Second Circuit Holds FOIA Exemption 4 Still Requires Showing of “Competitive Harm” Resulting from Disclosure, Though Not a “Substantial” One

Last month, in Seife v. U.S. Food and Drug Administration, the U.S. Court of Appeals for the Second Circuit became the first appellate court to address a significant question left unanswered by the Supreme Court’s 2019 decision in Food Marketing Institute v. Argus Leader Media: what impact, if any, did the 2016 FOIA Improvement Act (“FIA”) have on FOIA Exemption 4?  The answer: a submitter of information ostensibly subject to Exemption 4 must demonstrate competitive harm—though not “substantial” harm—resulting from disclosure in order to invoke the exemption.

Argus clarified the applicability of Exemption 4, which protects from disclosure “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.”  5 U.S.C. § 552(b)(4).  The Argus Court rejected the longstanding National Parks test, which applied Exemption 4 only where the submitter of such information could demonstrate “substantial competitive harm” resulting from its disclosure.  Instead, the Argus Court held Exemption 4 applied, at the very least, where the submitter of such information kept it confidential and submitted it to the government with an assurance of privacy.  Given the difficulties inherent in establishing “substantial competitive harm,” Argus was welcome news for contractors seeking Exemption 4 protection.  (We have previously written about Argus and the district court decisions that followed.) 

In 2016, Congress enacted the FIA in response to concerns that FOIA’s exemptions were being overused. The FIA amended FOIA to allow for an exemption’s invocation only if “the agency reasonably foresees that disclosure would harm an interest protected by an exemption” or if disclosure is “prohibited by law.”  5 U.S.C. § 552(a)(8)(A).  Since Argus, multiple plaintiffs have argued the FIA effectively codified the National Parks test.  (Argus considered a FOIA dispute thatcommenced prior to the passage of the FIA; the Court there had no reason to address the question.)

Seife involved a FOIA request to the U.S. Food and Drug Administration (“FDA”) seeking documents related to a pharmaceutical company’s successful application for approval of a propriety drug therapy.  The FDA withheld many responsive documents pursuant to Exemption 4 and prevailed in FOIA litigation before the district court, which held that the agency had successfully demonstrated disclosure was prohibited by law or would cause foreseeable harm to the interests protected by the exemption.  But, the Seife Court noted, the district court did so “without specifying what those protected interests were.” 

The Seife Court held that “the interests protected by Exemption 4 are the submitter’s commercial or financial interests in information that is of a type held in confidence and not disclosed to any member of the public by the person to whom it belongs.” Accordingly, to invoke Exemption 4, the Court instructed an agency must “meet the foreseeable harm requirement of the FIA by showing foreseeable commercial or financial harm to the submitter upon release of the contested information.”  In so doing, the Seife Court rejected the Government’s argument that the confidentiality of the information alone—absent consideration of actual commercial or financial harm from its disclosure—was the interest to be protected.  

At first glance, Seife may appear to suggest a return to the National Parks test Argus expressly repudiated.  But Seife makes no mention of National Parks or “substantial” competitive harm resulting from the disclosure of commercial information.  To the contrary, the Seife Court held the submitting entity had met the requirements of the FIA for Exemption 4 protection by demonstrating merely that the disclosure of the information at issue “could be used” by competitors, thereby establishing competitive harm.    

Accordingly, Seife does not materially raise the Exemption 4 bar following Argus. After all, a demonstration of confidentiality necessarily is (or at least should be) accompanied by an explanation of why that information is kept confidential—i.e., because of its commercial, financial, or proprietary nature.  Seife merely confirms that necessity.  Accordingly, submitters of confidential commercial or financial information seeking to claim Exemption 4 protection should be prepared to demonstrate actual commercial or financial harm resulting from disclosure.  But to be clear, nothing in Seife requires that harm be “substantial.”