Opinion ID: 550
Heading Depth: 2
Heading Rank: 1

Heading: Substantial Competitive Harm

Text: To qualify under this prong, an identified harm must `flow[ ] from the affirmative use of proprietary information by competitors.' CNA, 830 F.2d at 1154 (quoting Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280, 1291 n. 30 (D.C.Cir.1983)). In reviewing an agency's determination as to substantial competitive harm, we recognize that predictive judgments are not capable of exact proof, id. at 1155, and we generally defer to the agency's predictive judgments as to `the repercussions of disclosure,' McDonnell Douglas v. U.S. Dep't of the Air Force, 375 F.3d at 1191 n. 4 (quoting CNA, 830 F.2d at 1155). If a reverse-FOIA movant has made a positive showing of competitive harm from disclosure, however, an agency's unelaborated contrary conclusion does not suffice. See Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 341-42 (D.C.Cir.1989) (internal quotation omitted) (agency's conclusory decision rejecting substantial competitive harm required remand). Sikorsky and Pratt maintain that disclosure of the documents will cause two types of substantial competitive harm. First, they say that their competitors will use the documents to discredit them in the eyes of current and potential customers. They worry especially that their competitors will use the information and the accompanying negative publicity to persuade foreign costumers that DoD has found Sikorsky's and Pratt's quality control systems unreliable and, accordingly, their products' quality suspect. Because foreign customers are unfamiliar with DoD's exacting oversight, they reason, those customers will overreact to the disclosed information and Sikorsky's and Pratt's reputation will suffer as a result. Contrary to Sikorsky and Pratt's contentions, however, Exemption 4 does not protect against this species of harm. Calling customers' attention to unfavorable agency evaluations or unfavorable press does not amount to an affirmative use of proprietary information by competitors. See CNA, 830 F.2d at 1154 & n. 158; Occidental, 873 F.2d at 341 (desire to avoid embarrassment and reputational damage is irrelevant to substantial competitive harm determination); Pub. Citizen, 704 F.2d at 1291 n. 30 (injury to competitive position, as might flow ... from the embarrassing publicity attendant upon public revelations is not substantial competitive harm) (internal quotation omitted). In other words, Exemption 4 does not guard against mere embarrassment in the marketplace or reputational injury and DCMA correctly rejected the contractors' reliance thereon. Second, Sikorsky and Pratt maintain that the documents contain sensitive proprietary information about their quality control processes. Pratt's Director of Quality Military Engines attested that a competitor with similar expertise could and would use th[e] information to gain insights into the strengths and weaknesses of P & W's quality control system as well as manufacturing techniques and use those insights to revise and improve its own quality control and manufacturing systems. Forthofer Aff. ¶ 18. Similarly, Sikorsky asserted that proprietary information regarding Sikorsky's manufacturing process and procedures is inextricably intertwined with the quality control information included in the CARs and it asserted that [r]elease of this proprietary information would substantially harm Sikorsky's competitive position because its competitors would use this information to their advantage in ... adjusting their manufacturing techniques. Letter from Robert K. Huffman, Miller & Chevalier, to Richard N. Finnegan, Associate General Counsel, DCMA, at 11 n. 4 (Feb. 11, 2005). [10] In response, DCMA simply stated that it had redacted all of the sensitive proprietary information and concluded that disclosure of the remaining information was not likely to cause the contractors substantial competitive harm. We find DCMA's response insufficient. The documents, even as redacted by DCMA, appear to reveal details about Sikorsky's and Pratt's proprietary manufacturing and quality control processes. At the least, they identify and locate particular parts and equipment and describe the timing and criteria of internal inspections. [11] In other words, the documents describe, in part, how the contractors build and inspect helicopters and/or engines. Once disclosed, competitors could, it appears, use the information to improve their own manufacturing and quality control systems, thus making affirmative use of proprietary information against which Exemption 4 is meant to guard. We believe that DCMA failed to provide a reasoned basis for its conclusion to the contrary. To be sure, as it repeatedly stated, mere embarrassment or reputational harm is not sufficient to trigger Exemption 4. But where, as here, a contractor pinpoints by letter and affidavit technical information it believes that its competitors can use in their own operations, the agency must explain why substantial competitive harm is not likely to result if the information is disclosed. See, e.g., Occidental, 873 F.2d at 341-42. DCMA instead concluded, without more, that release of the documents will not cause Sikorsky or Pratt substantial competitive harm. A naked conclusion, however, is not enough. See McDonnell Douglas v. U.S. Dep't of the Air Force, 375 F.3d at 1187 ([W]e do not defer to the agency's conclusory or unsupported suppositions.); Occidental, 873 F.2d at 342 (requiring more than conclusory statement regarding substantial competitive harm). Accordingly, because DCMA's conclusionary statement is unreviewable, id., we must remand for it to examine the relevant data and articulate a satisfactory explanation for its action, if it can, including a `rational connection between the facts found and the choice made.' Motor Vehicle Mfrs. Ass'n, 463 U.S. at 43, 103 S.Ct. 2856 (quoting Burlington, 371 U.S. at 168, 83 S.Ct. 239).