Legal Times published an article detailing the prevalence in the business of corporate espionage using the Freedom of Information Act (FOIA) to gain competitive information. Companies are increasingly turning to teams of hired lawyers and analysts who request all data involving a competitor. Targets have included Boeing, MCI WorldCom Inc., McDonnell Douglas, and the General Electric Co. At stake are potential trade secrets including detailed line item pricing schemes and labor rate data – sometimes more than 10,000 pages of detailed cost breakdowns.

The Freedom of Information Act is traditionally thought of as an instrument used by reporters and the public to obtain information on how the federal government operates and how tax money is spent. But during the past 20 years, a whole industry has sprouted that uses the FOIA to gain intelligence on companies doing business with the government and then sells the info to competing contractors. Typically, the FOIA request is not made by an intermediary so that the real party of interest remains private.

Meanwhile, targets try to do all they can to prevent such disclosures and, if they cannot persuade the government to keep the information confidential, they’ll go to the courts and file what is known as a reverse FOIA action. However, government agencies will agree to release detailed pricing data since that increases competition among contractors in order to secure better deals for the government.

The Court of Appeals for the District of Columbia Circuit has defined a “reverse” FOIA action as one in which the “submitter of information — usually a corporation or other business entity” that has supplied an agency with “data on its policies, operations or products — seeks to prevent the agency that collected the information from revealing it to a third party in response to the latter’s FOIA request.” CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1133 n.1 (D.C. Cir. 1987). Typically, the submitter contends that the requested information falls within an Exemption of the FOIA, [5 U.S.C. § 552]

Update. See the Ten Excemptions: Download file

In a “reverse” FOIA suit “the party seeking to prevent a disclosure the government itself is otherwise willing to make” assumes the “burden of justifying nondisclosure.” A challenge to an agency’s disclosure decision is reviewed in light of the “basic policy” of the FOIA to “‘open agency action to the light of public scrutiny'” and in accordance with the “narrow construction” afforded to the FOIA’s exemptions.

The seminal case in the reverse FOIA area is Chrysler Corp. v. Brown, in which the Supreme Court held that jurisdiction for a reverse FOIA action cannot be based on the FOIA itself “because Congress did not design the FOIA exemptions to be mandatory bars to disclosure” and, as a result, the FOIA “does not afford” a submitter “any right to enjoin agency disclosure.”

Federal trial and appellate courts across the country are split on whether certain pricing information should be released. In one recent case, a federal appellate judge in the District pointed out that the Justice Department has never litigated the fundamental question of whether prices charged to the government for specific goods could be confidential commercial information or trade secrets under FOIA or the Trade Secrets Act. Most cases turn on whether the company whose data is at stake can show that releasing the information would cause substantial harm.

More alarming is one court’s holding that, “[t]he harm from disclosure is a matter of speculation, and when a reviewing court finds that an agency has supplied an equally reasonable and thorough prognosis, it is for the agency to choose between the contesting party’s prognosis and its own.” McDonnell Douglas, 215 F. Supp. 2d at 205; accord CNA, 830 F.2d at 1155).

However, the U.S. Court of Appeals for the D.C. Circuit has twice ruled that detailed price information should stay confidential. In one opinion from 1999, Judge Laurence Silberman wrote that the government failed to claim any legal authority for releasing line item pricing information involved in McDonnell Douglas’ contract with NASA: “If commercial or financial information is likely to cause substantial harm to the person who supplied it, that is the end of the matter, for the disclosure would violate the Trade Secrets Act.”

Inventors should be aware of the implications of FOIA since an invention is not patentable in the US if it has been described in a printed publication more than 1 year prior to filing a U.S. patent application and foreign filing rights are lost immediately. A grant is considered published when it is considered accessible, that is, after the grant was allowed and it had been indexed and a copy of the proposal could be obtained through a request under FOIA

It would therefore be possible for a research scientist, with a long-term federal (or state) grant, to propose a course of research and speculate on findings. Then, when the studies are concluded, this same scientist could find that the technology developed during the course of the research is barred from patent protection by the researcher’s own proposal. To prevent a bar, and to fall within the exceptions of the FOIA, each individual page should be marked “Confidential” and a legend affixed to the front page that states:

“Confidential. This document, or portions of it, contains confidential information that is, or may become, the subject of a United States patent application and is important to future commercial efforts based on such confidential information. Accordingly, this document and the confidential information contained herein are exempt from disclosure under the Freedom
of Information Act, Sections 552(b)(3) and (b)(4) of Title 5 of the United States Code and corresponding regulations of United States government agencies.”

In addition, a cover letter should accompany each grant proposal submitted to an agency of the state and federal government providing a rationale for keeping the proposal confidential and request that the applicant is notified of all requests the agency receives for copies of the proposal under the FOIA.

Specific details concerning individual granting agencies are available from each agency. In addition, some changes in the language used in the proposal could help future patentability. If possible, avoid direct and definite predictions concerning the results of the research. Statements in a proposal that “the research should lead to outcomes such as …” or “I believe that the research will result in …” may constitute a public disclosure of a potential invention.

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    Using FOIA to Spy on Competitors

    Patent Baristas has an excellent post on the use of FOIA to spy on competitors. I’ve never seen an article of this depth that addresses Canadian law – if you have, please leave a comment or email me….