Opinion ID: 453218
Heading Depth: 2
Heading Rank: 4

Heading: The Trade Secret Exemption

Text: 78 Several petitioners challenge the inclusion in the Hazard Communication Standard of a trade secret exception. 29 C.F.R. Sec. 1910.1200(i) (1984). They contend that the agency has defined trade secret too broadly, and that the conditions under which workers may obtain information claimed to be a trade secret are unduly burdensome.
79 Trade secret protection may arise from two sources: state law or a federal statute. Ruckelshaus v. Monsanto Co., --- U.S. ----, ----, 104 S.Ct. 2862, 2872, 81 L.Ed.2d 815 (1984); Chevron Chemical Co. v. Costle, 641 F.2d 104, 115 (3d Cir.), cert. denied, 452 U.S. 961, 101 S.Ct. 3110, 69 L.Ed.2d 972 (1981). The OSH Act does not create substantive trade secret protection. It deals with that subject in section 15, which provides: 80 All information reported to or otherwise obtained by the Secretary or his representative in connection with any inspection or proceeding under this chapter which contains or which might reveal a trade secret referred to in section 1905 of Title 18 shall be considered confidential for the purpose of that section, except that such information may be disclosed to other officers or employees concerned with carrying out this chapter or when relevant in any proceeding under this chapter. In any such proceeding the Secretary, the Commission, or the court shall issue such orders as may be appropriate to protect the confidentiality of trade secrets. 81 29 U.S.C. Sec. 664 (1982). The cross-reference to the Trade Secrets Act, 18 U.S.C. Sec. 1905 (1982) confirms that Congress intended section 15 to protect against agency disclosure or misuse of data submitted to it under an expectation that the agency would treat that data as a trade secret to the extent that applicable state law did so. See Ruckelshaus v. Monsanto, supra, --- U.S. at ----, 104 S.Ct. at 2876. Section 15 cannot be read as authorizing the creation of trade secret protection going beyond that afforded under state law. Moreover that section deals only with what the agency and its employees may disclose, not with what disclosures the agency may compel in the interest of safety in the workplace. 82 The Secretary contends that while section 15 deals with disclosures by the agency and its employees, it embodies a recognition by Congress of the significance in the economy of state law trade secret protection, and that it was quite appropriate, in drafting the Hazard Communication Standard, to balance that recognition against the competing congressional concern over safety in the workplace. See 48 Fed.Reg. 53312 (1983). Aside from section 15, however, the Secretary points to no provision in the OSH Act authorizing such balancing. Indeed trade secret protection is not even mentioned in section 6, which directs that [t]he Secretary ... shall set the standard which most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee will suffer material impairment of health.... 29 U.S.C. Sec. 655(b)(5). The quoted provision indicates that Congress struck a balance in favor of safety in the workplace at the expense of competing interests. In a slightly different context, the Supreme Court held that in section 6(b)(5), Congress itself defined the basic relationship between costs and benefits, by placing the 'benefit' of worker health above all other considerations save those making attainment of this 'benefit' unachievable. American Textile Manufacturers Institute v. Donovan, 452 U.S. 490, 509, 101 S.Ct. 2478, 2490, 69 L.Ed.2d 185 (1981). 83 The Secretary originally proposed that while traditional trade secrets such as chemical formula and process information could be withheld, chemical identity information must be disclosed. 46 Fed.Reg. at 4426 (1981). When representatives of the chemical industry commented on the importance of trade secrets to the economic health of that industry, see 48 Fed.Reg. 53312-14 (1983), the Secretary adopted an entirely new approach. First, it defined a trade secret as: 84 [A]ny confidential formula, pattern, process, devise, information or compilation of information (including chemical name or other unique chemical identifier) that is used in an employer's business, and that gives the employer an opportunity to obtain an advantage over competitors who do not know or use it. 85 29 C.F.R. Sec. 1910.1200(c) (1984). The Secretary contends that this definition was adopted from section 757 of the Restatement of Torts, 48 Fed.Reg. 53314. In fact, however, inclusion of the parenthetical (including chemical name or other unique chemical identifier) not found in section 757, enlarges considerably the Restatement definition. The Secretary's comments indicate that the definition provides trade secret protection for chemical identity which is determinable by reverse engineering. Id. This type of information has not traditionally been afforded trade secret protection under state law. