FOIA Cases
There have been a couple of recent Freedom of Information Act cases that touch on trade issues and caught my attention.
The first is Watkins v. Customs and Border Protection. This case involves an intellectual property lawyer who made a number of requests to several ports for copies of seizure notices issued to trademark owners when Customs seizes counterfeit goods. These notices include the name and address of the importer, the exporter, and the manufacturer (if known) and other information. Customs eventually provided some of the requested documents, but they had been highly redacted. The plaintiff appealed the limited release to the District Court and then to the Ninth Circuit.
By way of background, the Freedom of Information Act creates a public right to access public documents that have been unnecessarily shielded from the public. The Supreme Court has said that the purpose of the act is "to ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed." But, the act contains nine exceptions that justify the government withholding information.
In this case, the government asserted FOIA exception four, which protects from disclosure trade secrets and commercial or financial information obtained from a person and privileged and confidential. The Ninth Circuit broke that exception down in to three elements: the information must be (1) commercial and financial, (2) obtained from a person or by the government, and (3) privileged or confidential.
The plaintiff's argument was that the Notices of Seizure cannot be commercial information because they pertain to the unlawful commercial activity. But, the Ninth Circuit quickly dismissed this argument. Rather than be a determination that the goods are counterfeit, the Notice of Seizure is simply a notice that goods have been seized on the suspicion that the goods are counterfeit. At the time of the seizure notice, the importer retains the right to challenge the seizure and secure the release of the merchandise. Also, the Court noted that importers of legitimate merchandise sometime (sadly) acquiesce to the seizure and ultimate forfeiture of legitimate goods. Thus, the Court upheld the lower court's conclusion that the Notices contain commercial information relating to supply chains.
But, if the information is not privileged or confidential, the law will still require it to be released. To show that the information is confidential, Customs and Border Protection needs to prove both that there is competition in the relevant market and that the release of the information will harm that competition. In this case, because the FOIA request was for "all notices," the relevant market, according to the Court, is the entire $1 trillion in U.S. imports. Based on the size of the market, the Court essentially said that there must be competition. Further, the Court found little doubt that within that $1 trillion in trade, there are importers of legitimate products who zealously guard information about their supply chains. Thus, the Court found both competition and a likelihood of injury from release. Therefore, the FOIA exception applies.
Or does it? There is an exception to the exception. Specifically, the the allegedly confidential information is distributed to the public, the government has arguably waived the claim of confidentiality. Some courts have held that where the information is distributed to the public and that distribution (apparently in contrast to the record itself) is preserved in a public record, there has been a waiver of Exception Four. In this case, the Notice of Seizure have been sent to the trademark owner (who is not a party to the commercial transaction involved). Arguably, that constitutes a waiver requiring the release of the information. But, the majority opinion distinguished this case from other waiver cases because the information did not involve national security, the other cases did not involve a "no strings attached" disclosure as is true here, and there is no public record preserving these disclosures. So, the majority, over a dissenting opinion, held that the waiver did not apply.
This is all very interesting. I have a hard time making that last leap with the Court. On its face, it seems that if Customs and Border Protection is willing to provide rights holders with Seizure Notices, then it is not treating that information as confidential. But, there is more to it than that. First, the disclosure to the rights holder is statutorily mandated. So, Customs is not making a judgment call regarding the information. Rather, it is just following the legal mandate. Second, it strikes me that confidentiality based on commercial value is intended to protect the importer. It really should be up to the importer to waive the confidential treatment of its information, not up to the government.
Also, the fact that there is a statute requiring the disclosure seems to indicate that there is no intent to waive confidentiality. What is happening is that Congress is facilitating the trademark owners' ability to sue the importer and the exporter to recoup any losses or damages. Finding a waiver in these circumstances seems to penalize the importer by compounding the disclosure beyond the statutory requirement. Frankly, it seems like the problem here is that Customs and Border Protection does not restrict further distribution of Notices received by domestic rights holders.
Well, that turned out to be longer than I expected. There is more in the case concerning the FOIA fee schedule. The issue has to do with the fact that the Customs regulations do not correspond with DHS regulations concerning FOIA fees. If you are interested in that part, you are on your own. I'll do the other FOIA case soon.
The first is Watkins v. Customs and Border Protection. This case involves an intellectual property lawyer who made a number of requests to several ports for copies of seizure notices issued to trademark owners when Customs seizes counterfeit goods. These notices include the name and address of the importer, the exporter, and the manufacturer (if known) and other information. Customs eventually provided some of the requested documents, but they had been highly redacted. The plaintiff appealed the limited release to the District Court and then to the Ninth Circuit.
