July 26, 2018

Does Working with the Government Mean You Lose Your Trade Secret Protection?...Maybe

Holland & Knight Trade Secrets Blog
Matthew Zimmerman

From SpaceX's groundbreaking work in the aerospace industry to Uber's disruption of the transportation industry, the interaction between innovative companies and federal, state, and local governments is growing – and will continue to do so for the foreseeable future.  This creates unique challenges for a corporation that shares its proprietary information with the government but also wants to keep it secret, a trade secret. 

Generally, information generated by or provided to the government, whether state, federal,or local, is subject to public disclosure through open government laws (e.g., freedom of information, sunshine or right-to-know laws). While these laws typically provide for some protection against public disclosure of trade secrets, the scope and strength of this protection varies widely. Often, the determination of whether information should be protected is left to administrators or nonjudicial proceedings. So what happens when corporations and public entities exchange protected trade secret or confidential information? Does that information become subject to public disclosure simply because it is in the hands of the government? The answers to these questions vary greatly.

Take for example the aerospace industry. Historically, many associated this industry with NASA, the federal agency responsible for the moon landing. But with exploding privatization, many private companies are facing challenges protecting their competitive secrets when working in conjunction with governmental agencies. 

Ten years ago, New Mexico had visions of being the hub for commercial space travel. With the hope of future industry and economic rewards, New Mexico tax payers funded a $220 million "Spaceport America facility" that includes a rocket runway, launch pad and testing facilities.  Leaders in the industry, such as Virgin Galactic and Space X, announced plans to conduct operations at the facility over the last several years. Many of those plans were changed or did not come to fruition for various reasons. Now the facility is facing challenges attracting private companies to use the facility, in part because of privacy concerns. Potential tenants for the facility reportedly have concerns about public disclosure of a wide range of information, which can hurt their competitive edge. In response, Spaceport America representatives sought to protect not only highly technical trade secrets but other business information, including infrastructure upgrades, flight dates and other flight information traditionally available to the public, say at an international airport where private airline companies use taxpayer funded infrastructure. The competitors in this privatized race to space are leery of sharing any business information with their rivals in this nascent industry. And Spaceport America's business plan was to accommodate multiple rivals, similar to airports that service multiple competing airlines. 

Seeking a legislative solution, a bipartisan bill was pursued that would exempt broad categories of information related to Spaceport America, ranging from visitor logs to cyber infrastructure, from public disclosure. At one point, the Spaceport was backing a bill that would allow aerospace tenants to keep their identities and even how much rent they paid confidential. New Mexico's Foundation for Open Government initially said the bill is too broad and that it could interfere with public scrutiny of the government-backed facility, with adverse implications for safety and the environment. Ultimately, a compromise was reached and new, albeit narrower, confidentiality protections for aerospace customers were secured. The final bill, which was passed and signed into law earlier this year, exempts from public disclosure only aerospace customer information that would cause "substantial competitive harm" to the aerospace tenant based on "specific factual evidence."

The problem of public access to private company information has also impacted the ridesharing industry, as Uber and Yellow Cab battle in court over information provided by Uber to county officials in South Florida. Through a public records request, Yellow Cab sought "aggregate" and "granular" data about Uber's business shared with Broward County, Florida. Among other things, Yellow Cab wanted the number and exact location of Uber pick-ups and the usage fees paid by Uber to the county. A Florida appellate court determined that Uber's less-detailed "aggregate" data was not a protected trade secret because it would not reveal the company's privileged fare pricing or revenue. Raiser-DC, LLC v. B&L Service, Inc., et al., 43 Fla. L. Weekly D145a at n. 3 (Fla. 4th DCA 2018). The granular data, however, was protected. In doing so, the Florida appellate court rejected Uber's appeal and noted the long-standing principle that "a public record cannot be transformed into a private record merely because an agent of the government has promised that it will be kept private...The right to examine public records belongs to the public." That said, the Court did protect some of Uber's information disclosed to the County from production. 

Any company doing business, or seeking to do business, with a government agency should be aware of the potential risk of losing protection – and more importantly control – over its confidential business information. Likewise, government agencies looking to invest in collaborations with innovators in the private sector should consider the potential impact of open records laws, and address those issues with the public or through the legislative process prior to making sizable investments. 

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