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 94 S.Ct. 1879, 1883, 40 L.Ed.2d 315 (1974). The Restatement provides that information that may be properly acquired or duplicated without great difficulty should not be considered a trade secret. Restatement of Torts, Sec. 757, comment b. The Secretary justified the enlargement of the Restatement definition, reasoning: 86 Many products can be reverse engineered if sophisticated analytical techniques are applied, yet cannot be if less advanced technology is used. The determination of what is practical in terms of reverse engineering capability rests with this degree of analysis, rather than with a definitive finding of ability to be reverse engineered or not. Furthermore, the definition of a trade secret says that the competitor or potential competitor does not know or use the information. Thus, even though a competitor could theoretically reverse engineer and discover the components of a product, if this information is not in fact used, it remains a bona fide trade secret. 87 48 Fed.Reg. 53314 (emphasis in original). Plainly the Secretary has provided greater protection for chemical manufacturers and importers than that afforded in those states utilizing the Restatement of Torts trade secret definition. Even the Restatement definition, moreover, goes beyond the protection afforded to trade secrets in other regulatory contexts. See Public Citizen Health Research Group v. Food and Drug Administration, 704 F.2d 1280, 1287 (D.C.Cir.1983). (Food and Drug Administration's adoption of Restatement of Torts trade secret definition inconsistent with Freedom of Information Act.) 88 Section 15 deals only with disclosure by the agency or its employees, and section 6(b)(5) does not permit the Secretary to balance employee safety against competing economic concerns. No other statutory provision has been called to our attention which would justify enlarging trade secret protection beyond that afforded by state law. Indeed it seems plain that state law cannot prevent the implementation of section 6 safety standards that are otherwise feasible. It appears that the unarticulated premise of the Secretary's concern about protecting trade secrets is that they may be constitutionally protected from the regulatory process. In Westinghouse Electric Corp. v. United States Nuclear Regulatory Commission, 555 F.2d 82, 95 (3d Cir.1977) we rejected a constitutional challenge to rules requiring disclosure of proprietary information as a condition to licensing. The Westinghouse holding is supported by the Supreme Court's holding in Ruckelshaus v. Monsanto Co., --- U.S. ----, ----, 104 S.Ct. 2862, 2874, 81 L.Ed.2d 815 (June 26, 1984), that a trade secret voluntarily disclosed to the E.P.A. in exchange for a registration to sell pesticides is not protected if the owner had notice at the time of disclosure that the E.P.A. was authorized to use all data submitted. These cases suggest that a regulation requiring the disclosure even of formula or process information as a precondition for the sale of hazardous products for use in the workplace would be valid. See McGarity and Shapiro The Trade Secret Status of Health and Safety Testing Information: Reforming Agency Disclosure Policies, 93 Harv.L.Rev. 837, 864-67 (1980). None of the petitioners urge that the Secretary should have required disclosure to that extent. They do contend, however, that the OSH Act does not authorize the Secretary to promulgate a regulation granting more protection to information claimed to be confidential than is afforded by state law. 89 We agree that there is no legal justification for affording broader trade secret protection in the Hazard Communication Standard than state law affords. No petitioner urges that the Secretary's original proposal, which would have protected formula and process information but required disclosure of hazardous ingredients, is inadequate. That proposal was consistent with [t]he general policy of OSHA ... that the interests of employee safety and health are best served by full disclosure of chemical identity information. 48 Fed.Reg. 53312 (1983). The petition for review will therefore be granted and the proceedings remanded to the Secretary for reconsideration of the definition of trade secrets, which definition shall not include chemical identity information that is readily discoverable through reverse engineering.
