Tips for Protecting Your Trade Secrets When Dealing with the Government

“An informed public is the most potent of all restraints upon misgovernment[.]” Grosjean v. Am. Press Co., 297 U.S. 233, 250 (1936). Hence, state and federal governments are subject to varying requirements that their records be available to the public for scrutiny. When companies submit their confidential business information to government agencies, they should be aware of the risk that their information could become such a public record, and should take steps to protect against unwarranted disclosure.  

The federal Freedom of Information Act (FOIA) allows individuals and organizations to access information collected by federal government agencies. Exemption 4 of the FOIA provides that the federal government does not have to allow public access to "trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential." 5 U.S.C. § 552(b)(4). Nearly every state has enacted a public records act similar to the FOIA; however, exemptions under those acts vary greatly, which can increase the risk of public dissemination of trade secrets under state law. See generally, Bryan Arnold, A Survey of Public Record Laws – Issues Affecting State and Local Contracts, Bidders, and Contractors, https://www.americanbar.org/content/dam/aba/publications/litigation_committees/businesstorts/a-survey-of-open-government-laws.pdf.

By way of example, the Washington Supreme Court recently ruled in Lyft, Inc. v. City of Seattle, 418 P.3d 102 (Wash. 2018) that Washington’s Uniform Trade Secret Act does not create a blanket exception to the presumption that anything submitted to the government becomes a public record under Washington’s Public Record Act. In Lyft, the City of Seattle received a public records request seeking zip code data submitted to the city by Lyft and by Raiser, a subsidiary of Uber (collectively L/R). The trial court issued L/R a permanent injunction prohibiting disclosure, concluding that the reports were trade secrets and therefore exempt from disclosure. The Washington Supreme Court reversed and remanded, finding that the trial court had not analyzed the issue properly under the state’s Public Records Act as it had failed to give sufficient weight to the public’s interest in disclosure, even if the information was a legitimate trade secret.

Washington is not the only state that may allow trade secrets to be accessed through public records requests. In Massachusetts (one of the few states not to adopt a version of the UTSA), trade secrets are exempt from disclosure only in the limited context where the information is voluntarily provided to an agency upon a promise of confidentiality and for the purpose of developing governmental policy. The exemption is not applicable, however, to information submitted to a government agency as required by law or conditioned on receipt of a governmental contract or other benefit. Mass. Gen. Laws Ann. ch. 4, § 7. Florida, Illinois, Utah, and Virginia require trade secrets to be labeled “confidential” to prevent disclosure under their public records acts. Other states, including Alabama, Michigan, New Mexico, Oklahoma, and Louisiana also provide trade secret protection for information submitted to those state governments only under limited circumstances. Like Washington, Nevada requires balancing the public’s interest in disclosure against the privacy interests of the entity seeking to prevent disclosure, which balance may not always adequately protect trade secrets. Such limited exemptions can leave those who are required to submit confidential information to state governments between a rock and a hard place.

Other jurisdictions more closely follow the FOIA’s exemption and explicitly prohibit trade secret disclosure through public record requests. Arnold, supra. For instance, Oregon expressly exempts trade secrets from disclosure under its public records act. Or. Rev. Stat. Ann. § 192.355(9)(a). Similarly, Georgia, Louisiana, Maryland, Mississippi, and South Dakota have specifically carved out an exemption to prohibit disclosure of trade secrets that are included in information submitted to a government agency. Other jurisdictions, such as New Jersey, Rhode Island, and Vermont, make it even more difficult to obtain a trade secret through a public agency records request by excluding trade secrets from the definition of a public record altogether.

Because maintaining secrecy is one of the essential elements of establishing a trade secret, jurisdictions that allow release of proprietary information through public records requests significantly frustrate the purpose of having a trade secret and can jeopardize its very existence. In her concurring dissent in Lyft, Justice McCloud highlighted a significant concern that allowing the state’s public records laws to trump trade secret protection might constitute an unconstitutional taking of private property. Similarly, the Supreme Court of Montana has held that entities are entitled to enjoy the right of confidentiality as it pertains to their trade secrets under both the UTSA and constitutional protections against the taking of private property for public use under federal and state constitutions. Great Falls Tribune v. Montana Pub. Serv. Comm'n, 82 P.3d 876, 883 (Mont. 2003).   

Overall, the laws exempting trade secrets from becoming public records are narrowly applied at the federal level, and vary greatly from state to state. Given the risks of disclosure, businesses should take extra precautions when dealing with government entities to prevent public disclosure of their trade secrets. Before submitting trade secret information to any state or federal agency, businesses should do their due diligence and consult with their attorneys to learn the risks associated with submitting any confidential information. In weighing the risks, businesses can decide whether producing the information is absolutely necessary, and if so, consider options available that may prevent disclosure of proprietary information through a public records request. At a minimum, businesses should follow mandated labeling guidelines and mark their trade secrets as “confidential” to alert the agency that the submitted documents could be sensitive. In sum, when faced with submitting proprietary information to government agencies, being proactive is essential to reduce the risk of disclosure and effectively asserting trade secret rights. Action today can prevent a crisis tomorrow.