When is a trade secret not so secret? The deficiencies of 40 C.F.R. Part 2, Subpart B.

• Author: Lewis, Christopher J.
• Position: Code of Federal Regulations

Current environmental law attempts to balance the public's right to information about the environment with business and industry's legitimate need to keep certain competitive information confidential. Despite being economically impacted by the explosion of environmental regulation in the past thirty years, business and industry have managed to find various ways to manipulate the system and protect alleged trade secrets that environmental laws would otherwise make available to the public. On the other hand, this Comment argues, when a business has a legitimate trade secret and has taken the necessary steps to protect it, various regulatory deficiencies may lead environmental agencies to divulge it. This Comment discusses 40 C.F.R. part 2, subpart B--the central codification of trade secret protection of the Environmental Protection Agency (EPA) for most environmental statutes. That codification, however, does not apply to the federal Emergency Planning avid Community Right to Know Act (EPCRA), which has its own set of procedures. This Comment addresses the many deficiencies of subpart B and advances the idea that its framework should be overhauled to align itself with the protection scheme of EPCRA. In doing so, business will not only receive more consistent protection, but the public will be assured that only true trade secrets will receive the requisite statutory level of protection. I. INTRODUCTION

In Bhopal, India, more than two thousand people died--many dropping dead on the spot--as a result of an accidental airborne release of a highly toxic chemical, methyl isocynate.(1) In Upstate New York, over twenty thousand gallons of toxic effluent were discharged into the abandoned Love Canal. Waste oozed into basements and back yards of nearby homes, killing trees, plants, and animal life.(2) Direct impacts on residents included an abnormally high number of miscarriages, birth defects, headaches, respiratory problems, cancerous tumors, and liver and kidney diseases.(3) In Times Beach, Missouri, an oil company combined "still bottom" residue containing dioxins with waste oil and used the concoction for dust control over riding arenas, roads, and residential areas.(4) This action not only medically affected several people, but also so polluted the environment that the taxpayers had to spend millions of dollars to remediate the contamination.(5) This is a short but notorious list of examples of environmental disasters that have helped drive the environmental legislation bus.

As a result of catastrophic environmental discharges, Congress has periodically enacted legislation in hopes of reducing future incidents. It has passed various statutes creating a coherent compliance system that requires industry to actively manage its hazardous materials and resulting waste, including 1) the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)(6); 2) the Resource Conservation and Recovery Act (RCRA)(7); 3) the Federal Emergency Planning and Community Right to Know Act (EPCRA)(8); and 4) the Toxic Substances Control Act (TSCA).(9) Prior to these management acts, Congress embarked on its environmental reform journey by enacting two other statutes that regulate discharges to the environment--the Clean Water Act (CWA)(10) and the Clean Air Act (CAA).(11) Congress's enactment of these statutes, and EPA's subsequent interpretation and enforcement of the acts, have had far reaching effects.(12)

One area of business particularly affected by environmental regulation is confidential business information (CBI), which includes trade secret protection.(13) Trade secrets are essentially property rights that give the proprietor an advantage over the competition and thus provide the economic incentive to continue to produce better products.

Statutes spawned from health and environmental catastrophes have given EPA relatively broad-sweeping authority to collect business and industry process information, such as information regarding effluent composition, material usage, and production processes. Much of this information is confidential and theoretically protected from disclosure under the federal Trade Secrets Act (TSA).(14) However, required disclosure of protected information to EPA often results in this information being made available to the public, especially through Freedom of Information Act (FOIA)(15) requests. Industry asserts, and EPA acknowledges, concerns over environmental reporting requirements and the possibility of trade secrets falling into the hands of competitors.(16) To remedy this situation, Congress included provisions in each act for protecting confidential information.

