On September 3, 2014, the Department of Defense (DoD) issued a proposed rule updating its policies and procedures implementing the Freedom of Information Act (FOIA), including FOIA Exemption 4. FOIA Exemption 4 exempts from disclosure "trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential."

Federal contractors and other companies routinely submit to the government information that may constitute trade secrets and confidential commercial or financial information. This can occur in connection with submitting proposals for federal contracts and grants and in responding to government requests for information.

When the government receives a FOIA request for records that may contain the trade secrets and confidential commercial or financial information of a private party, it typically provides notice to the private party and asks whether the party has an objection to the release of the information at issue. If so, the government will require that the party demonstrate that the records at issue contain material exempt from disclosure under FOIA. If the government disagrees with the private party regarding eligibility for exemption and states that it intends to disclose the information at issue, the party can file a federal court action, seeking to enjoin disclosure of this information.

This update describes the revised terms covering DoD's Exemption 4 policies and procedures and identifies key considerations that contractors and other entities submitting information to the government should bear in mind whenever the government gives notice of third-party FOIA requests.

Clarification of DoD's Exemption 4 Policies

DoD's proposed rule clarifies how it will apply Exemption 4 and seeks to harmonize this policy with case law that has developed over time. The proposed rule provides a more succinct description than the existing regulation regarding categories of information that the exemption is intended to protect, specifically (1) trade secrets or (2) information that is (A) commercial or financial, (B) obtained from a person or entity outside of the federal government, and (C) privileged or confidential.

The proposed rule continues to treat confidential or financial information differently depending on whether or not the submitter provided it voluntarily to the government. DoD states that information that is voluntarily submitted to the U.S. government may be "categorically protected," provided it is not customarily disclosed to the public by the submitter.

Submissions to the government responding to a federal solicitation, however, are not treated as voluntary. For commercial or financial information that is not submitted voluntarily, DoD's proposed rule identifies a three-part test to determine whether it will be considered confidential, based upon whether its disclosure is likely to (1) impair the government's ability to obtain necessary information in the future (known as the "impairment prong"); (2) harm an identifiable private or public interest; or (3) cause substantial harm to the competitive position of the person providing the information.

Points for Contractors Seeking to Protecting Their Information From FOIA Disclosure

Contractors seeking to prevent the government's disclosure of their confidential commercial or financial information should keep in mind the following points to maximize their chances of protecting their information.

First, a special rule applies to unsuccessful contractor proposals, which are generally not releasable pursuant to 10 U.S.C. § 2305(g).

Second, a company seeking to protect confidential information contained in successful proposals will need to demonstrate that such information satisfies one or more of the three standards outlined above. DoD's rules require the submitter to provide a detailed written statement that specifies all grounds for withholding any portion of the information, including why the information is a trade secret or commercial information that is privileged or confidential. This demonstration frequently is supported by one or more declarations of knowledgeable company personnel.

Given that the government operates under a deadline in responding to FOIA requests, a company wishing to object to a disclosure must respond in a timely manner to DoD's notice. The DoD rules allow submitters of confidential commercial information a "reasonable" time to object to the release of information. If the company fails to respond in a timely manner, the company will be deemed to have no objection to the disclosure of information.

Third, contractors can better position themselves to assert that the information is confidential by applying markings indicating that it is proprietary when originally submitted to the government.

Fourth, if DoD makes a decision to disclose the information at issue, its policy requires that it provide written notice to the submitter, including the reasons why each of the submitter's disclosure objections were not sustained, a copy of the information to be disclosed and the specified disclosure date. The contractor then can file suit in federal district court to enjoin disclosure. Such an action is known as a reverse FOIA action. It is more likely to be successful if the submitter has created an adequate record before the agency in support of its position.

DoD's proposed rule is a positive development in terms of clarifying the policies that DoD will follow in applying Exemption 4. Companies should familiarize themselves with the proposed revisions as well as further regulatory developments. Comments on DoD's proposed rule are due by November 3, 2014.

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