Report 19 - Access to Information Review Task Force

THIRD PARTY PROVISIONS

CLASS BASED EXEMPTIONS

A. TRADE SECRETS: Paragraph 20(1)(a)

Paragraph 20(1)(a) provides a mandatory, class-based exemption to disclosure where the information sought would reveal a third party's "trade secrets". Colin H. McNairn and Christopher D. Woodbury note that it is difficult to isolate the attributes that distinguish trade secrets from other commercial information. While it is clear that a trade secret will also be commercial information, not all commercial information will constitute trade secrets. ⁽⁹⁾

Trade secrets are distinguishable from the class-based exemption set out in paragraphs 20(1)(b) in that there is no requirement that the trade secret be "supplied to government by a third party". Trade secrets are distinguishable from the harms-based exemptions set out in paragraph 20(1)(c) and (d) in that there is no requirement that any harm result from disclosure: it is enough that the information falls within the judicial definition of "trade secrets". Trade secrets could conceivably fit within any of paragraphs (b), (c), or (d), but there is no requirement that they do so in order to justify a refusal to disclose such information. As a result, McNairn and Woodbury suggest that it is difficult to pinpoint the attributes that distinguish trade secrets from other commercial information, yet they note that the federal Act does seem to presuppose such a distinction. ⁽¹⁰⁾ The result is that trade secrets receive broader protection than other types of commercial information under the Act.

To further complicate this issue, there are two generally accepted common law definitions of this key term. ⁽¹¹⁾ The first, a broad definition, is set out in the US Restatement of Torts as follows: ⁽¹²⁾

a trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him [sic] an opportunity to obtain an advantage over competitors who do not know or use it.

Connelly suggests that this broad definition includes not only secret productive processes, but also any secret information giving its possessor a competitive advantage.

The narrower definition includes only secrets relating to productive processes, "an unpatented, secret, commercially valuable plan ... or process which is used for the making, preparing, compounding, treating or processing of trade commodities". To clarify which of these definitions applies, many suggest that the Act should include a specific definition of "trade secrets".

In Open and Shut, the Standing Committee recommended that the narrower definition be set out as follows:

A secret, commercially valuable plan, formula, process or device, that is used for the making, preparing, compounding or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.

In his 1994 review, the Information Commissioner of Canada suggested that this definition should be subjected to legal review before inclusion in the Act so as to ensure that it meets the requirements of the strict law in this area and, if so, should be included in the Act.

Several Federal Court cases have considered claims for trade secret exemptions from disclosure. These cases have suggested that, in the context of the federal Act, a narrow interpretation will be given to the term. In Merck Frosst Inc. v. Canada (Minister of Health and Welfare) (1988) ⁽¹³⁾, although he did not decide on this issue, Jerome ACJ. found persuasive the government's arguments to the effect that the exemption did not apply, since a trade secret should be defined narrowly as information about productive processes. In that case, the information at issue was found to have been disclosed in a product monograph and was, therefore, no longer a "secret" and so could not be exempted from disclosure on this basis.

In Société Gamma Inc. v. Canada (Department of Secretary of State), the Court held that "trade secrets" must indeed be given a narrow interpretation in the context of access to information regimes. ⁽¹⁴⁾ Strayer J. held that a "trade secret" would have to be something guarded very closely and of such peculiar value to the owner that harm would be presumed by its mere disclosure. In Société Gamma, the Court declined to find that information with respect to the submission of contract proposals for translation services was of this nature.

The information at issue in Société Gamma was a Proposal submitted to the Department of the Secretary of State in a call for tenders for independent contractors to offer to enter into a contract with the Department for translation services. The third party company argued that the information should not be disclosed because it was in essence a business method that the company used as its primary marketing tool. It claimed that the Proposal format had been developed after a good deal of effort and expense and that disclosure would reveal information about internal operations that would cause harm to its competitive advantage in marketing their services to government. The Court held that, while there was no authoritative jurisprudence on the definition of "trade secret" for the purposes of the Act:

... One can, I think, conclude that in the context of subsection 20(1) trade secrets must have a reasonably narrow interpretation since one would assume that they do not overlap the other categories: in particular, they can be contrasted to "commercial .. confidential information supplied to a government institution ... treated consistently in a confidential manner ..." which is protected under paragraph (b). In respect of neither (a) nor (b) is there a need for any harm to be demonstrated from disclosure for it to be protected. There must be some difference between a trade secret and something which is merely "confidential" and supplied to a government institution. I am of the view that a trade secret must be something probably of a technical nature, ... which is guarded very closely and is of such peculiar value to the owner of the trade secret that harm to him would be presumed by its mere disclosure. Clearly the whole of the Proposal of the applicant cannot be of that nature and the applicant has not identified any particular aspect of it which must be regarded as a trade secret. Also, for reasons which I will indicate below, I think that most of the Proposal format which the applicant strives to protect cannot be regarded as "secret" at all.

