Opinion
Opinion By: Chris Gorman, Attorney General; Ayme B. Majors, Assistant Attorney General
OPEN RECORDS DECISION
Mr. LaVelton Kennedy challenges the partial denial of his March 24, 1994, request to inspect a copy of the February 17, 1994, Synthetic Gypsum Sales and Purchase Agreement between Owensboro Municipal Utilities (OMU) and United States Gypsum Company (USGC). On behalf of his client OMU, Mr. Patrick Pace responded to Mr. Kennedy's request on March 29, 1994. He advised:
The Agreement between OMU and United States Gypsum Company contains a confidentiality provision and contains material which has been claimed exempt from the Open Records Act as trade secrets, KRS 61.878(1)(k). 1
OMU agreed to release a redacted copy of the agreement. This appeal followed.
Unable to resolve the appeal on the facts presented, the Attorney General requested additional documentation from OMU to substantiate its position. On May 18, 1994, Mr. Edwin Jones, counsel for USGC, responded to our request. He indicated that under the terms of its agreement with OMU, USGC has agreed to purchase a gypsum by-product produced by a flue gas desulfurization system, or scrubber system, at OMU's coal fired power plant. For its part, OMU must produce a by-product of a particular consistency which meets particular specifications. For this reason, Mr. Jones explained:
[T]he agreement necessarily discloses formulas and trade secrets created by USGC. The pricing structure of the contract is tied to the consistency of the "gypsum by-product. " These consistencies are an essential element of the formula which makes USGC's product marketable.
As clean air requirements become more numerous, the competitive value of these formulas and specifications will dramatically increase.
Moreover, Mr. Jones observed, Section 26 of the agreement obligates OMU to treat information identified by USGC as confidential or proprietary as confidential. This, he noted, represents "an obvious effort on the part of USGC and OMU to maintain the privacy of the trade secrets necessarily contained within the agreement." Echoing the view first articulated by Mr. Pace, Mr. Jones invoked KRS 61.878(1)(k) and KRS 365.880, the Uniform Trade Secrets Act. In closing, he noted that "[f]orcing OMU to disclose this information will chill future commerce between government entities and business which involves modern technology or 'trade secrets. '"
Mr. Pace responded to the Attorney General's request for additional documentation on May 20, reiterating much of what Mr. Jones had stated. He pointed out that the redacted portions of the agreement "were selected by USG and are identical to those which USG requested we not disclose to a prior requester by letter of the attorney for USG to Robert M. Carper, General Manager of OMU, dated February 25, 1994." Continuing, he observed:
The Agreement will allow OMU to receive payment for "synthetic gypsum" which would otherwise be disposed of at a landfill at substantial cost to the utility. OMU issued a Request for Proposals and utilized competitive negotiation to select an offer or for award of a contract. USG became the only offeror reasonably susceptible for receipt of an award during the process of competitive negotiation.
Mr. Pace urged this Office to issue a decision declaring that OMU "properly invoked KRS 61.878(1)(k) in redacting portions of the Agreement between OMU and USG as 'trade secrets' protected by the applicable provisions of KRS 365.880, et. seq. . . ."
On May 23, Mr. Dick Moore, whose interest in this appeal has not been disclosed, submitted an engineering report to this Office which, he maintained, demonstrates that the agreement does not contain trade secrets. That report, prepared by Sargent and Lundy, Engineers, in December 1992, is a multi-page document entitled "Clean Air Project - Position Paper on the Feasibility of Wellboard Quality Gypsum Production." The fact that this document has been publicly circulated, Mr. Moore argues, supports his assertion that there are "no trade secrets [sic] when it comes to gypsum by-product of a particular consistency to particular specifications. "
Responding to this argument in a letter dated June 9, Mr. Jones explained that the report is a project feasibility study and a comparison of synthetic gypsum guidelines submitted by USGC and National Gypsum Company's specifications for the synthetic gypsum product that OMU's scrubber system was expected to produce. It is instructive to quote at length:
Each scrubber system will produce a different synthetic gypsum product. Consequently, after a contract award, USGC must conduct tests, evaluate limestone quality, coal sulfur content and various other elements in order to become intricately familiar with the particular scrubber system and the synthetic gypsum it will produce. After USGC evaluated OMU's scrubber system, USGC and OMU negotiated contract specifications regarding the particular process OMU must follow in order to produce a synthetic gypsum of a particular consistency, quality and purity.
