Transparenc-IP: Government Spending You Can’t Know About

What does intellectual property (“IP”) have to do with government accountability?  As I learned a couple weeks ago, quite a bit.  But, let’s start with basic secrecy before we get into trade secrets.

Secrets, Secrets Are No Fun.

The federal government’s two trillion dollar COVID stimulus package was big news this past spring.  It gave around 350 billion dollars in loans to (supposedly) small businesses through the Paycheck Protection Program (PPP).  I say “supposedly” because several big corporations got the money (although many later returned it). 

How many big companies got money?  Where are these companies?  What is the money being spent on?  The government initially refused to release any information about the PPP and its recipients. 

This was a problem.  Not only was the government not releasing which companies got money, but the loans could be forgiven in their entirety.  The huge amount of public dollars being given away without public knowledge about the recipients led to calls for transparency and accountability.

(Trade) Secrets, Secrets Hurt the Taxpayer.

Queue the IP questions.  As pressure started mounting for the government to release information about the PPP recipients, Senator Marco Rubio (R-FL) stated he heard from businesses that this information was a “trade secret and a competitive disadvantage that can be used against you.”  At this point, I didn’t know anything about trade secrets.  But the idea that 350 billion dollars could be given away to businesses without the public knowing anything immediately made me interested.

My curiosity piqued, I attended a webinar hosted by the University of New Hampshire School of Law. This webinar examined whether any of the PPP information could realistically treated as a trade secret.  The webinar was moderated by Professor Ann Bartow and three other professors served as panelists: Elizabeth Rowe, Sharon Sandeen, & Ryan Vacca.  The presentation was laid out as a three-part analysis.  Part one looked at what information was at issue, part two examined legal arguments, and part three synthesized the public policy concerns.  Let me explain what I learned.

What’s the Secret?

Professor Vacca explained that one requirement of a trade secret is that the secret information gives a competitive advantage to its owner, such as  a business.  If PPP information was released, companies could deduce their competitors’ salary information and poach employees – or so the argument went.

Photo by Steven Steinbauer on Unsplash. licensed under the applicable terms of Creative Commons

When analyzing whether information could be protected as a trade secret, professor Vacca explained that you first have to consider the type of information you’re talking about since that impacts the analysis.

In the case of PPP, there are two sets of information that the government has: (1) application information and (2) loan information.  Professor Vacca pointed out that the application information is very detailed (11 pages long).  Of the two sets of data, this one has a better chance of being considered a trade secret, especially since it originates from the company (as opposed to the government).  Although he noted that the application contained a disclaimer that information would automatically be disclosed to the public.

According to professor Vacca, the other set of information – the loan information – would likely not be a trade secret.  The level of information sought by the press (e.g., which companies received money, how much money was received, and what the money was used for) was too high-level to deduce competitors’ salaries.  He also highlighted that the loan information originated from the government, not the companies. This reduces the likelihood it could be a trade secret belonging to the companies.

I Have a Right to Know What’s Going on with [Redacted]!

Professor Rowe followed up with a legal analysis of the issue, starting with the  Freedom of Information Act (“FOIA”).  The FOIA allows the public to obtain certain information held by the government.  However, there are exemptions under the FOIA.

Professor Rowe went on to explain that the most frequently used exemption in the FOIA that is used to challenge requests is exemption four.  This exemption prevents the government from disclosing “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.”  Rowe then pointed out that the 2019 Supreme Court case Food Marketing Institute v. Argus Leader Media provides a new framework for analyzing this exemption.

New Case, Who Dis

In Argus Leader, the press filed a FOIA suit against the government.  They wanted information about SNAP (i.e. food stamp) benefits – which stores were SNAP benefits being spent on and how much was being spent?  Several grocery retailers challenged the request, and the case made its way to the Supreme Court (“SCOTUS”). 

SCOTUS laid out a two-pronged test to decide whether the information sought was privileged/confidential. Both of the following prongs must be satisfied.  Had the company kept the information confidential?  And had the government promised to keep the information confidential? 

In Argus Leader SCOTUS found that FOIA exemption four was met because the government promised to keep the information secret and the companies had kept the information confidential.  However, this is different from PPP loans.  There was no government promise to keep the PPP information confidential.  In fact, there was a legislative record discussing the need for transparency, along with a disclaimer on the application that the data would be automatically disclosed.

Public Policy, Not Much Policy

Last to talk was Professor Sandeen.  She talked through public policy concerns about how limited the public’s right to information is in the US.  The first thing she discussed were the possible, but very weak, sources of a right to information. 

The UN Bill of Human Rights includes a right to information.  Although the US pushed for that right to information language and is a signature on the Bill of Human Rights, the US has never passed domestic legislation promoting such a right.  SCOTUS has found a very narrow right to data under the First Amendment, saying that the government has discretion to set this right as it chooses, which it has through the FOIA.

Another question raised was if this data can’t be obtained through the FOIA, what options are there?  A Small Business Administration (“SBA”) officer could whistleblow, but professor Sandeen explained that this approach has its own problems.  Whistleblower laws in the US are very industry-specific and only provide a patchwork of rights and protections.  That makes it difficult for workers to tell if they would be protected under whistleblower laws, in turn making it unlikely for them to share the data with the public.

Public Policy, Not Public Opinion

The final takeaway I had was distinguishing between the arguments made by business owners and the above legal arguments for the disclosure.  The big public policy argument against disclosure is that it will harm businesses’ brands and reputations.  Some large corporations have already been publicly shamed when the public found out they received money. 

In my opinion, the businesses’ argument is wrong; corporate abuse of a system should lead to reputational harm.  This incentivizes better behavior.  But ultimately the business argument doesn’t matter for the legal question.  Reputational harm is not a factor in determining whether information is a trade secret or exempt from the FOIA.  All this does is distract from the real legal issue.

[Second] Secrets Are No Fun.

A couple of weeks ago, democrats and republicans reached a deal to release the list of PPP recipients and loan amounts.  Specific companies and amounts will be released if a company got more than $150,000.  Companies getting less than $150,000 will be reported in aggregate by state.  So it seems for now that a FOIA lawsuit is no longer imminent (there’s less attention on finding out which companies got smaller loans).  

However, it’s unlikely to be the last time we hear about this issue.  Leaders on Capitol Hill are already talking about another stimulus package.  Giving money to private industry again will raise these same issues.  Now with some more knowledge about trade secrets under my belt, I feel ready to talk about government accountability and transparency in the future.

Scott Hulver
Assistant Blogger
Loyola University Chicago School of Law, JD 2022

Scott is a rising 2L interested in the space where consumer advocacy meets public policy, from access to medicine to data privacy.  Before law school, Scott was living in Chicago working in software development and playing a lot of board games.