We now have the situation where research, for example, into a local school problem involving learning disabilities is releasable under the FOI Act if done by an employee of the Department of Education, but is not releasable if done under a contract by the Department of Educationn with a so-called private consulting firm.

5. The Race To The Court House Door: Yet a third mutilation of the Act at the hands of the Supreme Court occurred in the Consumer's Union case. There the court ruled that a corporation, which obtains an injunction any place in the country against release of information sought under the FOI Act, can defeat the FOI Act request of any member

of the public and the press who chooses

him to do

-

as Congress has permitted to litigate in the federal court nearest his home town.

A chemical company, for example, that wishes to stop information about it from being released under the FOI Act can obtain an

injunction in a U.S. District Court in Alaska.

Then, an environmental or consumer organization which seeks to obtain this information under the FOI Act in a lawsuit cannot file in Washington or New York or Los Angelos, but must litigate in Alaska the injunction obtained by the chamical company.

This sets up a race to the court house door where obviously the large corporation with its phalanxes of lawyers is more likely to win the race than the individual writer, reporter or researcher.

7. The B-3 Exemption Loophole: When Congress passed the FOI Act, it passed the B-3 Exemption in an understandable effort to incorporate into the FOI Act a few existing laws maintaining the privacy of government records without having to rewrite dozens of different statutes. But we now have evidence that over the years, quietly,

special interest groups have gotten dozens of new back-door exemptions into the FOI Act through the B-3 approach. While some of these exemptions predate 1955, we now know of nearly 150 such exemptions to

the Act.

Some of these exemptions have been limited and some have not. But a true morass has been erected from the original B-3 limited exemption situation. Under the circumstances, we think that Congress should eliminate the B-3 Exemption entirely because the other eight exemptions for national security, trade secrets and law enforcement records, etc. are quite sufficient to protect the government's interest. If this B-3 Exemption craze continues, the exemptions are certain to swallow up the Act. A prime case in point is the new B-3 Exemption for the FTC which in fact grants the FTC a virtual exemption from the FOI Act, once again through the back door.

I hope this answers most of your questions, Mr. Chairman, and on behalf of The Reporters Committee and the Society of professional Journalists, I thank you for your time.

Senator SASSER. Our next witness is Cynthia Wicker, general litigation counsel, National Chamber Litigation Center, Chamber of Commerce of the United States. Ms. Wicker?

You may proceed, and for the purpose of the record, would you introduce your colleagues who are with you?

TESTIMONY OF CYNTHIA WICKER, GENERAL LITIGATION COUNSEL, NATIONAL CHAMBER LITIGATION CENTER, CHAMBER OF COMMERCE OF THE UNITED STATES, ACCOMPANIED BY STANLEY T. KALECZYC, DIRECTOR OF LITIGATION FOR THE NATIONAL CHAMBER LITIGATION CENTER, AND ROBERT M. HAWK, STAFF EXECUTIVE OF THE PANEL ON PRIVACY OF THE UNITED STATES CHAMBER

MS. WICKER. Thank you, Mr. Chairman. With me on my left is Stanley T. Kaleczyc, director of litigation for the National Chamber Litigation Center; on my right is Robert M. Hawk, staff executive of the Panel on Privacy for the United States Chamber.

At the outset I wish to thank you for the opportunity to present our views before you today, for both the chamber and the litigation center are extremely interested in the Freedom of Information Act and the manner in which it affects the business community. We of course have submitted prepared remarks to the subcommittee and would request that they be made a part of the permanent record.

Senator SASSER. Your statement will appear in full at the conclusion of your testimony.

MS. WICKER. I will use my alloted time today to summarize those remarks, to stress what we perceive to be some of the more critical issues and to respond to any questions that the chairman may have.

Initially, I would like to direct a few remarks to the issue of whether Congress should designate a lead agency or an advisery counsel for FOIA administration. Although neither the chamber nor the litigation center has addressed either of these proposals at a policy level, certainly we are aware of the tremendous disparaties in the administration of the act from agency to agency, and while uniformity in FOIA rules would help to alleviate some of these problems, we believe that certain substantive issues need to be addressed as part and parcel of any effort such as the subcommittee would under take with respect to these administrative matters.

For these reasons I would like to direct my comments to what we perceive to be those substantive issues. I will address specifically some problems that pertain to exemptions 4 and 6 of the FOIA, some concerns with the application of the Trade Secrets Act and finally what we believe should be the proper scope of judicial review in this area. Our concern as regards all of these areas is with protection accorded to business data submitted to the various components of the Government by individuals and organizations who anticipate and expect that confidential treatment will be accorded their submissions. We believe that there are substantial questions regarding the absence of statutory safeguards on the one hand, and the inadequacy of agency safeguards on the other.

