In the Spring 2009 Government Contracts Issue Update, we discussed recent changes to the Government's Freedom of Information Act (FOIA) policies and how the Obama Administration's "presumption in favor of disclosure" has caused some agencies to take increasingly aggressive stances in favor of disclosing information submitted by government contractors. The Administration recently published the Attorney General's FOIA guidelines to implement that policy. In addition, a recent decision by the U.S. District Court for the District of Columbia in General Electric Co. v. Department of Air Force will make it more difficult for agencies to disclose contractors' confidential and proprietary information while providing helpful guidance to contractors seeking to prevent the disclosure of their unit pricing information pursuant to FOIA.
General Electric Co. is a "reverse FOIA" case in which General Electric (GE) sought to prevent the Air Force from disclosing unit pricing information contained in two sole-source contracts between GE and the Air Force for spare parts for GE-manufactured jet engines. Although the Air Force initially agreed with GE that release of the requested information would cause GE substantial competitive harm—bringing it within FOIA Exemption 4, which exempts from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential"—the Air Force later reversed this decision and informed GE that it intended to release the disputed information based on its revised conclusion that the release of this information would not cause GE substantial competitive harm.
GE filed suit in the District of Columbia seeking to prevent the disclosure of unit pricing information in the two contracts. Following cross-motions for summary judgment, the district court found that the Air Force failed to justify its decision to disclose the disputed information in the face of GE's objections. Specifically, the court found that the Air Force neglected to address GE's argument that releasing the unit price information could cause its customers, such as foreign governments, to leverage GE's negotiated prices against it in future competitions. The court also found that the Air Force failed to explain sufficiently the departure from its prior decision not to disclose the same unit pricing.
After the court vacated the Air Force's decision and remanded the case to the Air Force with orders to issue a new decision within 30 days, the Air Force issued a follow-up decision that again found that GE did not adequately demonstrate substantial competitive harm. The Air Force's new decision rested principally on the following three contentions: (1) GE faced no actual competition over the two contracts at issue because they were sole-source contracts; (2) GE failed to demonstrate precisely how the disclosure of unit pricing information would cause it substantial competitive harm, but rather had offered only "conclusory allegations"; and (3) GE's "customer leverage" argument is not a valid basis for finding competitive harm and, in any event, GE has no other customers who would order parts in quantities as large as those the Air Force orders and thus could not demand price concessions based on the unit pricing GE offered to the Air Force.
Following renewed cross-motions for summary judgment, the district court again rejected the Air Force's reasoning for disclosing the disputed pricing information. In doing so, the court provided a blueprint for contractors seeking to prevent the disclosure of their confidential and proprietary information under FOIA.
First, with respect to the Air Force's argument that GE faces no actual competition because the contracts at issue were sole-source awards, the court made clear that "evidence of actual competition . . . need not be of actual competition over these particular contracts." The court found that GE adequately demonstrated that it faces actual competition over jet engine spare parts on both future contracts with the U.S. Air Force and contracts with other countries' air forces, such as those of South Korea and the United Arab Emirates.
Second, the court rejected the Air Force's imprecision argument, making clear that contractors seeking to prevent the disclosure of their proprietary information under FOIA are not required to demonstrate "precisely how" the release of that information will cause competitive harm:
Regarding the Air Force's imprecision argument, the case law is clear that GE is to be held to a lower standard than the one the Air Force suggests. While the burden is on GE to produce evidence indicating that release of pricing information would be competitively harmful, it need not demonstrate precisely how the release of the information would cause competitive harm. As the D.C. Circuit has stated, a party need not demonstrate how a competing firm would use the disclosed information to 'model exactly or pinpoint precisely [its] pricing strategy' in order to show a likelihood of substantial competitive harm; 'pinpoint precision is not required to inflict substantial competitive harm.'
The court found that GE provided sufficient material explaining how its competitors could use the disputed information for competitive advantage.
Finally, the court made clear that the D.C. Circuit recognizes customer leverage as having the potential to be substantially competitively harmful and therefore a basis for non-disclosure. In this case, the court found that, despite not being the size of the Air Force, many of GE's customers are still in a position to buy jet engine spare parts in vast quantities and would likely be able to demand lower unit pricing from GE if the disputed unit pricing were disclosed.
The court's reasoning in General Electric provides helpful guidance to contractors regarding protection of unit pricing information. Wiley Rein also will be conducting a "Boot Camp" webinar on October 22, 2009 on recent FOIA developments and will discuss strategies contractors can use to prevent the disclosure of their confidential and proprietary information.