The guidelines referred to by Mr. Dick Moore are not trade secrets. In fact, USGC has published the information regarding these guidelines. However, the contract specifications contained in the agreement between USGC and OMU are substantially different from the guidelines referred to by Sargent and Lundy. . . . The contract specifications include 30 plus pages of detailed methods and formulas used to test the synthetic gypsum for compliance with the contract specifications.
In further support of USGC's position, Mr. Jones submitted the affidavit of Mr. K. A. Kennedy, Manager of Purchasing Energy and Alternate Resources for USGC, dated June 8, 1994. In that affidavit, Mr. Kennedy, who negotiated the agreement with OMU, affirmed that it contains trade secrets of USGC.
In his final letter to this Office, which followed the submission of an amended request to OMU by Mr. Moore on behalf of Mr. Kennedy, Mr. Jones reaffirmed:
In his letter, Mr. Dick Moore . . . requests information concerning any penalties for deviations from moisture and purity specifications. The moisture and purity specifications are the result of USGC's independent research and USGC's evaluation of OMU's scrubber system. . . .
[D]isclosure will unfairly grant USGC's competitors and other potential or existing sources critical information regarding USGC's trade secrets, capabilities and its formula for using synthetic gypsum by-product.
The guidelines contained in the Sargent and Lundy report are only guidelines. The contract specifications regarding purity and moisture of the synthetic gypsum were arrived at after USGC's exhaustive evaluation of the OMU scrubber system. The guidelines were offered only to aid OMU in its feasibility studies.
The issue presented in this open records appeal has, to the best of our knowledge, never been raised before. We must determine if the portions of the Synthetic Gypsum Sales and Purchase Agreement between OMU and USGC which were deemed confidential and proprietary by USGC, and thereafter redacted from the agreement by OMU before it was released, were properly withheld pursuant to KRS 61.878(1)(k) and KRS 365.880. For the reasons set forth below, we conclude that OMU properly withheld those portions of the agreement.
KRS 61.878(1)(k)authorizes public agencies to withhold:
Public records or information the disclosure of which is prohibited or restricted or otherwise made confidential by enactment of the General Assembly.
This provision of the Open Records Act operates in tandem with otherwise unrelated legislative enactments by which access to public records is restricted. Thus, it has been deemed to exclude from inspection records compiled in a child abuse investigation per KRS 620.050(4), 2 OAG 91-93, intelligence and investigative reports maintained by criminal justice agencies per KRS 17.150(2), 3 OAG 91-6, and inmate conflict sheets per KRS 197.025, 4 OAG 91-136. KRS 61.878(1)(k) has never been interpreted to operate in tandem with KRS 365.880 to authorize nondisclosure of trade secrets.
The Uniform Trade Secrets Act provides, in relevant part:
KRS 365.880. Definitions. -- As used in KRS 365.880 to 365.900, unless the context requires otherwise:
(1) "Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means;
(2) "Misappropriation" means:
(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:
1. Used improper means to acquire knowledge of the trade secret; or
2. At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:
a. Derived from or through a person who had utilized improper means to acquire it;
b. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
c. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
3. Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
(3) "Person" means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.
(4) "Trade secret" means information, including a formula, pattern, compilation, program, data, device, method, technique, or process, that:
(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
KRS 365.882. Injunctive relief. -- (1) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
(2) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than a period of time for which use could have been prohibited. Exceptional circumstances shall include, but not be limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.
(3) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.
KRS 365.884. Damages. -- (1) Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant shall be entitled to recover damages for misappropriation. Damages may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.
(2) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (1).