By way of background, the Freedom of Information Act creates a public right to access public documents that have been unnecessarily shielded from the public. The Supreme Court has said that the purpose of the act is "to ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed." But, the act contains nine exceptions that justify the government withholding information.
In this case, the government asserted FOIA exception four, which protects from disclosure trade secrets and commercial or financial information obtained from a person and privileged and confidential. The Ninth Circuit broke that exception down in to three elements: the information must be (1) commercial and financial, (2) obtained from a person or by the government, and (3) privileged or confidential.
The plaintiff's argument was that the Notices of Seizure cannot be commercial information because they pertain to the unlawful commercial activity. But, the Ninth Circuit quickly dismissed this argument. Rather than be a determination that the goods are counterfeit, the Notice of Seizure is simply a notice that goods have been seized on the suspicion that the goods are counterfeit. At the time of the seizure notice, the importer retains the right to challenge the seizure and secure the release of the merchandise. Also, the Court noted that importers of legitimate merchandise sometime (sadly) acquiesce to the seizure and ultimate forfeiture of legitimate goods. Thus, the Court upheld the lower court's conclusion that the Notices contain commercial information relating to supply chains.
But, if the information is not privileged or confidential, the law will still require it to be released. To show that the information is confidential, Customs and Border Protection needs to prove both that there is competition in the relevant market and that the release of the information will harm that competition. In this case, because the FOIA request was for "all notices," the relevant market, according to the Court, is the entire $1 trillion in U.S. imports. Based on the size of the market, the Court essentially said that there must be competition. Further, the Court found little doubt that within that $1 trillion in trade, there are importers of legitimate products who zealously guard information about their supply chains. Thus, the Court found both competition and a likelihood of injury from release. Therefore, the FOIA exception applies.
Or does it? There is an exception to the exception. Specifically, the the allegedly confidential information is distributed to the public, the government has arguably waived the claim of confidentiality. Some courts have held that where the information is distributed to the public and that distribution (apparently in contrast to the record itself) is preserved in a public record, there has been a waiver of Exception Four. In this case, the Notice of Seizure have been sent to the trademark owner (who is not a party to the commercial transaction involved). Arguably, that constitutes a waiver requiring the release of the information. But, the majority opinion distinguished this case from other waiver cases because the information did not involve national security, the other cases did not involve a "no strings attached" disclosure as is true here, and there is no public record preserving these disclosures. So, the majority, over a dissenting opinion, held that the waiver did not apply.
This is all very interesting. I have a hard time making that last leap with the Court. On its face, it seems that if Customs and Border Protection is willing to provide rights holders with Seizure Notices, then it is not treating that information as confidential. But, there is more to it than that. First, the disclosure to the rights holder is statutorily mandated. So, Customs is not making a judgment call regarding the information. Rather, it is just following the legal mandate. Second, it strikes me that confidentiality based on commercial value is intended to protect the importer. It really should be up to the importer to waive the confidential treatment of its information, not up to the government.
Also, the fact that there is a statute requiring the disclosure seems to indicate that there is no intent to waive confidentiality. What is happening is that Congress is facilitating the trademark owners' ability to sue the importer and the exporter to recoup any losses or damages. Finding a waiver in these circumstances seems to penalize the importer by compounding the disclosure beyond the statutory requirement. Frankly, it seems like the problem here is that Customs and Border Protection does not restrict further distribution of Notices received by domestic rights holders.
Well, that turned out to be longer than I expected. There is more in the case concerning the FOIA fee schedule. The issue has to do with the fact that the Customs regulations do not correspond with DHS regulations concerning FOIA fees. If you are interested in that part, you are on your own. I'll do the other FOIA case soon.
Comments
It's no news that the FOIA is often used by importers or their agents as a "fishing expedition." I recall so-called FOIA requests which asked for the names and addresses of all importers of "product X," and the like.
These were (and remain) simple denial cases, as they would have CBP violate the Trade Secrets Act. But there is always some smarty out there who thinks that FOIA can be used as a form of industrial espionage.
When the requesting party is clever, CBP officers sometimes have a tough time distinguishing legitimate FOIA requests from these "fishing expeditions." Simultaneously enforcing two laws with facially opposing purposes is never easy. Is it a legitimate FOIA or a violation of the Trade Secrets Act?
Glad all those problems are behind me.
Your faithful Customs retiree.