Thus, for the purposes of the Act, the narrow approach to the definition has been adopted and the term is reserved for more technical production information.

Although commercial third parties would like to include business methods within the purview of this exemption, such a broad definition has been rejected by the courts. This likely makes some sense in the context of the Act in that the trade secret exemption is the broadest protection afforded to commercial information. If information falls within this definition, it triggers an automatic, mandatory exemption. As well, the public interest override set out in subsection 20(6) does not apply to trade secrets and they will not, therefore, be subject to disclosure on the basis of an overriding public interest. To ensure that the purposes of the Act are fulfilled, it likely does make sense to ensure that this broad exemption is applied narrowly. If the third party can show that disclosure of business methods would fall within one of the other exemption provisions, the information may be withheld, but the automatic exemption should not apply.

Nevertheless, a broader approach has been taken in Ontario, Alberta and British Columbia. For example, the Alberta Institute of Law Research and Law Reform approved the following definition of the key term: ⁽¹⁵⁾

information including but not limited to a formula, pattern, compilation, programme, method, technique, or process or information contained or embodied in a product, device or mechanism which:

(i) is or may be used in a trade or business;
(ii) is not generally known in that trade or business;
(iii) has economic value from not being generally known; and
(iv) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

This definition was adopted by the Ontario Access and Privacy Commissioner. ⁽¹⁶⁾ The British Columbia Freedom of Information and Protection of Privacy Act defines "trade secret" as "information, including a formula, pattern, compilation, program, device, product, method, technique or process, that

(a) is used, or may be used, in business or for any commercial advantage,
(b) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use,
(c) is the subject of reasonable efforts to prevent it from becoming generally known, and
(d) the disclosure of which would result in harm or improper benefit."

The Alberta and British Columbia definitions can be considered somewhat odd in light of the wording of the third party provisions in these jurisdictions. Under these Acts, trade secrets are distinguishable from other protected information only on the basis of not being generally known in the trade or business and on the basis of the inclusion of the requirement of significant harm. Otherwise trade secrets would appear to overlap with other commercial information and it is not clear why a separate provision is needed.

Australia does not include a definition of "trade secrets" in its access to information legislation. The Australian courts have also adopted the narrower judicial definition. ⁽¹⁷⁾ The Australian definition differs slightly from the Canadian, in that the Australian courts have not required that the information be technical in nature, although they suggest that this may be an indication of a trade secret.

Proposals to repeal the relevant subsection of the Australian legislation so that trade secret information would be exempt only under the provision dealing with adverse effects on business were made by the Public Policy Assessment Society and the Australian Consumers' Association. This proposal was strongly opposed by agencies and business on the basis that the protection provided by the express exemption is necessary to ensure the certainty of protection for third parties' intellectual property rights. The Australian Law Reform Commission found that the express exemption is necessary to ensure that agencies are able to withhold information that is unrelated to business or professional affairs, but that, nevertheless, has commercial value that would be diminished or destroyed by disclosure. ⁽¹⁸⁾

Given the clear judicial interpretation of the term "trade secrets", it may well follow that amendment of the Act to include an express definition is unnecessary. It would be difficult to formulate a definition which precisely incorporates this judicial interpretation, and the courts may presume that an amendment of the Act signals an intention by the government to change the law. Rather than providing clarification, such an amendment may thus create uncertainty. In addition, freezing the definition of "trade secrets" may be inappropriate because its meaning will evolve over time. New forms of trade secrets will arise as technology advances, and an express definition may not allow decision-makers to adapt to these changes and continue to protect the interests underlying these provisions. Such an amendment, however, might serve to alert third parties to the narrow scope of the definition and might prevent fruitless litigation in this area.

Although some have suggested that the exemption for trade secrets should be repealed, the express exemption is likely necessary to ensure, as the Australian Law Reform Commission found, that this type of valuable third party information receives sufficient protection.

B. INFORMATION SUPPLIED IN CONFIDENCE: Paragraph 20(1)(b)

Paragraph 20(1)(b) deals with information generated by a third party and supplied to a government institution, often for a regulatory purpose. At present, there is no distinction made between information supplied voluntarily and information which is compelled under some regulatory requirement. Like the exemption for trade secrets, this subsection does not require the third party to satisfy a harms test. To successfully claim the exemption the third party must show that the information is:

1. "financial, commercial, scientific or technical";
2. confidential in nature;
3. supplied by the third party; and
4. treated consistently as confidential by the third party. ⁽¹⁹⁾

The most important part of this test appears to be the confidentiality provision, as it permits the court to go behind the third party's own characterization of the information to determine the actual nature of the information.