The Act thus creates a cause of action for misappropriation of trade secrets including the recovery of damages, and provides for injunctive relief in the event of actual or threatened misappropriation.
We believe that the intent of the Act is clear. Among other things, it prohibits disclosure of trade secrets, without consent, by a "person," including a governmental subdivision like OMU, which knew that its knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy. Our task is to determine whether the information contained in the Synthetic Gypsum Sales and Purchase Agreement which USGC, through OMU, treated as confidential and proprietary, falls within the definition of "trade secret" found at KRS 365.880(4).
As we have noted, for purposes of the Uniform Trade Secrets Act a trade secret is defined as "information, including a formula, pattern, compilation, program, data, device, method, technique, or process, that . . . [d]erives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and . . . [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy. " KRS 365.880(4). There can be little doubt that the second of these criteria has been met. In entering into the agreement, USGC took extraordinary care to maintain the secrecy of the disputed portions of the contract, including the confidentiality provision found at Section 26. We are not persuaded that the release of the Sargent and Lundy feasibility study is inconsistent with this position. In our view, USGC has demonstrated that the contract specifications contained in the agreement are not identical to the Sargent and Lundy guidelines. It defies logic to take the position that the information is confidential and proprietary and subsequently release that information. Obviously, the confidential information contained in the contract specifications is different from the information contained in the Sargent and Lundy study which, by its own admission, USGC published.
Whether the contract specifications may properly be treated as "information . . . not generally known," within the meaning of KRS 365.880(4), is a closer question. Unlike a court, we must resolve the issue on the basis of a brief written record and without the opportunity to consider the testimony of industry experts. Bearing these limitations in mind, we conclude that USGC has affirmatively established that the disputed portions of the contract contain trade secrets which are exempt from public inspection pursuant to KRS 61.878(1)(k) and KRS 365.880, et. seq. Mr. Jones indicates that the information was derived from independent research and a thorough evaluation of OMU's scrubber system which yielded a commercially valuable, and hitherto unknown, formula for using synthetic gypsum by-product. The pricing structure, which is at the heart of Mr. Kennedy's appeal, directly relates to the consistencies of the gypsum by-product, which are, in turn, an essential element of the formula. His assertions are confirmed in the sworn statement of Mr. K. A. Kennedy, a representative of USGC, who is intimately familiar with the terms of the agreement. In the absence of evidence to the contrary, we must accept the truthfulness of these assertions. We therefore conclude that OMU properly relied on KRS 61.878(1)(k) and KRS 365.880, et. seq. in partially denying Mr. Kennedy's request.
Because we believe that these provisions authorize OMU to withhold information deemed a trade secret, we do not address the applicability of KRS 61.878(1)(a), also cited by the agency in support of its denial, to the redacted portions of the contract.
Mr. Kennedy may challenge this decision by initiating action in the appropriate circuit court. Pursuant to KRS 61.880(3), the Attorney General must be notified of any action in circuit court, but must not be named as a party in that action or in any subsequent proceedings.
Footnotes
Footnotes
1 1KRS 61.878(1)(k) was recodified in July 1994, and now appears at KRS 61.878(1)(1).
2 KRS 620.050(4) contains the following restrictive language:
All information obtained by the cabinet [for Human Resources] or its delegated representative, as a result of investigation . . . shall not be divulged to anyone except [exceptions omitted].
3 KRS 17.150(2) contains the following restrictive language:
Intelligence and investigative reports maintained by criminal justice agencies are subject to public inspection if prosecution is completed or a determination not to prosecute has been made. However, portions of the records may be withheld from inspection if the inspection would disclose [exceptions omitted].
4 KRS 197.025 contains the following restrictive language:
KRS 61.884 and 61.878 to the contrary notwithstanding, no person, including any inmate confined in a jail or any facility under the jurisdiction of the Department of Corrections shall have access to any records relating to himself, or any inmate, or any other records, if the disclosure is deemed by the warden and treatment staff to constitute a threat to the security of the inmate, any other inmate, correctional staff, the institution, or any other person.