As regards exemption 4, it applies literally of course to trade secrets and commercial or financial information that is one, obtained from a person, and two, is privileged or confidential. An overwhelming majority of the courts have defined confidential as including information, the release of which would impair the Government's ability to obtain such information in the future or cause substantial competitive harm to the submitter of the information, and the exemption has been limited to information obtained from outside the Government.

It is our position that exemption 4 should not be limited to information received from outside the Government. As presently construed, the exemption simply does not apply to many forms of commercial or financial information which may be contained in Government-produced documents and the release of which would cause substantial competitive harm. This information is more often than not delivered to the Government from business, recycled and published in Government reports, studies or other documents resulting in a completely anomalous state of affairs in that the information, when received from the business, is exempt under exemption 4, but once incorporated into a Government document is not.

Second, as regards exemption 6, we support the expansion of the scope of exemption 6. As presently incorporated into the Freedom of Information Act, it protects from mandatory disclosure personnel and medical files as well as similar files, the disclosure of which would cause a clearly unwarranted invasion of personal privacy.

This exemption has been universally applied to individuals only and not to fictional entities, such as business partnerships and corporations, and at first blush this application of the exemption seems reasonable since only individuals can be the subject of personnel and medical files and by analogy, similar files. However, further reflection suggests the contrary.

We begin with the observation that courts have adopted the case-bycase approach in defining similar files. In such cases the touchstone seems to be whether the information contained in the file is capable of causing embarrassment to the individual. Furthermore, financial entities like individuals come in various shapes and sizes. That is to say, just as there are multinational, publicly held enterprises, there are medium sized as well as small, closely held corporations and in many cases these corporations are in fact the alter ego of the people who own and control them. With respect to this group it seems fair to say that information that would be damaging to the entity would be equally damaging to the individual, and certainly files containing information which casts aspersions upon an entity's efficiency, credit, honesty or other business character are capable of causing embarrassment to the individual. For this reason we recommend amendment of exemption 6, making it clearly applicable to corporations and other entities. We submit that in doing so the Congress would simply be incorporating into the Federal law some notions that have already been incorporated into the common law of torts with respect to corporate defamation.

Third, I turn to the Trade Secrets Act which presently prohibits a Federal employee from disclosing trade secrets coming to her in the course of her official duties unless authorized by law. The act is troublesome in several respects, not the least of which is the lack of clarity

as to the breadth of the act, but rather than discuss this problematic area, I would like to direct my discussion of the act and its FOIA implications to another major problem area; that is, what is an “authorization by law" for purposes of the act.

With respect to this issue, in 1979, in the Chrysler v. Brown decision, the Supreme Court held that a properly promulgated regulation that has a nexus to a specific statutory grant of authority may be an authorization for purposes of the Trade Secrets Act. Chrysler however did not discuss the complete range of possible agency disclosures. Two fact patterns which we find particularly troublesome include disclosure that may be ordered by a court or an administrative law judge in the course of litigation either as one, part of the discovery process or two, in settlement of litigation.

Arguably, rule 26 of the Federal Rules of Civil Procedure authorizes the disclosure of relevant information to an adversary party during the course of litigation and in litigation against the government, a party may seek the disclosure of information which is subject to the protection of the Trade Secrets Act. If a party should seek such disclosure, however, the present law does not require that the Government seek a protective order limiting the disclosure, nor would the Government necessarily have any interest in seeking one.

Similarly such disclosure can be made without first advising the original submitter that disclosure is eminent, and as a result the very persons who are most directly affected and for whose benefit the act was created may never have an opportunity to intervene to assert their objections to the disclosure of the information. Furthermore, while rule 26 may provide a substantive basis for an exception to the act, settlement orders have no such apparent legal basis. Specifically, we have in mind here two related questions. First, may the Government agree to disclose information which is within the ambit of the Trade Secrets Act in settlement of litigation, and second, does judicial approval of that settlement constitue the authorization contemplated by the statute?

We admit that these questions pose difficult legal problems and we suggest that at a bare minimum they deserve further examination by the subcommittee, especially since the Government may not be inclined to notify submitters that their data is being disclosed for the very simple reason that the submitted may object to the settlement as a whole.

Finally, Mr. Chairman, we come to the submitter's right to judicial review and the scope of such review. Since the Supreme Court's Chrysler decision it has been clear that the submitter's sole right to review is based on the Administrative Procedures Act. As to the scope of review, the APA permits de novo review in very limited circumstances. For example, when agency actions are ajudicatory in nature and where new issues are raised that were not raised before the agency in a nonajudicatory action. Since there is no specific legislative pronouncement of the proper scope of review in such cases, we submit that the subcommittee should consider amendments not only clearly providing the right to de novo review. There are several considerations which we believe militate in favor of such review. The present statutory scheme simply does not permit the agency to render an intelligent decision as to whether documents are exempt. Under the