TRADE SECRET IN THE GOVERNMENT’S HANDS? DON’T WORRY; IT’S PROTECTED.

Boeing Co. v. Paxton
Supreme Court of Texas, No. 12-1007 (June 19, 2015)
Opinion by Justice Devine; Dissent by Justice Boyd
Through the Texas Public Information Act (“PIA”), a Boeing former employee sought disclosure of Boeing’s 20-year lease agreement with the Port Authority of San Antonio for 1.3 million square feet at what used to be San Antonio’s Kelly Air Force Base, space Boeing uses to refurbish military aircraft under government contracts. The trial court and the Austin Court of Appeals found that only the government had standing to assert the PIA’s “advantage to a competitor” exception to disclosure to the public. The Court reversed and rendered, holding not only that private parties do have standing to assert the exception, but also that Boeing had conclusively established that its overhead cost information would give a competitor an advantage in bidding on government contracts, such that it was entitled to prevent disclosure.

The Court was presented with two primary issues: (1) Does Boeing have standing to object to the disclosure of its material under the PIA for information “that, if released, would give advantage to a competitor or bidder?” and (2) Does the overhead cost information Boeing sought to have withheld meet the standard under the exception for proving disclosure would provide a competitive advantage to a competitor? The Court said yes to both questions.

As a matter of statutory interpretation, the Court looked at the language of Texas Government Code section 552.104(a), which states: “Information is excepted from the requirements of section 552.021 [disclosure] if it is information that, if released, would give advantage to a competitor or bidder.” The Attorney General argued that, based on its “longstanding interpretation,” this exception was “exclusively for the government’s benefit” to protect the competitive bidding process. The Court found no merit to this position in the text of the provision: “[N]o statutory language limits section 552.104 to the government.” Moreover, the statutory scheme of the PIA required third parties implicated by a disclosure request to be notified and given the opportunity to object. Therefore, there was no reason Boeing should not be allowed to invoke the exception for disclosure of its competitive information.

Next, the Court examined whether the overhead cost information in the lease should be protected as “competitive.” The Court analyzed the aerospace industry broadly, looking at the entire industry instead of one specific ongoing bid, noting that only a few companies in the world could bid on the billion-dollar military aircraft contracts at issue. And, most of the costs for these projects, such as price of parts and labor, are set by federal regulation. The main variable in winning these contracts was often lower overhead. The standard for section 522.104, the Court concluded, is whether knowing this information would be an advantage, not whether it would be the “decisive” advantage. Boeing had spent multiple years negotiating the terms of its lease, and the details of the final agreement were known only to approximately a dozen of Boeing’s 165,000 employees. The information Boeing sought to withhold would provide a competitor the information needed to negotiate a lease that could undercut Boeing’s competitive advantage on future contracts.

The Court also looked to cases where similar information had been withheld by the government. For example, the Air Force was allowed to withhold such data under the Freedom of Information Act. And “the [Texas] Attorney General had recently ruled that information concerning the Governor’s marketing meetings with businesses in other states was exempted from disclosure under section 522.104.” Having already concluded that a private entity could invoke the exception, the Court held that “section 522.104 does not state different protection standards for businesses and governors.” Accordingly, Boeing had conclusively stablished that its overhead cost information, “if released would give advantage to a competitor or bidder.”

Justice Boyd dissented, agreeing with the Court that section 522.104 applies to private companies, but concluding Boeing had not conclusively established that the exception applied to the overhead cost information at issue. Justice Boyd found Boeing’s argument that the information would give a competitor an advantage too hypothetical and speculative. Justice Boyd would require Boeing to establish that the information “would” provide a competitor an advantage on a specific current or future transaction, not just that the information “could” give a competitor an advantage generally in the industry.

Print