Steve McDaniel and Jon Hurt, Contributing Writers12.15.14
Ahh, the glory of a transparent government. Everyone can find out what is being done in an open manner when the taxpayers’ dollars are being spent. That’s a good thing, unless it involves your trade secrets.
One way this can occur is through the Freedom of Information Act (FOIA). Any information that the government possesses that is not classified can be disclosed upon, request by a member of the public, using FOIA. And, if the government possesses your trade secrets . . . well, FOIA can be used to force the disclosure of your trade secrets . . . even to your competitors! If you’re not careful. Let’s talk about being careful, shall we?
So, how would the government get its hands on your hard earned proprietary information? Typically, it is through one of two routes. The first is disclosure of the trade secret in a bid submission for, or actual work on, a government project. The second is disclosure due to a mandatory requirement of, or request by, a regulatory agency (e.g., the Environmental Protection Agency, the Occupational Safety and Health Administration, etc.) overseeing part of your business’s conduct. Once in the hands of one government agency your information may pass to other government contractors or agencies, or in some circumstances be part of a required release to a third party, or be subpoenaed during a legal proceeding (that’s a topic for the next iPaint column, how to keep your trade secrets under seal during court proceedings).
Before you can try to protect your proprietary/trade secret information from possible public release by the government, you need to understand what THEY consider to be proprietary information. And, naturally, the answer is in the gray zone. Proprietary information is not defined in federal legal code, but a definition is found in the Federal Acquisition Regulation (48 CFR 27.402(b)) which relates to government contractors: “Contractors may have proprietary interests in data. In order to prevent the compromise of these interests, agencies shall protect proprietary data from unauthorized use and disclosure. The protection of such data is also necessary to encourage qualified contractors to participate in and apply innovative concepts to Government programs. In light of these considerations, agencies shall balance the Government’s needs and the contractor’s legitimate proprietary interests.” Well, that’s reassuring, sort of. Truth be told, however, regulatory agencies may each have their own spin on this balance of Government’s needs vs. your vital commercial interests, so you should become familiar with how the line is draw in for each agency when you cross-paths and they seek access to your trade secrets.
To protect yourself, you need to tip the “government need” vs. your interest balance by minimalizing the amount you disclose while adding as much weight as possible to “your interest” in the disclosure to the Government. This can be done by a process of evaluating the consequences of public release for each document, particularly in the case when you are considering seeking a government contract. For this mathematical word problem, you should assume that all the information will be released to the public via a FOIA request, and calculate the damages to your business. Then decide if the value of the potential government contract is worth the risk. If you can eat the loss, then go ahead and seek the government as a client.
In the case of a request/demand for information by a government agency, determine what if any disclosure is absolutely required before coughing the info up. If you are going to proceed to disclose information to the government, try to obtain a confidentiality agreement with the agency prior to transferring your data. Purge any data that is unnecessary, such as personal information (i.e., social security numbers, names, addresses, etc.) as appropriate (though itself FOIA does provide an exemption to the disclosing agency from disclosing this type of information, let’s follow the “better safe than sorry” guidelines), and only disclose the minimum amount of proprietary or confidential information possible.
Now comes the fun part of preemptively trying to scare off disclosure of your commercial secrets . . . invoking one of the exemptions to FOIA and keeping your information from being released. The most relevant of these techniques is Exemption 4 to the FOIA (5 U.S.C. § 552(b)(4))which states “this section does not apply to matters that are … trade secrets or commercial or financial information obtained from a person and that is privileged or confidential.” To get a leg up on having this exemption followed with your trade secret information, consider these rules of thumb.
Label confidential information as such per the guidelines for the agency involved or provide your own labeling of confidential information to distinguish from non-confidential information (if the agency doesn’t have such guidelines). Having said that, the lack of such guidelines by the agency does not inspire confidence that the agency has its act together. So, maybe you should reconsider if the disclosure is actually mandatory. The default labeling in such situations would be something along the lines of prominently displayed and emphasized “CONFIDENTIAL TRADE SECRET INFORMATION” “COMPANY PROPRIETARY” or “COMPANY SENSITIVE” and “CONFIDENTIAL INFORMATION MUST BE DELETED PRIOR TO RELEASE TO THE PUBLIC.” To really drive the message home, provide a copy with the information already redacted with a cover letter describing the non-redacted and redacted submissions, and clarifying that only the redacted submission will be used if the information is released for any reason. Also add a highly visible “request to be notified so you may make comment” in the documents if they are sought for by others. When submitting electronic files and data, consider using file markers and screen displays to flag the information as confidential. Hopefully all this extra ink will add enough weight to tip the balance in your favor.