5. "Financial, commercial, scientific or technical"

This term has been given a broad interpretation and consequently covers a wide variety of types of information. MacKay J. held that all information is essentially neutral in value and that it attracts market value dependent on the use that may be made of it, who wants it and for what purpose. MacKay J. suggested that the value of specific information may fluctuate wildly over time and that the dictionary meanings provided the best guide for the purposes of paragraph 20(1)(b). ⁽²⁰⁾

In Canada (Information Commissioner) v. Canada (Minister of External Affairs) the Court confirmed that information will be deemed to be financial, commercial, scientific or technical when it relates to material that is commonly referred to as such, in keeping with the ordinary dictionary definition of those terms. ⁽²¹⁾ The Court explicitly rejected a narrow interpretation, such as requiring that the information have independent market or cost value. The Court did note that, in this case, the information would also have met the strictest meaning of the term "independent value" as an illicit offer had been received by the third party for the sale or lease of the unused portions of the quota. The fact that the information met the narrower test only confirmed that it fit within the broader interpretation.

6. Confidential in nature

Under this paragraph, in order to be exempt from disclosure, the confidentiality of the information must be established by an independent standard. ⁽²²⁾ The confidentiality provisions of the Act must balance the purposes of the legislation in promoting openness and accountability in governance against such activities as corporate espionage. The Act was not intended to allow companies to spy on one another, but without careful application, it could become a tool for such activity. To be exempt from disclosure, the party wishing to withhold the information must show on a balance of probabilities that the information is: of a kind that a reasonable person would regard as confidential; was prepared for a purpose that would legitimately be expected not to entail disclosure; and was developed and communicated in circumstances that would indicate a concern for its protection from disclosure.

In Montana Band of Indians v. Canada (Minister of Indian Affairs) (1988) ⁽²³⁾, where the information at issue was Band financial statements available for review only in the Band Office, the Court held that whether information met the relevant test did not depend on the number of people who had access to the information. Rather, it held that the test had more to do with the "content of the information, its purpose, and the conditions under which it was prepared and communicated." In that case, Band financial statements were withheld, despite the fact that they had been made available to all Band members, because the statements described private funds and had been prepared by parties with a fiduciary relationship to the Band.

In Air Atonabee (1989), MacKay J. attempted to reconcile earlier judicial analysis of the confidentiality provision by referencing the "Wigmore Test" ⁽²⁴⁾. He found that the confidentiality test for the purposes of the Act was met where the information:

(a) was not available from other public sources and could not be obtained by observation or independent study;
(b) originated and was communicated to government in a reasonable expectation of confidence; and
(c) was communicated to government within a fiduciary relationship, not contrary to the public interest, and the relationship was one that should be fostered for the public benefit.

This test does not include the fourth criteria of the Wigmore Test B namely, that the injury which would result from disclosure be balanced against the potential benefit gained from disclosure. Arguably, inclusion of such a criteria in the context of application of the Act would ensure that the exemption from disclosure was interpreted in a limited and specific way that would keep the ultimate purpose of the Act B the disclosure of information B at the fore.

Information has not been held to be confidential, even if the third party asserts that it is, where it is publicly available from another source ⁽²⁵⁾; where it has been available at an earlier time or in another form from government ⁽²⁶⁾; or where it could be obtained by observation, albeit with more effort by the requester ⁽²⁷⁾.

The Air Atonabee test has been followed in a number of cases, including in Canada (Information Commissioner) v. Canada (Minister of External Affairs) (1990). In that case the Court held that the considerations used to determine whether information is of a confidential nature cannot be taken as superadded conditions to the Act. ⁽²⁸⁾ Denault J. held that the third part of the test was not a condition for confidentiality; rather, it was "an indication of confidentiality". This test arguably produces a highly questionable result. Under this test, the government's position with respect to the confidentiality of the information when initially obtaining it governs whether the information will fall under the exemption when disclosure is requested. As such, confidentiality is not established on an objective basis, and the court's role as a source of independent review may be usurped.

Canada (Information Commissioner) v. Canada (Minister of External Affairs) was a decision to withhold information regarding the amount of the largest single annual import quota of foreign cheese allocated to a firm or individual in 1985. The information was originally withheld under paragraph 20(1)(b), (c), and (d). The Court upheld the exemptions from disclosure under paragraph (1)(b) and (c). The information was found to be confidential in that it was not otherwise accessible to the public; was communicated in a reasonable expectation that it would not be disclosed within a relationship that was either fiduciary or not contrary to the public interest.

The Commissioner argued that the information in this case did not meet the third indicator of confidentiality, that is, that it was not provided in a relationship required by the public interest to be fostered by preserving confidential lines of communication because of the substantial financial benefit gained by the third party. This argument was not adopted by the Court. That is, in some circumstances there may be a public interest in preserving confidential interest where a third party gains a financial benefit from that exemption.

