On March 9, 2010, we issued an Alert on a recent decision by the United States District Court for the District of Columbia that held that the Army properly withheld from public release unit pricing for a government contract awardee, finding the information exempt under Exemption 4 of the Freedom of Information Act (FOIA), 5 U.S.C. § 522, which protects from disclosure confidential commercial or financial information. See "District Court for the District of Columbia Dismisses FOIA Action Seeking Contractor Unit Prices Citing Potential Substantial Harm to Competitive Position." On March 23, 2009, the United States Court of Appeals for the D.C. Circuit continued the trend of contractor-friendly FOIA decisions in United Techs. Corp. v. Department of Defense, No. 08-5435 2010 WL 1030053 (D.C. Cir. Mar. 23, 2009), a "reverse FOIA" action seeking to prevent disclosure of Defense Contract Management Agency (DCMA) evaluations of quality control processes used by Sikorsky Aircraft Corp. (Sikorsky) and the Pratt and Whitney Division (Pratt) of United Technologies.
The FOIA request for Sikorsky information was filed by a New Haven, CT, television station and sought all of the Corrective Action Requests (CARs) DCMA had issued to Sikorsky (and Sikorsky's responses) in the past year relating to the Black Hawk helicopter. After initially concluding that the CARs were competitively sensitive information under FOIA Exemption 4, DCMA reversed its position and notified Sikorsky that it planned to release the CARs (but not the Sikorsky responses). Citing Nat'l Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), which held that Exemption 4 applies if disclosure is likely to impair the Government's ability to obtain necessary information in the future or cause substantial competitive harm, Sikorsky argued that release of the CARs would cause competitive harm because the CARs contain proprietary information regarding Sikorsky's manufacturing procedures. DCMA rejected this argument, stating that Sikorsky's asserted harm really concerned "suffering embarrassment in the marketplace." DCMA also rejected Sikorsky's claim that release of the CARs would harm the Government's ability to obtain data in the future, reasoning that this was a concern for the agency, but not Sikorsky.
The FOIA request for Pratt information was also a media request. It concerned an audit of a Pratt engine facility and related CARs. Like Sikorsky, Pratt also opposed release based on FOIA Exemption 4 and supported its opposition with proffered redacted documents and multiple affidavits describing the potential competitive harm that would result from release of the audit documents. DCMA rejected Pratt's arguments, again determining that Pratt's real competitive concern was "embarrassment," not substantial competitive harm, and that DCMA's ability to obtain similar data in the future would not be significantly impaired by release of the audit documents.
Sikorsky and Pratt each filed separate "reverse FOIA" actions against Department of Defense (DoD) in D.C. district court, and in both cases, the district court granted summary judgment to DoD. Although the district court acknowledged that release of the audit documents would reveal safety measures and quality control practices, it, like DCMA, concluded that Sikorsky and Pratt's main concern was "embarrassment or negative publicity," not competitive harm.
On appeal to the D.C. Circuit, Sikorsky and Pratt reiterated their arguments that release of the documents would cause substantial competitive harm and impair the Government's ability to obtain data in the future. The contractors made two arguments regarding competitive harm. First, they alleged that competitors would use the documents to discredit Sikorsky and Pratt with future potential customers, particularly foreign customers who would be unfamiliar with DCMA's exacting oversight and, as a result, would be more likely to conclude that the audit findings reflected serious shortcomings with the quality of the contractors' products. Second, they argued that the documents contained sensitive proprietary information about their quality control and manufacturing processes, including strengths and weaknesses of those processes, that a competitor could use to revise and improve its own quality control and manufacturing systems.
The D.C. Circuit agreed with the district court that the first identified harm-being discredited with potential customers-was not recognized under Exemption 4. The court concluded that "[c]alling customers' attention to unfavorable agency evaluations or unfavorable press does not amount to an 'affirmative use of proprietary information by competitors.'" Slip op. at 11. In short, Exemption 4 does not apply to "mere embarrassment in the marketplace or reputational injury . . . ." Id.
The D.C. Circuit reversed the district court on the second ground, however. Here, the court noted that Sikorsky and Pratt had presented concrete evidence that competitors could use the proprietary information in the audit documentation, even as DCMA had proposed redacting it, to revise and improve their own processes. In response, DCMA presented no countervailing evidence, relying solely on its unilateral redactions and conclusory statement that the remaining material was not competitively sensitive. The court stated that "where, as here, a contractor pinpoints by letter and affidavit technical information it believes that its competitors can use in their own operations, the agency must explain why substantial competitive harm is not likely to result if the information is disclosed." Id. at 13. Because DCMA had no responsive explanation, the court remanded the matter to DCMA to examine the data and "articulate a satisfactory explanation for its action . . ." Id.
Notably, the court did not address the contractors' final ground for opposing release of the documents-that release would impair the Government's future ability to obtain information. Citing McDonnell Douglas Corp. v. NASA, 180 F.3d 303 (D.C. Cir. 1999) and other decisions, the court noted that "[p]recedent suggests that it may be inappropriate to apply this prong [of Exemption 4] in a reverse-FOIA case." Id. at 14. Because it had remanded the case to DoD on the substantial competitive harm issue, the court did not resolve the issue.
In addition to adding to the contractor-friendly body of FOIA law, United Techs. Corp. is instructive to contractors faced with an FOIA request for competitively sensitive information. First, the decision makes clear that claims of competitive harm that rest upon reputational damage, marketplace embarrassment, or fear of lost customers will not fare well. Second, to support their claims of competitive harm, contractors should be prepared to submit detailed affidavits or declarations that specifically identify how competitors could use the information to be released to their own competitive advantage or to improve their own competitive standing. Lastly, contractors should not rely unduly on the Exemption 4 prong related to harm to the Government, particularly in a reverse-FOIA action.