A recent Supreme Court decision provided clarification as to what should happen when “confidential” contractor information is requested via a FOIA request.
When doing business with the U.S. federal government, a contractor must furnish certain commercial or financial information to the government — information the contractor may consider “confidential,” or at least “closely held,” which could result in “substantial competitive harm” to the contractor should it be made publicly available. So, what happens when this information is requested under the Freedom of Information Act (FOIA)
A recent Supreme Court decision provided clarification.
Background and Pertinent Facts
The U.S. Department of Agriculture (USDA) administers the national food-stamp program, known as the Supplemental Nutrition Assistance Program (SNAP). At the request of USDA, retailers participating in the program submit to the USDA the names and addresses of all individual stores that participate in SNAP — as well as each store’s annual SNAP redemption data, referred to as “store-level SNAP data.”
With the widespread scope of SNAP, this actual sales data could be a treasure trove for retailers. Retailers regularly develop models of consumer behavior to develop a strategy for increasing sales and opening new stores. These models require retailers to estimate sales volumes, which can difficult, expensive, and time consuming. The accuracy, and therefore usefulness, of these models increases when a retailer can obtain actual sales data from competitors already operating in a potential market, rather than relying on costly and perhaps inaccurate estimates.
When store-level SNAP data is disclosed, it creates a potential windfall for competitors:
Stores with high SNAP redemptions could see increased competition for SNAP customers from existing competitors, new market entrants could use SNAP data to determine where to build their stores, and SNAP-redemption data could be used to discern a rival retailer’s overall sales, and develop strategies to win some of that business too.
Not surprisingly, retailers closely guard store-level SNAP data, along with other store-level sales data, because of the threat to their competitive positions. As a safeguard, and to encourage retailers to participate in SNAP and provide store-level information, which aids in its administration of the program, “the government has long promised [retailers] that it will keep their information private.”
The Basis for the Dispute
As with any information in the possession of the government, however, a clever competitor (or anyone else for that matter) could attempt to obtain store-level SNAP information by submitting a request under FOIA. “The basic function of [FOIA] is to ensure informed citizens, vital to the functioning of a democratic society.”
As such, FOIA permits anyone to request disclosure of information held by the federal government, and requires the government to disclose the requested information unless one of the statutory exceptions applies.
While not a competitor in the food retail market, Argus Leader
— a Sioux Falls, South Dakota, newspaper — submitted a FOIA request in 2011 for nationwide store-level SNAP data from fiscal years 2005 to 2010. Although the purpose of the request does not matter under FOIA, Argus Leader
’s reasons for requesting the store-level SNAP data were because it “felt the taxpayer payments would identify potential instances of food stamp fraud, as well as give more insight into food deserts and food insecurity in rural South Dakota.”
Further, the data “would also identify which corporations make the most money in the [SNAP] program.”
The USDA “tried to meet the paper halfway” in responding to its FOIA request — “it released the names and addresses of the participating stores, but declined to disclose the requested store-level SNAP data.” The USDA invoked FOIA’s Exemption 4,
which “shields from disclosure ‘trade secrets and commercial or financial information obtained from a person and privileged or confidential’” to withhold store-level SNAP data from disclosure.
Unsatisfied with USDA’s response, Argus Leader
filed suit to obtain the store-level SNAP data. Subsequently, the Food Marketing Institute — a food retail industry group representing those retailers whose SNAP data would be divulged — filed suit to block Argus Leader
from obtaining the data. A rare occurrence, the case ultimately made it to the U.S. Supreme Court, and is noted as Food Marketing Institute v. Argus Leader Media
, No. 18–481 (U.S. June 24, 2019).
The Case — Food Marketing Institute v. Argus Leader Media
The District Court Decision
The first court to hear the case, the district court, applied the established “substantial competitive harm” test traditionally used in its Circuit, under which commercial information cannot be deemed “confidential” unless disclosure is likely to cause “substantial harm” to the competitive position of the person who provided the information to the government. The district court ordered disclosure, finding that although revealing SNAP data could cause some
harm to the retail stores, it would not rise to the level of substantial
The Eighth Circuit Court of Appeals Decision
The Eighth Circuit Court of Appeals affirmed the district court, rejecting the retailers’ argument that the court should dispose of the “substantial competitive harm” test and apply instead the plain meaning of the statutory term confidential
. Upon further appeal, the case then went all the way to the Supreme Court.
The Supreme Court’s Analysis
On appeal, the Supreme Court explained that because FOIA does not define the term confidential
, the Court was required to examine the term’s ordinary, contemporary, common meaning at the time Congress enacted FOIA. The Supreme Court determined that the “substantial competitive harm” requirement, which originated with the D.C. Circuit’s National Parks & Conservation Assn. v. Morton
case, is not required by FOIA and not the correct definition of the term confidential
as it is used in FOIA. The D.C. Circuit had incorrectly
[C]ommercial or financial matter is “confidential” [only] if disclosure of the information is likely…(1) to impair the government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.
The Supreme Court refused to narrow Exemption 4 by adding limitations, like “substantial harm,” not expressly required in the statute. Instead, information provided to a federal agency qualifies as confidential
— under the ordinary meaning of the term — when a contractor customarily maintains the information as private, or at least closely held. Thus, a government contractor will no longer have to establish “substantial competitive harm” to protect information submitted to the government. Establishing that it customarily maintains the information as confidential should be sufficient.
The Supreme Court did not address whether FOIA imposed a second condition for protection under Exemption 4 — i.e., whether the information will only be considered confidential if the government provides assurance that it will remain secret. If required by future courts, contractors will likely be able to show that the government provides an assurance of confidentiality to proposal information submitted by a contractor. Given the Restrictions on Obtaining and Disclosing Certain Information statute,
and the government’s interest in competitive procurements, the government will likely agree that it assures the confidentiality of proposal information.
The Supreme Court’s ruling in the Food Marketing Institute
case is good news for government contractors. A contractor seeking to protect its commercial or financial information provided to the government will no longer have to prove “substantial competitive harm” to qualify for FOIA Exemption 4. “Substantial competitive harm” was a significant hurdle because it is subjective and requires arguing the future effect of the disclosure. Showing that a contractor both customarily and actually treats the information as confidential is completely within the control of the contractor and is easily proven if the contractor maintains adequate procedures to protect its information.
Contract managers should be careful to establish procedures to safeguard c
onfidential information from disclosure, such as maintaining the information in secure locations and providing access only to those with a “need to know.” Such procedures will provide a contractor with the proof required to demonstrate the information must be protected from disclosure as “confidential” under the Supreme Court’s new definition. CM
Jack Horan, JD
Partner, Drinker Biddle & Reath LLP
General counsel, NCMA
Michelle Y. Francois
Associate, Drinker Biddle & Reath LLP’s Government Contracts Practice Group
1.) 5 USC 552.
2.) All quotes in this article are to the Supreme Court decision that forms the basis of this article, unless otherwise noted.
3.) See, generally, https://www.foia.gov/
4.) Jonathan Ellis, “The Argus Leader is Arguing for Public Records at the U.S. Supreme Court on Monday. Here’s Why.” Argus Leader
(April 17, 2019; updated April 19, 2019), available at https://www.argusleader.com/story/news/2019/04/17/freedome-of-information-act-supreme-court-public-records-snap-data/3485274002/
6.) 5 USC 552(b)(4).
7.) 41 USC Chapter 21 (formerly known as the “Procurement Integrity Act”).