Generally, a federal agency makes the call as to whether the information falls under a trade secret exemption and does not have an obligation to notify you of a request for information under FOIA. But, if you do receive such a notice you may try to stop the release under the Administrative Procedures Act (i.e., a reverse FOIA request). Also, be aware that when dealing with a state rather than federal agency, individual state laws apply and you should have a local counsel ready to guide you through with the governing state statues. FYI, some states are far less concerned about respecting trade secrets than others.
So, when push comes to shove, how have these types of issues played out in the real world in recent years?
One near and dear to the hearts of us in the specialty chemical and coatings industries is chemical compositions of our products. In the case of the chemicals used in fracking oil and natural gas deposits, which various environmental groups and agencies have taken an interest in, the “balance” between trade secrets and public disclosure adopted by the Department of Energy was to report lists of raw chemicals used but not the specific products those chemicals are used in.
Another one that we in the biz may encounter is a required disclosure of internal operating procedures. In a case involving HR policies proprietary to a business operation, SeaWorld’s safety protocols came under scrutiny by the Occupational Safety and Health Administration (OSHA) after a trainer’s death. Though a preliminary ruling by an administrative law judge held that SeaWorld’s safety protocols were to be released, the deadline passed without release by OSHA. This was apparently due to SeaWorld maintaining its claim that these protocols were trade secrets, and OSHA apparently feared prosecution. Not an unfounded fear, since unlawful disclosure of a trade secret by a federal government employee is punishable by up to a year in prison.
The take home message: get in there early and fight hard to keep what is yours from slipping out from between Uncle Sam’s fingers. Because no one loves your trade secrets as much as you do, except maybe your competitors.
One way this can occur is through the Freedom of Information Act (FOIA). Any information that the government possesses that is not classified can be disclosed upon, request by a member of the public, using FOIA. And, if the government possesses your trade secrets . . . well, FOIA can be used to force the disclosure of your trade secrets . . . even to your competitors! If you’re not careful. Let’s talk about being careful, shall we?
So, how would the government get its hands on your hard earned proprietary information? Typically, it is through one of two routes. The first is disclosure of the trade secret in a bid submission for, or actual work on, a government project. The second is disclosure due to a mandatory requirement of, or request by, a regulatory agency (e.g., the Environmental Protection Agency, the Occupational Safety and Health Administration, etc.) overseeing part of your business’s conduct. Once in the hands of one government agency your information may pass to other government contractors or agencies, or in some circumstances be part of a required release to a third party, or be subpoenaed during a legal proceeding (that’s a topic for the next iPaint column, how to keep your trade secrets under seal during court proceedings).
Before you can try to protect your proprietary/trade secret information from possible public release by the government, you need to understand what THEY consider to be proprietary information. And, naturally, the answer is in the gray zone. Proprietary information is not defined in federal legal code, but a definition is found in the Federal Acquisition Regulation (48 CFR 27.402(b)) which relates to government contractors: “Contractors may have proprietary interests in data. In order to prevent the compromise of these interests, agencies shall protect proprietary data from unauthorized use and disclosure. The protection of such data is also necessary to encourage qualified contractors to participate in and apply innovative concepts to Government programs. In light of these considerations, agencies shall balance the Government’s needs and the contractor’s legitimate proprietary interests.” Well, that’s reassuring, sort of. Truth be told, however, regulatory agencies may each have their own spin on this balance of Government’s needs vs. your vital commercial interests, so you should become familiar with how the line is draw in for each agency when you cross-paths and they seek access to your trade secrets.