90 In addition to objections to the definition of trade secrets, several petitioners challenge the provisions of the Hazard Communication Standard relating to access to the allegedly confidential information. The petitioners contend that once a manufacturer raises a claim of trade secret, the Standard places overly stringent procedural barriers to the discovery of information relevant to the assessment of health hazards. These objections go to: a) the requirement that the request be in writing with a statement of need; b) the limitation of access to health professionals; and c) the requirement that a confidentiality agreement with a liquidated damages clause be signed. 29 C.F.R. Sec. 1910.1200(i). 91 a) The written request requirement 92 The Secretary justifies the requirement that a request for trade secret information be in writing with supporting documentation as a means of facilitating dispute resolution: 93 Then if the matter is to be referred to OSHA to settle any dispute between the requesting party and the employer protecting a trade secret, the Agency will be able to base a decision upon a review of these written materials. Should the matter not be resolved to the satisfaction of all parties, it may result in a citation and referral to the Occupational Safety and Health Review Commission (OSHRC) for judicial review. 94 48 Fed.Reg. at 53315. The tendered justification is both reasonable and consistent with the purposes of the Act. 95 b. The Restriction of Access to Health Professionals 96 The restriction limiting access to trade secrets to health professionals is more troublesome. Commentators on the proposed standard were generally in agreement that trade secret chemical identity information must be disclosed at least to a treating physician. Id. at 53316. The Secretary concluded that other health professionals, particularly those engaged in the prevention of disease or injury, had a legitimate need for chemical identity information. Id. at 53318. It declined, however, to authorize direct employee access to specific chemical identities of hazardous substances for which a trade secret is claimed. Id. The Secretary advances three rationales to justify restricting employee access to secret chemical identity information. 97 One reason is that by and large professional training would be required for any purpose that would amount to a need to know confidential information. Id. The United Steelworkers of America, AFL-CIO-CLC, a petitioner, points to a number of instances in the record, however, where non-health-professional workers used chemical identity information to improve workplace safety. They urge that employees and local union safety officers, although not health professionals, have often received training in health and safety, and thus know how to use the basic literature on chemical hazards, and know how to obtain technical assistance. Steelworkers' brief at 40. 98 A second reason advanced by the Secretary for allowing access only to health professionals, and not directly to employees, is that providing access to trade secret chemical identities only to health professionals on a confidential basis will protect these employees adequately. 48 Fed.Reg. at 53318. The Steelworkers point to record evidence, however, that it is quite difficult for many workers to obtain the services of a health professional, at least prior to the need for treatment. Steelworkers brief at 41-42. There is no substantial evidence in the record that significant numbers of unorganized workers will be able to obtain the services of a health professional prior to the time that treatment becomes necessary. Even for organized workers, the record evidence suggests that few local unions retain health professionals. 99 The Secretary's final justification for limiting access to health professionals involves the risk of disclosure. 100 This is not to say that downstream employees are more likely to disclose trade secrets or violate confidentiality agreements than health professionals, but it is an unmistakable fact that the more people who have access to confidential information, the more difficult it is to preserve its secrecy or to locate the source of a leak if one occurs. 101 48 Fed.Reg. at 53318. The Secretary correctly notes that the chance of a leak increases as the number of people having access to information increases. The issue posed by the petitioners, however, is not the number of persons obtaining access, but the type of persons. There is no record evidence supporting the Secretary's apparent conclusion that employees who are not health professionals will be more likely to breach a confidentiality agreement than would the same number of health professionals. We conclude that the restriction in the Hazard Communication Standard of access to trade secret information to health professionals is not supported by substantial evidence in the record, and is inconsistent with the mandate of section 6(b)(5) that OSHA promulgate the standard that most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee will suffer material impairment of health.... 29 U.S.C. Sec. 655(b)(5). 102 c) The Confidentiality Agreement Requirement 103 The Standard requires that, except in a medical emergency, a manufacturer which receives a request for trade secret information may require that the requester sign a confidentiality agreement containing a liquidated damages clause. 29 C.F.R. Sec. 1910.1200(i)(3)(v) (1984). The Standard minimizes the risk that employers will make excessive demands for liquidated damages clauses by providing that the agreement [m]ay not include requirements for the posting of a penalty bond, but only a reasonable pre-estimate of likely damages.... 29 C.F.R. Sec. 1910.1200(i)(4)(ii) and (iii) (1984). Some petitioners contend that the requirement of a confidentiality agreement will deter health professionals from lending assistance. In Part IV(D)(2)(b) above we hold that the restriction on access to health professionals is invalid. But in any event, confidentiality agreements are a well-accepted traditional means of allowing access to trade secret information while effectively protecting the owners of that information from irreparable harm. Thus we reject petitioners' challenge to the Standard's requirement that requesters of trade secret information sign a confidentiality agreement.