The U.S. Supreme Court on Monday rewrote the standard for when the federal government can withhold private parties’ “confidential” commercial information in response to a request under the Freedom of Information Act, or FOIA.  The opinion came in Food Marketing Institute v. Argus Leader Media, a case which Baker Botts brought to and argued at the Supreme Court.  The Court’s decision has far-reaching implications for any company that submits information to the government—especially but not exclusively those in federally-regulated industries.  All businesses should be aware of the new requirements and their corresponding opportunities for protecting confidential business information.

Exemption 4 to FOIA allows the government to withhold from disclosure private parties’ commercial information if such information is “confidential.”  FOIA does not define “confidential,” however, for more than 45 years federal courts have interpreted the term as requiring proof that releasing the information would likely cause substantial competitive harm.

But FOIA’s text does not link the concept of “confidential[ity]” to any showing of harm, competitive or otherwise.  The “substantive competitive harm” test was also unpredictable, expensive, and time consuming.  It caused confusion among the courts and generated significant uncertainty among companies doing business with the government about whether their information could be protected when (as is often the case) competitors filed a FOIA request.  Establishing whether the disclosure of specific information would cause “competitive harm” presented speculative fact issues about hypothetical future market conditions—and the requirement to show not just harm but substantial harm exacerbated that problem and made the outcome in litigation even more subjective.

In a 6-3 opinion authored by Justice Neil M. Gorsuch, the Supreme Court rejected the “substantial competitive harm” test.  The Court held that no showing of “harm” is ever required, and that the government may withhold third-party commercial or financial information that is customarily and actually treated as private by its owner, at a minimum when the government has told the businesses that it would keep the information confidential.

The case arose from a newspaper’s request that the U.S. Department of Agriculture release store-by-store sales data related to the food-stamp program, now known as the Supplemental Nutrition Assistance Program, or SNAP.  As the Supreme Court recognized, retailers carefully guard this information from competitors.

Nonetheless, the trial court entered judgment requiring disclosure, finding that any competitive harm would not likely be “substantial.”  Baker Botts successfully intervened on behalf of Food Marketing Institute, a food-retailer advocacy group, to appeal to the Eighth Circuit.  Despite unanimous acceptance of the “substantial competitive harm” test among the courts of appeals, Baker Botts nonetheless challenged it as having no basis in FOIA’s actual text.  The Eighth Circuit affirmed, standing by its precedent.

The Supreme Court had never before addressed Exemption 4, and when Baker Botts filed a petition for a writ of certiorari, the Court agreed to take the case.  On Monday, it reversed the judgment against Food Marking Institute, effectively overruling the half-century of case law applying the “substantial competitive harm” test.  The Court repudiated that test as a “relic from a ‘bygone era of statutory interpretation,’” and held, “We cannot approve such a casual disregard of the rules of statutory interpretation.”  The Court instead vindicated the plain-text interpretation of the term “confidential”—information given and customarily held in confidence.

The new Exemption 4 standard applies to all confidential commercial or financial information held by the federal government.  The decision thus has significant implications for companies that do business with the government or that are required to provide confidential commercial information to the government, such as during contracting procedures or in compliance with agency rules and regulations.  Companies seeking to maximize the potential protections against disclosure for commercial information provided to the government should ensure that they have implemented, and faithfully observe, sufficient procedures to ensure confidentiality—simply marking something “confidential” likely will not suffice.  Companies should also attempt, where possible, to obtain assurances of confidentiality from the government.

The Baker Botts team was led by Gavin R. Villareal; Evan A. Young argued the case at the Supreme Court.  If you have questions about this decision, best practices for ensuring confidentiality, or future threats to proprietary information from regulators or the public, please contact them, or their partner Scott A. Keller, who also assisted in the case, at [email protected] or 512.322.2500; Evan A. Young at [email protected] or 512.322.2500; or [email protected] or 202.639.7700.