On Monday, the Supreme Court significantly altered how government agencies will treat confidential commercial information protected from disclosure by Exemption 4 of the Freedom of Information Act (“FOIA”) — an issue that recurs repeatedly with respect to information submitted by contractors to government agencies.  Food Marketing Institute v. Argus Leader Media, No. 18-481 (U.S. June 24, 2019). The Court overturned 45 years of lower-court precedent requiring that the submitter show both that the information was not publicly disclosed, and that its release would cause substantial competitive harm.  The Court’s decision seemingly expands the scope of Exemption 4 by removing the “substantial competitive harm” requirement. However, the effect of this apparent expansion is unclear, because the Court suggested but did not resolve whether Exemption 4 also requires a new element: a showing that the submitter’s information was provided under an assurance by the government that it would keep the information confidential.

Notwithstanding the question left open by the Court, Food Marketing points the way to several steps that contractors can take to protect their commercial and financial information from release under the new interpretation of Exemption 4.

Food Marketing Institute v. Argus Leader Media

Exemption 4 protects from disclosure under FOIA “trade secrets and commercial or financial information obtained from a person [that are] privileged or confidential.” 5 U.S.C. § 552(b)(4). In 1974, the D.C. Circuit decided its seminal National Parks case interpreting this language and holding that contractors must show that the disclosure of the information would cause substantial competitive harm. National Parks & Conservation Assn. v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). To meet this test, contractors generally submitted affidavits from company employees explaining how competitors could use the information to cause the company competitive harm. In 1992, the D.C. Circuit issued another decision limiting the National Parks test to mandatory submissions. For voluntary submissions, it held that the submitter need only show that it does not customarily release the type of information in question to qualify for Exemption 4 protection. Critical Mass Energy Project v. NRC, 975 F.2d 871, 879-80 (D.C. Cir. 1992) (en banc).

In Food Marketing, the Court rejected these tests, which had been almost universally adopted by the other circuits. It noted that these tests did not find support in the statutory language and disapproved of “such a casual disregard of the rules of statutory interpretation.” Food Marketing, Slip Op. at 8. Instead, the Court reviewed the plain meaning of the term “confidential” as found in dictionaries, and found two potential conditions: (1) information “customarily kept private, or at least closely held,” by the submitting party; and (2) information disclosed when the receiving party provides “some assurance that it will remain secret.” Id. at 5. The Court concluded that the first condition of confidentiality must always be established, because Exemption 4 should not treat something as secret or private if the information’s owner does not. Id. at 6. But the Court declined to answer a second question – whether confidential information could lose that status if provided to the government “without assurances that the government will keep it private.” Id. Summarizing its holding, the Court concluded that information is protected under Exemption 4 “[a]t 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.” Id. at 12. Without clear guidance from the Court as to whether, or when, a government “assurance” may be required, it now falls to FOIA officers and district courts to define the boundaries of Exemption 4.

Takeaways for Government Contractors

Lay the Groundwork For Proving Confidentiality. Food Marketing presents contractors with a new landscape when arguing that an agency should withhold information from disclosure under Exemption 4. Gone are arguments over competitive harm. But contractors will need to establish that information is “customarily kept private, or at least closely held.” Id. at 5. Agencies will likely expect them to provide the kind of information about their corporate information practices that were required under Critical Mass, such as:

  • Company policies prohibiting disclosure;
  • Use of contracts requiring confidentiality or nondisclosure provisions;
  • Document markings;
  • Documented history of opposing disclosure in discovery; and
  • Declarations describing how records were subject to limited disclosure within the organization.

Contractors should review their information security policies, contract terms, and marking policies to make sure they are sufficient to lay the groundwork for making this kind of showing. They should also ensure that their periodic employee training emphasizes the need for information privacy.

Lay The Groundwork for Proving “Assurance of Confidentiality. The question of when and how the government provides “assurance” of confidentiality is not entirely clear. Contractors rarely receive the kind of explicit government assurances of confidentiality that the companies in Food Marketing received. That said, contractors do receive assurances of confidentiality in other ways that should meet the “assurance” test, if it is deemed necessary. For example, the Trade Secrets Act imposes criminal penalties for any government employee who discloses information that “concerns or relates to trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person.” 18 U.S.C. § 1905. Courts have long recognized that the Trade Secrets Act’s prohibitions on disclosure are at least as broad in coverage as FOIA Exemption 4. See, e.g., CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1144 (D.C. Cir. 1987). Thus, it is reasonable to argue that contractors submitting data covered by the Trade Secrets Act have a statutory assurance of confidentiality. Similarly, the standard data rights clauses restrict the government’s authority to disclose properly marked information. See, e.g., FAR 52.227-14. These clauses provide a contractual assurance of confidentiality.

In addition, contractors should consider updating their standard protective legends on documents provided to the government with legends confirming the contractor’s understanding that information is being provided under an assurance of confidentiality. These legends should go beyond merely stating that the information is exempt from disclosure under FOIA, but state that government confidentiality is assured under the Trade Secrets Act, applicable contractual provisions, protective orders, or otherwise.

Watch for DOJ and Agency Guidance. Given the Court’s significant re-interpretation of Exemption 4, the Department of Justice Office of Information Policy will issue guidance and provide training on how agencies should interpret the decision. Likewise, the DOJ will need to update its Guide to the Freedom of Information Act, although that may be delayed until courts begin issuing decisions applying the Food Marketing standard. In addition, we expect that agencies will update their internal FOIA protocols and guidance materials. The forthcoming guidance documents may shed significant light on how FOIA officers will view the scope of Exemption 4 in light of Food Marketing.

We will continue to monitor how agencies, the DOJ Office of Information Policy, and the courts adjust to the new landscape.

Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Peter B. Hutt II Peter B. Hutt II

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.

Peter has litigated more than 25 qui…

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.

Peter has litigated more than 25 qui tam matters brought under the False Claims Act, including matters alleging cost mischarging, CAS violations, quality assurance deficiencies, substandard products, defective pricing, Iraqi procurement fraud, health care fraud, and inadequate subcontractor oversight. He has testified before Congress concerning proposed amendments to the False Claims Act.

Peter has also conducted numerous internal investigations and frequently advises clients on whether to make disclosures of potential wrongdoing.

Peter also represents clients in a wide range of accounting, cost, and pricing matters, as well as other contract and grant matters. He is experienced in addressing issues concerning pensions and post-retirement benefits, contract formation, TINA and defective pricing, claims and terminations, contract financing, price reduction clauses, subcontracting and supply chain compliance, specialty metals compliance, and small business and DBE compliance. He has litigated significant cost, accounting, and contract breach matters in the Court of Federal Claims and the Armed Services Board of Contract Appeals.

Peter is recognized for his work both in government contracts and in False Claims Act disputes by Chambers USA, which notes that he is “whip-sharp, wicked smart and will advocate to the hilt for his clients.” Chambers also notes that “Peter brings a lot of thoughtfulness and creativity to cases. He is extremely clear in his communications and very responsive.”

Photo of Nooree Lee Nooree Lee

Nooree is a Partner in Covington’s Government Contracts practice.  He represents government contractors in all aspects of the procurement process and focuses his practice on the regulatory aspects of M&A activity as well as foreign military sales and other international contracting matters.