The American test for confidentiality is distinguishable from the Canadian test for the purposes of paragraph 20(1)(b) in that the American test is harms-based. Under the American test, disclosure is limited where it might either impair the government's ability to obtain necessary information in the future or cause substantial harm to the competitive position of the person from whom the information was obtained. ⁽²⁹⁾ The Canadian Act deals separately with the harms-based test and injury is not required in order to meet the class-based test set out in paragraph 20(1)(b). In addition, the American test has been further developed in a manner that may not be consistent with Canadian access to information objectives. An analysis of these developments in the American context is set out below in the section dealing with whether it is appropriate to make a distinction between information supplied voluntarily and that which is supplied under compulsion.

3. Supplied by the third party

Information generated by the government is not "supplied by the third party" and is therefore excluded from the exemption under paragraph 20(1)(b). A review of the case law suggests that where government takes an active role in gathering information, the courts will not find that it was "supplied by the third party". In Air Atonabee, the court held that where the information includes judgments, comments or observations made by public inspectors the information cannot be considered to have been supplied by the third party. The Court went on to find that where there was "real doubt", the issue would be resolved in favour of the third party. That is, where there is doubt, the information would be found to fall within the exemption. This analysis does not seem to accord with the purposes of the Act in that the exemption would not be construed to be limited and specific in that doubt is resolved in favour of non-disclosure.

In Société Gamma Inc. v. Canada (Department of Secretary of State), the Court held that where a contractor sets out to win a government contract, that third party should not expect that the terms upon which he or she is prepared to contract, including the capacities of the firm, will be kept fully insulated from the disclosure obligations of the Government as part of its accountability.

4. Treated consistently as confidential by the third party

This criterion has been interpreted such that information supplied within the third party organization has been construed to be "treated consistently as confidential" so long as it is not made available outside of the defined group. Application of this test seems to be, to some degree, a matter of common sense and the determination is dependent on the facts in each case.

Return to Table of Contents

Next Page

9. Colin H. H. McNairn and Christopher D. Woodbury, Government Information: Access and Privacy, (Carswell, 1992) at 4-9.

10. McNairn and Woodbury, ibid at p. 4-10

11. M.Q. Connelly, "Freedom of Information and Commercial Confidentiality", in John D. McCamus, Freedom of Information: Canadian Perspectives, (Toronto: Butterworths, 1981) at 106-7.

12. Restatement of Torts, ' 757, Comment b, (1939).

13. Merck Frosst Inc. v. Canada (Minister of Health and Welfare), [1988] F.C.J. No. 290 at 4.

14. Société Gamma Inc. v. Canada (Department of Secretary of State), [1994] F.C.J. No. 589.

15. Alberta Institute of Law Research and Law Reform, Trade Secrets (1986).

16. Order M-29, Ontario Access and Privacy Commissioner (Re Etobicoke Board of Education, July 30, 1992).

17. Searle Australia Pty Ltd. v. Public Interest Advocacy Centre (1992), 108 A.L.R. 163.

18. The Australian Law Reform Commission, ALRC 77, Open government: a review of the federal Freedom of Information Act 1982, at: http://www.austlii.edu.au/au/other/alrc/publications/reports/77/ALRC77.html

19. Montana Band of Indians v. Canada (Minister of Indian Affairs & Northern evelopment), [1989] 1 F.C. 143.

20. Air Atonabee v, Canada (Minister of Transport), [1989] F.C.J. No. 453 (T.D.).

21. Canada (Information Commissioner) v. Canada (Minister of External Affairs) ibid at para 9.

22. Maislin Industries Ltd. v. Minister for Industry, Trade and Commerce et al., [1984] 1 F.C. 939 (T.D.).

23. Montana Band of Indians v. Canada (Minister of Indian and Northern Affairs), [1989] 1 F.C. 143.

24. The "Wigmore Test" originated from the seminal Canadian case on privilege, Slavutych v. Baker, [1976] 1 S.C.R. 254.

25. Canada Packers Inc. v. Minister of Agriculture, [1988] 1 F.C. 483 (T.D.).

26. Canada Packers Inc. v. Minister of Agriculture [1988] 1 F.C. 483 (T.D.); Merck Frosst Canada Inc.(1989), 30 C.P.R. (3d) 473 (F.C.T.D.).

27. Air Atonabee Ltd. (1989), 27 F.T.R. 94 (T.D.).

28. Canada (Information Commissioner) v. Canada (Minister of External Affairs), [1990] 3 F.C. 665 at para 11.

29. National Parks and Conservation Association v. Morton, (1974) 498 F. (2d) 765 at 770.