Opinion ID: 339393
Heading Depth: 1
Heading Rank: 4

Heading: The Confidentiality Issue.

Text: 60 Orders Nos. 526 and 526-A not only adopt and implement Form 40, they also announce a rule with respect to the confidential status to be given information submitted on Form 40. The Commission indicated that all schedule A data would be placed on public files while schedules B and C data would be kept confidential unless the Commission orders otherwise. In substance, this rule recognizes no legal restraint on the Commission's authority to disclose all data submitted on Form 40. 61 The producers argue that because much of their reserve data is information obtained at great cost, and because its disclosure would cause substantial competitive harm, to place such data on public record is a violation of the Freedom of Information Act, 5 U.S.C. § 552. 4 62 The Freedom of Information Act exempts from its provisions for mandatory disclosure trade secrets and commercial or financial information obtained from a person and privileged or confidential. 5 U.S.C. § 552(b)(4). The Supreme Court has defined trade secret as it applies to the patent laws as a compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Kewanee Oil Co. v. Bicron Corp., 1974, 416 U.S. 470, 474, 94 S.Ct. 1879, 1883, 40 L.Ed.2d 315 (citing The Restatement of Torts § 757, comment b (1939)). The kind of natural gas reserve data required by Form 40 seems to fit this definition. The Commission itself has recognized this in Amerada Hess Corp., 1973, 50 F.P.C. 1048, 1050, where it noted that a natural gas company's reserve data, much like a patent or trade secret, constitutes a valuable and closely guarded asset. There can be little doubt that much of the information required by Form 40 is the type of data about which Congress was concerned in enacting the exemption from § 552. 63 The Commission claims that this exemption from the Freedom of Information Act is merely permissive in that it does not require an agency to disclose such trade secrets; that the Congress never intended that this section would require agencies to keep trade secrets from the public. While the literal language of § 552 lends itself to this interpretation, the Congressional purpose in enacting the exemption was to protect from disclosure certain information which is highly valuable to several important industries and which should be kept confidential when it is contained in government records. Sen.Rep.No.248, 90th Cong., 1st Sess., p. 2 (1967). Accordingly, after a thorough discussion of the legislative history of the Act, the District of Columbia Circuit noted that one of the interests to be served by the exemption is that of persons supplying data in maintaining their secrecy. National Parks and Conservation Ass'n v. Morton, 1974, 162 U.S.App.D.C. 223, 498 F.2d 765. The court explicitly noted, by quoting from Senate Judiciary Committee Hearings:Again, not only as a matter of fairness, but as a matter of right, and as a matter basic to our free enterprise system, private business information should be afforded appropriate protection, at least from competitors. 64 Id. at 769 (emphasis added). 65 If businesses are entitled to such protection under the statute as a matter of right, that right must be upheld even in cases where the agency fails to assert it on behalf of the private suppliers of data. Thus, the Fifth Circuit has held that confidential information may not be released because of the exemption in § 552. Continental Oil Co. v. FPC, supra, 519 F.2d at 35-36. 66 In addition to holding that the Freedom of Information Act exemptions mandate that the data submitted on Form 40 be kept confidential, we also find the Commission's rule making such information a matter of public record, or confidential subject to the Commission's will, to be arbitrary and capricious under traditional review of agency rulemaking. 5 U.S.C. § 706(2)(A). 67 The Commission's justification for publicly revealing the submitted data is that the public has right to know the information upon which agency regulations and rates are based. Certainly, there is a public interest in such disclosure. Here, however, the Commission has adopted a rule for the potentially damaging disclosure of information which fails to consider the degree of harm such disclosure would cause to the reporting companies, whether or not the data revealed in fact played any part in an agency decision, or whether or not the data could satisfy the public's need to know if presented in an alternative form which avoided any harm to the industry. We are not told why aggregate data which do not identify individual producers or specific reserve information of individual producers could not satisfy the public's need. In short, the Commission makes data available to the public without any regard for the harm that this would cause or the need that would be served. Such a rule is without any rational basis and must be found to be arbitrary and capricious. 68 In the event that information disclosed with potentially damaging specificity would advance the public interest, the Commission should take appropriate precautions to determine (1) whether the information is such that it is entitled to absolute protection under § 552, and (2) if not, whether the balance of interests in the specific case are such as to justify disclosure. Any broad rule of disclosure of trade secrets such as that embodied in Orders 526 and 526-A which fails to consider such matters is arbitrary and capricious. 69