EPA has had difficulty in striking the appropriate balance between protecting trade secrets and meeting its statutory obligations of compiling, assessing, and providing to the public information regarding business and industry's potential effect on health, safety, and the environment. Because the enactment of the major environmental statutes occurred over the course of the last twenty-five years,(17) the degree of protection for trade secrets has varied from one statute to another. EPA attempted to resolve this variability by adopting 40 C.F.R. part 2, subpart B (subpart B).(18) Subpart B is EPA's attempt to consolidate trade secret protection provisions included in the reporting statutes--the CAA, the CWA, RCRA, CERCLA, and TSCA.(19) In addition, EPA has separate regulations protecting trade secrets pursuant to EPCRA.

This Comment investigates the trade secret protection that various environmental statutes--the CWA, the CAA, TSCA, RCRA, and EPCRA--afford. Part II discusses the importance of trade secrets and the protection they are afforded under environmental protection acts. Part III discusses trade secret protection under federal trade secret statutes and regulations. Part IV will attempt to reconcile the respective coverage of trade secrets under subpart B and EPCRA. In Parts V and VI, this Comment concludes that the protection subpart B provides is severely lacking and significantly pro-industry; thus, it should be amended to conform with EPCRA protection standards to achieve the optimum balance between the preservation of human health and the environment and trade secret protection.

2. TRADE SECRET PROTECTION IN ENVIRONMENTAL PROTECTION ACTS

   EPA administers a number of statutes designed to protect human health and the environment.(20) Its administration includes promulgating rules, collecting information, evaluating compliance, and ultimately enforcing the law. To carry out these tasks, EPA engages in a variety of data collection activities. "The agency collects chemical, process, waste stream, financial, and other data from tens of thousands of facilities in many sectors of American business. Companies frequently consider this information vital to their competitive position, and claim it as confidential information."(21)

   FOIA, however, provides the public a direct means of obtaining information held by federal agencies.(22) Enacted in 1966, "FOIA ... entitles members of the public to access records maintained by federal agencies, including, of course, compliance reports submitted to EPA."(23) To offset unfettered access, FOIA provides nine exceptions to this general rule; the fourth exemption (exemption four) exempts trade secrets and confidential business information from disclosure.(24) Because of exemption four, EPA is required to classify claimed trade secrets either as confidential--which allows EPA to refuse disclosure--or as not confidential--which means that EPA must release the information to any proper requester.(25) It is this trade secret exemption that is often a source of contention between the public and industry.

   Early on, EPA recognized the need to codify procedures to deal with industry claims of confidentiality and subsequent FOIA demands for such information. Thus, in 1975 EPA proposed a rule that would establish guidelines and procedures for the handling of trade secrets. This rule was codified as 40 C.F.R., part 2, subpart B.(26) EPA's purpose in promulgating the rule was to "state clearly and explicitly the substantive rules which EPA will apply, so that both submitters of such information and those who request that it be made available to the public will be better aware of EPA policy."(27)

   The practical effects of subpart B on industry are best illustrated through a specific example.(28) Suppose that HALACO is an emerging manufacturer of high-grade silicone wafers for computer chip makers. HALACO has developed a new technique that allows the wafers to better conduct heat, significantly improving the current thermal capacity of computer chips. In addition to potentially revolutionizing the industry, the technique is elementary. All it requires is that arsenic be added to the raw silicone slurry prior to the wafer solidification process. HALACO has chosen to protect this information as a trade secret, instead of subjecting itself to the rigors of the patent application process.(29)

   In order to ensure the secrecy of the arsenic addition, HALACO has taken affirmative steps to protect its secret. First, only five people know that arsenic is added--the facility CEO, Operations Manager, Procurement Manager, Environmental Compliance Officer, and of course, the research and development scientist who developed the process. Moreover, the trade secret is so economically important to the company that HALACO bubbles an inert gas through the slurry to mask the arsenic, in case competitors attempt to reverse-engineer the chip material.(30)

   In order to support its new manufacturing process, HALACO constructed a new facility. The facility will discharge waste to both a nearby stream and to the air. Additionally, HALACO will store sizeable quantities of hazardous materials--arsenic and various solvents--and generate solid waste. As a result, HALACO is subject to EPA regulation under the CWA, the CAA...