What is the Trade Secrets Act?

This question was asked by a company official: What is the Trade Secrets Act? What is the relationship between the Trade Secrets Act and the Freedom of Information Act (FOIA)?

The Trade Secrets Act is part of the U.S. Criminal Code. It prohibits government employees from releasing certain confidential information belonging to third parties. Specifically the act states:

"Whoever being an officer or employee of the United States or of any department or agency thereof ...publishes divulges discloses or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by or return report or record made to or filed with such department or agency or officer or employee thereof which information concerns or relates to the trade secrets processes operations style of work or apparatus or to the identity confidential sta-tistical data amount or source of any income profits losses or expenditures of any person firm partnership corporation or association or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law shall be fined not more than $1 000 or imprisoned not more than one year or both and shall be removed from office or employment."

Prosecutions under the act are rare but there have been some. For example United States v. Wallington 889 F.2d 573 (5th Cir. 1989) involved the prosecution of a government employee who used a confidential law enforcement database to obtain information for a friend. On appeal the defendant argued that the statute was overbroad.

However the appellate court ruled that the statute implicitly included two additional prerequisites to any violation. Data disclosed must be "confidential " at least in the sense that it is the official policy of the agency in question that the information not be released. Also the defendant must know that the data should not be disclosed. Accordingly the court denied the appeal.

As a criminal statute the act generally cannot be relied upon as the basis for a private cause of action against the government. However in some cases a "reverse-FOIA" action may be pursued to prevent an agency from releasing information under FOIA. In such cases the court may look to the Trade Agreements Act in determining whether the proposed agency action is unreasonable arbitrary or capricious or not in accordance with law.

Over the years the exact relationship between the Trade Secrets Act and FOIA has been somewhat tangled. In general FOIA requires agencies to release documents to the public including information received from outside the government unless covered by one of the specific exemptions within the act.ExemptionsUnder FOIA Exemption 3 a record is exempt from disclosure if it is made exempt by another statute. For some time many commentators believed the Trade Secrets Act should be considered such a statute. However when Congress amended FOIA in 1976 it indicated specifically that it did not consider the Trade Secrets Act to be a withholding authority within the scope of Exemption 3. See H.R. Rep. No. 880 94th Cong. 1st Sess. reprinted in 1976 U.S.C.C.A.N. 2183 2205.

Even so in Chrysler Corp. v. Brown 441 U.S. 281 319 n.49 (1979) the Supreme Court suggested that the Trade Secrets Act might be an independent basis on which to force the withholding of access to agency records. But more recent cases have thoroughly examined and rejected the possibility that the Trade Secrets Act is an Exemption 3 statute.

Nevertheless FOIA Exemption 4 provides nearly the same protection. Thus "trade secrets and commercial or financial information obtained from a person [that are] privileged or confidential" are exempt from release.

Most decisions addressing the issue generally have harmonized FOIA Exemption 4 and the Trade Secrets Act. As a result there has been little distinction made between what is covered by FOIA Exemption 4 and what is covered by the Trade Secrets Act. (For disclosure purposes the Trade Secrets Act and FOIA are treated as coextensive.)

Recently however at least one court has indicated that FOIA Exemption 4 and the Trade Secrets Act may not be subject to such consistent reading. Specifically in McDonnell Douglas Corp. v. Widnall 57 F.3d 1162 (D.C. Cir. 1995) the U.S. Court of Appeals for the District of Columbia Circuit noted that recent decisions expanding the scope of Exemption 4 may render the FOIA exemption broader than the Trade Secrets Act.

Final resolution of this question will have to await further consideration by the courts.

In the meantime because of the severe penalties potentially applicable to violations of the Trade Secrets Act reference to the act remains an effective way to catch the attention of government employees who are thinking about whether to release data obtained from outside the government. Accordingly it is a statute worth knowing about.

Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn Washington D.C. Contact him at carl@carl.com or by voice mail to (703) 876-5151 extension 2965. This column also can be found on Federal Computer Week's Web page at www.fcw.com.

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