To protect yourself, you need to tip the “government need” vs. your interest balance by minimalizing the amount you disclose while adding as much weight as possible to “your interest” in the disclosure to the Government. This can be done by a process of evaluating the consequences of public release for each document, particularly in the case when you are considering seeking a government contract. For this mathematical word problem, you should assume that all the information will be released to the public via a FOIA request, and calculate the damages to your business. Then decide if the value of the potential government contract is worth the risk. If you can eat the loss, then go ahead and seek the government as a client.
In the case of a request/demand for information by a government agency, determine what if any disclosure is absolutely required before coughing the info up. If you are going to proceed to disclose information to the government, try to obtain a confidentiality agreement with the agency prior to transferring your data. Purge any data that is unnecessary, such as personal information (i.e., social security numbers, names, addresses, etc.) as appropriate (though itself FOIA does provide an exemption to the disclosing agency from disclosing this type of information, let’s follow the “better safe than sorry” guidelines), and only disclose the minimum amount of proprietary or confidential information possible.
Now comes the fun part of preemptively trying to scare off disclosure of your commercial secrets . . . invoking one of the exemptions to FOIA and keeping your information from being released. The most relevant of these techniques is Exemption 4 to the FOIA (5 U.S.C. § 552(b)(4))which states “this section does not apply to matters that are … trade secrets or commercial or financial information obtained from a person and that is privileged or confidential.” To get a leg up on having this exemption followed with your trade secret information, consider these rules of thumb.
Label confidential information as such per the guidelines for the agency involved or provide your own labeling of confidential information to distinguish from non-confidential information (if the agency doesn’t have such guidelines). Having said that, the lack of such guidelines by the agency does not inspire confidence that the agency has its act together. So, maybe you should reconsider if the disclosure is actually mandatory. The default labeling in such situations would be something along the lines of prominently displayed and emphasized “CONFIDENTIAL TRADE SECRET INFORMATION” “COMPANY PROPRIETARY” or “COMPANY SENSITIVE” and “CONFIDENTIAL INFORMATION MUST BE DELETED PRIOR TO RELEASE TO THE PUBLIC.” To really drive the message home, provide a copy with the information already redacted with a cover letter describing the non-redacted and redacted submissions, and clarifying that only the redacted submission will be used if the information is released for any reason. Also add a highly visible “request to be notified so you may make comment” in the documents if they are sought for by others. When submitting electronic files and data, consider using file markers and screen displays to flag the information as confidential. Hopefully all this extra ink will add enough weight to tip the balance in your favor.
Generally, a federal agency makes the call as to whether the information falls under a trade secret exemption and does not have an obligation to notify you of a request for information under FOIA. But, if you do receive such a notice you may try to stop the release under the Administrative Procedures Act (i.e., a reverse FOIA request). Also, be aware that when dealing with a state rather than federal agency, individual state laws apply and you should have a local counsel ready to guide you through with the governing state statues. FYI, some states are far less concerned about respecting trade secrets than others.
So, when push comes to shove, how have these types of issues played out in the real world in recent years?
One near and dear to the hearts of us in the specialty chemical and coatings industries is chemical compositions of our products. In the case of the chemicals used in fracking oil and natural gas deposits, which various environmental groups and agencies have taken an interest in, the “balance” between trade secrets and public disclosure adopted by the Department of Energy was to report lists of raw chemicals used but not the specific products those chemicals are used in.
Another one that we in the biz may encounter is a required disclosure of internal operating procedures. In a case involving HR policies proprietary to a business operation, SeaWorld’s safety protocols came under scrutiny by the Occupational Safety and Health Administration (OSHA) after a trainer’s death. Though a preliminary ruling by an administrative law judge held that SeaWorld’s safety protocols were to be released, the deadline passed without release by OSHA. This was apparently due to SeaWorld maintaining its claim that these protocols were trade secrets, and OSHA apparently feared prosecution. Not an unfounded fear, since unlawful disclosure of a trade secret by a federal government employee is punishable by up to a year in prison.
The take home message: get in there early and fight hard to keep what is yours from slipping out from between Uncle Sam’s fingers. Because no one loves your trade secrets as much as you do, except maybe your competitors.
