obtained from a person and privileged or confidential."⁶

Exemption 4 is of critical importance to companies that submit proprietary and confidential information to agencies, as it is the primary mechanism by which companies submitting such information can prevent public release in response to a FOIA request. Recognizing the importance of the need for companies to protect sensitive information from public release, Executive Order 12,600 requires agencies to give submitters notice and an opportunity to object prior to releasing information that may be covered by Exemption 4.⁷ If the agency disagrees with an assertion of protection, it must give the submitter sufficient notice to allow the submitter to go to court and seek an injunction by filing a so-called "reverse FOIA" suit, on the theory that the agency decision to release information protected by FOIA Exemption 4 is actionable under the Administrative Procedure Act (APA).⁸

While there are several elements relevant to qualifying for Exemption 4 protection, the most challenging has often been demonstrating that the information at issue qualifies as "confidential." In National Parks & Conservation Association v. Morton, the D.C. Circuit held that information submitted to the government is confidential only "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 competitive position of the person from whom the information was obtained."⁹ In Critical Mass Energy Project v. Nuclear Regulatory Commission, the D.C. Circuit later stated that the "substantial harm" requirement applied only to mandatory submissions, and held that submissions made on a voluntary basis must be withheld if the submitter "customarily" did not release such information to the public.¹⁰ This created the so-called "Critical Mass distinction" between voluntary and mandatory submissions. In practice, considerable disputes arose over whether certain submissions (and categories of submission) were voluntary or involuntary, as submitters sought to avoid the more onerous National Parks test of likely substantial competitive harm. The Supreme Court's Argus decision sweeps away the National Parks test.

Argus: The Supreme Court Kills National Parks

In Argus, the Supreme Court rejected as inconsistent with the plain language of Exemption 4 the National Parks requirement to demonstrate likely substantial competitive harm. The Court gave no deference to the D.C. Circuit's prior reliance on legislative history, contemporaneous Congressional debate transcripts, and similar documents, dismissing such reliance as "a relic from a bygone era of statutory construction."¹¹ The Court instead searched for, and did not find, any concern for competitive harm in the text of FOIA, and so rejected the addition of this implied requirement.

Argus arose in the context of a FOIA request to the USDA seeking information about participants in the Supplemental Nutrition Assistance Program (SNAP). USDA declined to release store-level SNAP data, invoking FOIA Exemption 4. Argus sued USDA, seeking disclosure of the withheld data. Applying the National Parks test, which was controlling law in the district in which the lawsuit was brought, the district court held a bench trial to determine whether disclosure of the store-level SNAP data would cause substantial competitive harm to participating retailers, concluded that no such substantial harm would occur, and ordered disclosure. The Court of Appeals for the Eighth Circuit affirmed.¹² The Supreme Court granted certiorari to consider whether FOIA Exemption 4 requires a showing of substantial competitive harm.

The Court, in a decision authored by Justice Gorsuch, reversed the 8th Circuit's decision. Justice Gorsuch first analyzed the plain language of Exemption 4 and the dictionary definition of the term "confidential" existing at the time FOIA was enacted in 1966, concluding: "The term 'confidential' meant then, as it does now, 'private' or 'secret'".¹³ The decision identifies two circumstances under which information might qualify as confidential: First, "information communicated to another remains confidential whenever it is customarily kept private, or at least closely held, by the person imparting it," and second, "information might be considered confidential if the party receiving it provides some assurance that it will remain secret."

Justice Gorsuch explained that the first of these conditions must be met to qualify for Exemption 4 protection, as "it is hard to see how information could be deemed confidential if its owner shares it freely."¹⁴ There was no dispute that this first condition was satisfied in the case at issue; the information withheld was not disclosed or made publicly available.

Justice Gorsuch declined to answer the second question of: "Can privately held information lose its confidential character for purposes of Exemption 4 if it's communicated to the government without assurances that the government will keep in private?"¹⁵ Again, there was no dispute in the case at hand that the retailers at issue had received assurances of confidentiality for the store-level SNAP information.¹⁶

Implications And A Critical Open Question

The Argus holding will likely manifest itself over time, with the true implications to be revealed through additional litigation. At a minimum, the National Parks standard is obsolete. In order to fall within the Exemption 4, it is critical that the information to be protected actually is kept private. This was always the law, and it is still important for companies to maintain information control procedures (and document the existence and implementation of those procedures).

In light of this renewed focus on demonstrating confidential treatment, companies submitting information to an agency should, at a minimum, carefully and clearly mark any confidential information as such, invoking where possible any agency regulations or guidance expressing a policy to withhold release of confidential commercial information. This has always been a best practice, and retains enhanced significance now.

Argus leaves open the question of whether information kept privately may be protected under Exemption 4 if it is submitted to the government without an assurance of confidentiality. We expect it will take some time for lower courts to come to any sort of consensus on this issue.