How contractors use FOIA to spy on one another

The Freedom of Information Act might be best known as a way for journalists and public interest groups to get information about the operations of government. Bu...

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The Freedom of Information Act might be best known as a way for journalists and public interest groups to get information about the operations of government. But it can also be a tool for companies to get confidential information about their competitors. Safeguarding that information has gotten more complicated in the last few years. Because the state of the law around the FOIA exemption that applies to things like trade secrets, it’s all in flux. Nathan Castellano is a special counsel in the government contracts group at Jenner and Block. He wrote a recent briefing paper about these complications and talked about them with Federal News Network’s Jared Serbu on the Federal Drive with Tom Temin.

Interview transcript:

Nathan Castellano: FOIA is designed to bring transparency to federal government operations. It does that by allowing any person to request government records. So when a company shares information with the federal government, that information becomes a government record that can then be subject to a FOIA request. And while we often think about this, in terms of journalists in the media, the statute really doesn’t care who the requester is, or their motives. It could be a journalist, just the same as it could be your market competitors. So if your company is sharing proprietary or sensitive business information with the federal agency, whether you’re sharing it with your customer, or your regulator, that information is at risk of being caught up in a FOIA request and released to the public. And that’s where FOIA exemption four comes into play. Right? FOIA starts by giving the public a broad right to request records. But it doesn’t give the public a right to everything. You can’t get sensitive national security information, you can’t get law enforcement records, you can’t get veteran health records. You also can’t get under exemption four, proprietary confidential commercial information. So to answer the question, the reason companies sharing sensitive information with the government need to care about FOIA exemption four is  FOIA exemption four is how companies can protect the information they share with agencies. So when a court issues a decision that strengthens exemption four or weakens it, that has a direct impact on how contractors can protect their confidential information.

Jared Serbu: And this concept that companies can get information under FOIA. That’s not just a hypothetical. Based on the FOIA logs that I’ve looked at, in which journalists are a minority of the requesters. It’s it happens every day, right?

Nathan Castellano: Yeah, that’s a it’s a legitimate business model.

Jared Serbu: And so let’s talk about how exemption four has changed. I think the main movement was the Supreme Court decision in a case called Argus Leader a few years back and then prior to that there was the FOIA Improvements Act, which has changed a lot about how exemption four operates. And I think it’s still changing and litigation that’s followed on after that Argus Leader case, right? What’s still in flux?

Nathan Castellano: Yeah, so I think everything is in flux. And  the key point is that Argus Leader decision in 2019. So for several decades, most exemptions for disputes were handled under constant line of DC circuit precedent, where the main point of dispute is whether the company could show competitive harm. Would releasing this information cost competitive harm? And that’s what the case is turned on. So actually, you had detailed declarations. You had legal argument on that competitive harm issue. The thing is, FOIA exemption four, the statutory provision doesn’t say anything about competitive harm. And a few years ago, an exemption four case, Argus Leader, gets to the Supreme Court, the court looks at the statute and says there is no competitive harm issue here, as long as commercial information is actually confidential. That it must be protected under exemption four regardless of competitive harm. So this happens in 2019, everyone has to go back to the drawing board and work through the implications. And we still have a lot of unanswered questions that are bigger than just what was at issue in Argus Leader. And we’ve got a lot of decisions coming out, digging into these questions and coming up with important opinions that really matter if you’re in a FOIA decision. So I’ve got I think four of them kind of teed up of just quick little issues. At a minimum,  you can’t assume that everything you knew about FOIA from five years ago still stands. If you’re gearing up for a FOIA dispute, you really need to be watching these decisions, thinking strategically and creatively about your positions. Instead of focusing primarily on competitive harm, courts and parties are now more interested in just a general question of confidentiality. How exactly did the company store this information? Who was the information shared with and under what terms? Why did the company expect the government to keep the information confidential once it was shared? These weren’t foreign to exemption for litigation before Argus Leader but now they’re really at the center stage. And they require the same kind of factual and legal development that you might have given to competitive harm five years ago. there’s also a lot of disagreement in the courts over what types of information can constitute commercial information. So before we even get to is this competitive, is this confidential? Is it commercial? The circuits were never perfectly aligned on this point, but the division is becoming a lot more significant. And it’s another potentially fact tensive issue that the parties need to prepare for that might not have gotten as much attention before Argus Leader. And finally, you mentioned  the FOIA Improvement Act of 2016. At the time this really wasn’t thought of as a big deal, because the DC circuit had already required courts to look at competitive harm and the FOIA Improvement Act was not at issue in Argus Leader because  FOIA requests happen to be filed before the statute went to effect. But after Argus Leader, the Supreme Court says there is no competitive harm test, you have courts looking at the FOIA Improvement Act saying, Well, looks like Congress might have actually codified a competitive harm test in that statute. Courts are all over the place on this, you’ve got direct division in the various district courts. And so you might have a court, you might come thinking, hey, obviously, you’re wiped out the competitive harm test just to have the district court say, no, Congress put it back in 2016.

