Can government and industry conspire to thwart FOIA? A critical analysis of Critical Mass III.

• Author: Long, Patrick

Cite as 13 J. High. Tech. L. 136 (2012)

1. Introduction

   There are multiple reasons the government may have access to a private entity's trade secrets. Trade secrets may be acquired from government contractors as part of a purchase (e.g. military technology which must remain classified and thus cannot be patented). (1) Research where the government is a grantor or partner may allow government personnel to become aware of confidential information. (2) Regulators or legislators may request confidential information in making decisions about what the law should be. (3) Information may be required by regulators in order to approve certain conduct (e.g. mergers, drug sales). (4) And the list goes on. Most of these types of disclosure are voluntary, at least in a sense. Refusal to disclose military technology forecloses the possibility of selling it to the government, but does not cause government retaliation. (5) Refusal to disclose secret information to regulators such as the Food and Drug Administration, however, can result in total inability to sell a regulated product in the United States. (6)

   Cases dealing with disclosure have reached conflicting results. The Supreme Court held, in Ruckelshaus v. Monsanto (Monsanto), (7) that disclosure of a trade secret may be an unconstitutional taking if the trade secret owner was forced to give the trade secret information to the government or gave it subject to a promise that it would not be disclosed. (8) But the D.C. Circuit held in a later case that information the trade secret owner is forced to give to the government is not entitled to as much protection as information given to the government voluntarily. (9) Further, it held that although an agency could compel a regulated company to submit information, and would then be required to disclose it to the public, nothing in the law prevents industry and government from conspiring together to protect companies from disclosure of embarrassing information through voluntary submission of information that the government would otherwise compel submission of. (10) The result is a system where many regulatory bodies, including the Nuclear Regulatory Commission, do exactly that. (11) In some situations, the D.C. Circuit's principle cannot be squared with the Supreme Court's Monsanto decision.

   This note looks at the legal conflicts involved when demands for government transparency clash with the need to protect trade secrets. Section II describes the development of two occasionally conflicting strands of the law. Subsection A discusses the development of trade secrets law, especially as applied when the government possesses trade secrets. Subsection B covers the evolution of laws promoting government transparency. Section III takes a closer look at the conflict between Monsanto and Critical Mass III, two of the foundational cases dealing with the conflict between trade secrets and government transparency. Section IV looks for ways to address the conflicts between these disparate rulings. Section V concludes the note by reaffirming the fundamental conflict between Monsanto and Critical Mass III.

2. History

   1. Definitions of Trade Secrets

      In Monsanto, the Supreme Court for the first time held that trade secrets are property, with the specific rights property rights the owner is entitled to being dependent on the relevant state law in the absence of a federal definition of trade secrets. (12) Under the Fifth Amendment, trade secrets' status as property rights means they cannot be disclosed by the government without due process of law. (13) When it comes to intangible property whose value lies in the fact that it is a secret, disclosure, by virtue of destroying the economic value of the property, would be a taking (14) and thus a violation of the takings clause. (15) Protecting property rights first requires understanding what those rights are. (16) Federal law is unclear on what is a trade secret.

      The Freedom of Information Act (FOIA), adopted in 1966, promotes the general principle of open and transparent government. (17) FOIA requires the disclosure of all federal executive branch records unless they qualify for exemption in one of nine categories, including Exemption 4, covering "trade secrets and commercial or financial information obtained from a person and privileged or confidential." (18) The inclusion of trade secrets as an exemption was interesting because FOIA does not provide a definition of the term "trade secrets." (19) No general definition of trade secrets exists in other federal statutes, (20) though a handful of laws adopted long after the original FOIA do address limited aspects of trade secret protection. (21)

      Without a definition, the federal government's obligations regarding trade secrets are unclear. (22) By contrast, because trade secret protection is primarily a creation of state law, a state freedom of information act (public records law, etc.) which fails to define trade secrets is not a major issue. (23) There are ample other statutory or common law definitions of the term, clarifying the rights of trade secret owners in general and making it easier to determine the rights of people who do business with the government. (24) Most significantly, at least forty-six states and the District of Columbia have adopted the Uniform Trade Secrets Act (UTSA) since its development in 1985. (25) UTSA defines a trade secret as:

      information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (26) Similar to the UTSA, the Economic Espionage Act (EEA) defines trade secret broadly, with only minor differences. (27) However, the EEA applies only to misappropriation of trade secrets. (28) It does not address "improper" disclosure or taking of trade secrets short of misappropriation, or specify what rights the originator of a trade secret has once a trade secret has been stolen. (29) These absences are important because unlike rights in tangible property, rights to a trade secret can be lost upon its being taken if the owner failed to safeguard it properly, or if it has been disclosed to anyone who might benefit economically from the disclosure, regardless of how prudent the owner was (depending of course on the jurisdiction's law). (30)

      The Economic Espionage Act defines trade secret similarly, but substituting "the public" in place of "other persons who can obtain economic value from its disclosure or use." (31) The Federal Acquisition Regulation, the regulation governing the federal government's purchase of goods and services, has a more limited definition covering a "proprietary interest" in "data resulting from private investment." (32)

      The 1994 Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) (33) muddies the definition question further by providing yet another possible definition of "undisclosed information" which closely tracks definitions of "trade secrets". (34) The World Trade Organization, the organization responsible for enforcing TRIPS, considers "undisclosed information" to be a somewhat broader category of protection than trade secret. (35)

      There is also a statute making it a crime for a federal employee to disclose a valid trade secret. (36) That statute provides no definition of "trade secret". (37) The statute, 18 U.S.C. [section]1905, one short paragraph in a chapter of the US Code otherwise devoted to good government moves such as prohibition of lobbying with federal money and limiting nepotism, (38) creates a disincentive to disclose any information that might be a trade secret, whether it really is or not. (39)

      Among all the federal statutes, the Economic Espionage Act is probably the best guideline for interpreting the term "trade secret" as used in the FOIA. (40) Even though the FOIA was adopted thirty years prior to the Economic Espionage Act, the FOIA has been amended as recently as 2007 with no attempt to define the term, indicating likely acceptance of the definition used in the Economic Espionage Act. (41) However, when dealing with civil issues centered on the FOIA, it is possible that courts will favor the UTSA definition over the Economic Espionage Act definition. The reason is that the Economic Espionage Act is a criminal statute, while the UTSA is meant to cover civil penalties for improperly acquiring trade secrets.

      The UTSA addresses the issue of "improper" acquisition of trade secrets, mentioning in the first Comment that this can apply to acquisition of trade secrets through otherwise legal activity, not just through illegal activity. (42) Case law known to Congress when the Economic Espionage Act was enacted supports this notion; in one famous case, the defendant hired an aerial photographer to fly over the plaintiff's plant and photograph it during construction. (43) Flying over and photographing the plant with no purpose related to economic competition would have been legal, but was not a proper means of acquiring a trade secret. (44)

      Trade secrets have no federal protection from "improper" but otherwise legal acquisition. Additionally, there are no federal rules determining rights to a trade secret once it has been illegally acquired. (45) This absence potentially has a major impact on the rights of trade secret owners in the event of a security breach. (46) If one person's illegal acquisition of a trade secret kills all rights to the secret, the government is then obligated to disclose it to anyone who asks for it, unless another FOIA exemption applies, because a trade secret is no longer valid once disclosed to the relevant public. (47) If the secret remains a trade secret until it is...