Jared Serbu: And Nathan, a lot of the issues that you just teed up for us are the kinds of things that lawyers need to think about and worry about, once they’re at the point where they’re involved in FOIA litigation, or, you know, at risk of getting into FOIA litigation. What can companies do ahead of time to make sure that things don’t get to that point or minimize the risk? That information that they don’t want getting into a competitors hands actually gets released by an agency?

Nathan Castellano: Yeah, so I think that’s the dichotomy there between what the lawyers need to be doing and what the company can do on the front end is really important, because with the shift away from competitive harm and toward questions, that is  commercial, is it confidential. The courts are really focusing on things that you can’t change during litigation, you can’t prepare for that you really have to prepare before the document is submitted.  So what companies can do is before they even share information with the government, before you click send on that next document, identify the individuals and teams that are going to be sharing information and train them to understand what they need to be doing. They need to be marking documents the right way: confidential commercial information. They might need to be having certain conversations with agency officials to make sure they’re conveying that this information that the company considers it confidential. Companies also in order to really button down that confidentiality point, make sure they’ve got their internal policies and procedures ready to show “Listen, here are document access protocols, only people who access this document are certain number of pre-approved people, all of our employees have general confidentiality obligations, if we’re going to share this material with suppliers and vendors, we have an NDA in place”. Those are the kinds of things that, you know, they’re really not legal issues. They’re just process and confidentiality points that companies can think about in advance to make sure they have all of that in place so that when a FOIA request comes in, they’re able to give the agency everything the agency needs to withhold the information, if that’s appropriate.

Jared Serbu: And under the law, as it stands, now, to the extent that we have law that stands now on this issue, how much does it matter? Or does it matter that the agency gives the vendor who’s providing the information, some kind of assurance of confidentiality? And have agencies changed their behavior on that front at all, providing more assurances or doing more to safeguard that information so that companies feel comfortable submitting it?

Nathan Castellano: So this was the big question within the first six months after Argus Leader was “Oh, no, it is the Supreme Court now requiring that in order to withhold information you need, you know, a formal document from the agency saying we have agreed to withhold to keep this confidential?”. And luckily, I think that’s not how the courts, the Department of Justice, or the agencies have gone about this. The Department of Justice issued some guidance after the Argus Leader case, indicating that you could have implied assurances of confidentiality. Just to back up a second, the Supreme Court didn’t even actually answer whether or not the assurance was required. They left it open. But in doing so they created a question that everyone had to grapple with. You’ve got some courts, particularly in the DC circuit, that have said they’re prohibited by precedent from even imposing that obligation until the Supreme Court actually requires it, or the DC circuit does something. So some courts won’t even look at it. You have other courts that have been pretty friendly, going along with Department of Justice, guidance and agreeing that you can have implied assurances of confidentiality. So the courts aren’t looking for a really strict piece of paper saying, yes, we agree to keep this confidential. They’re willing to read it into the context of the exchanges. So if you’re exchanging emails with an agency and you’re marketing things as confidential, and you’re warning them, hey, we consider this confidential. You might not even need that express assurance to still be covered. There’s a question of comfort, at the time of submission of what you’re comfortable with. But the decisions we’ve seen so far, at least have been willing to really look and say, given the totality of the circumstances, was it fairly implied that the agency would keep it confidential?

Jared Serbu: It’s maybe a silly question. But since there is a split in the courts right now, does it matter what circuit you’re in? Which rules you need to be thinking about or which legal rubric applies to you and your company?

Nathan Castellano: Yes, I think that’s that’s another one of the major implications. It’s come back in a couple of in the past couple years, you know, 10 years ago, you might have just looked at DC circuit precedent felt like if you knew the DC circuit rules, you could pretty much be fine anywhere. Now, you’re really seeing the differences in the circuits come up, and you’re seeing it mostly in the issue of what is commercial. The DC circuit courts have been more willing to recognize information as commercial, even when it’s more limited, for example, to compliance information, because recognizing that in highly regulated industries, compliance information is commercially valuable. In other circuits, like the ninth circuit and the second circuit, been a little less willing to take that expansive view. It’s not to say that they would or wouldn’t protect that information. But it’s not quite as not quite as clear. And on issues like whether the FOIA Improvement Act does require showing of competitive harm, whether or not, what the standard is for that implied or express assurance of confidentiality, I think it really does matter what circuit you’re in. And you really do have to think, you know, where is this litigation going to be filed? Where is the FOIA requests you’re gonna file? Are they going to file and if it’s reversed FOIA case where you’re trying to stop an agency from releasing your information? Where are you best positioned? So forum shopping, to the extent it hasn’t been a huge part of FOIA litigation in the past, I think really will be in the next couple of years.

Tom Temin: Nathan Castellano is special counsel in the government contracts group at Jenner and Block.

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