Earlier this year, Synopsys, Inc., a Silicon Valley-based technology company and federal contractor that produces computer chips and software, published its demographic diversity data on its website. The company’s “talent snapshot” for 2020 showed that just 1 percent of its overall employees in the United States were Black, 3 percent were Hispanic/Latinx, and just 23 percent of its global employees were women. That same company now claims in federal court that the raw numbers underneath these public percentages are a trade secret and thus exempt from government disclosure under the Freedom of Information Act (FOIA).
As part of an ongoing case brought against Synopsys by Reveal from the Center for Investigative Reporting, the newsroom argues that Synopsys’ alleged exception from FOIA’s general rule of disclosure is illegal and a serious concern that will hinder the collection of public records by journalists. The case, argued on October 4 in the U.S. Ninth Circuit Court of Appeals, asks whether corporations can have even more power to dictate what records the government can withhold as confidential business information, even where releasing records would not harm the company and would benefit the public interest. A further shift toward increased secrecy around government contractors’ records is especially concerning for democracy, as federal contractors increasingly perform more and more government functions.
The case stems from litigation brought by Reveal in federal court in California in 2019. As part of its reporting on Silicon Valley, Reveal sued the Department of Labor under FOIA for government forms containing diversity data from Synopsys and 35 other federal contractors. The district court ruled in Reveal’s favor in December 2019, after which the government disclosed the data for every company except Synopsys, which objected to release. In January 2020, Synopsys––the one remaining holdout––intervened in the case and appealed to the Ninth Circuit.
Last week, Synopsys argued to a court panel that its workforce data (available in its aggregated form to anyone online) should be withheld as “confidential business information” and as a “trade secret” shielded from disclosure under an enumerated exception to FOIA known as Exemption 4. Although the case might be decided on procedural grounds, it also has the potential to create precedent that dictates how much information the government can provide FOIA requesters about federal contractors’ data, even where information is crucial to public accountability. Imagine not being able to determine what rules and safeguards a company puts in place for water sanitation – even where public health is at issue and billions of tax dollars went to pay for the company’s contract.
The outcome of this pending case, which should be decided in the next few months, is especially concerning because of the growing number of federal contractors like Synopsys that are doing core government work. It is no secret that many prisons, schools, and other public bodies have handed off responsibilities to private hands. According to one analysis, “As of 2015, over 40 percent of the federal workforce was made up of contractors.” In this case, Synopsys is a longtime contractor with the Department of Defense. The day after the Ninth Circuit argument earlier this year, the Pentagon announced it had awarded Synopsys a contract worth nearly $300,000. And while the services that contractors are providing are increasingly central to citizens’ lives (whether it’s helping collect biometric data for the government or helping develop an algorithm to determine recidivism for sentencing prisoners) there remains little oversight over how these companies function as our new governors. This lack of access to records that shed light on core government functions is a serious problem for democracy.
This problem was first highlighted in a 2019 Supreme Court case in which the Court expanded the Exemption 4 non-disclosure clause under FOIA to allow more company records to be kept secret. The case, FMI v. Argus Leader Media, resulted in the Court ruling that commercial information can be withheld as “confidential business information” simply when it is “both customarily and actually secret.” Prior to Argus Leader, if the government wanted to invoke Exemption 4, it had to show that companies would suffer some sort of competitive harm if records were released. But following Argus Leader, companies now argue they can simply mark records as “confidential” to withhold them from public oversight – which is what Synopsys did in Reveal’s case against them.
The stakes are even more stark when understanding that the alleged “confidential business” records at issue here are government forms that merely contain aggregate diversity statistics. These reports, known as EEO-1 forms, which federal contractors like Synopsys are required to submit to the US Department of Labor each year, include basic demographic information about each company’s workforce broken down by race and gender. They do not contain Synopsys’ trademarked information nor do they include information about the company’s products, services, or bottom line. Instead, these reports have been used by the government since 1966 to support civil rights enforcement and analyze employment patterns, such as the representation of women and minorities within companies.
For years, members of Congress have called for greater access to these diversity reports. A 1995 report published by a “glass ceiling” commission created by the Civil Rights Act of 1991 argued that the government should “explore the possibility of mandating public release of EEO-1 forms for Federal contractors and publicly-traded corporations.” In March 2019, in response to Reveal’s lawsuit, a member of Congress wrote to the DOL stating that diversity reports should not be withheld because they “enumerate the diversity of firms accepting the taxpayer money.”
At the same time, for the past two decades, dozens of technology companies like Amazon, Apple, Facebook, and Google have proactively posted these diversity reports online in full. Shareholder proposals also increasingly require companies contracting with the federal government (like CVS, First Republic, and Starbucks) to publish their EEO-1s.
In addition to the increasing private sector custom of releasing these records, the government itself has made EEO-1 reports public for decades. As far back as 1974, courts have ruled that the DOL may disclose diversity data, which the agency has since done, including to news outlets. And in a previous settlement with Reveal in 2018, the DOL released EEO-1 reports for other Silicon Valley federal contractors such as Palantir.
Given these circumstances and despite the difficult new precedent from Argus Leader, the federal district court ruled in Reveal’s favor in the Synopsys case. The court found that:
1) EEO-1 reports were not “commercial” in the first place.
2) The claims that EEO-1s were “confidential” were unconvincing.
3) The government had failed to show a foreseeable harm would result.
Because the Synopsys case is one of the first cases of its kind to reach a federal appellate court since the Supreme Court’s decision in Argus Leader, the Ninth Circuit has the opportunity to decide three unique ways on how to apply Argus Leader (as in,what qualifies as “confidential commercial records” under FOIA Exemption 4).
First, the Ninth Circuit has the ability to introduce new teeth to the Exemption 4 test by looking at whether the federal contractors’ records are “commercial” in the first place. While Synopsys argued that any company record can qualify as “commercial,” Reveal clarified that records have to be more directly related to the company’s products, services, or bottom line to be considered commercial. And while Synopsys blanketly asserted that EEO-1s would divulge the company’s “experience and expertise” as well as its workforce “structure,” Reveal argued that the company failed to explain how the number of African Americans in its workforce reveals commercial information. As one D.C. court put it, “not everything a company submits to the government” is commercial. To rule otherwise would make every document a contractor creates for the government a secret.
Second, the Ninth Circuit has the opportunity to look at real world evidence to see if records are actually “confidential” — for instance, how competitors treat them — rather than take Synopsys and other companies at their word. This is a faithful application of Argus Leader, which requires commercial records to be “both customarily and actually” confidential to be withheld under FOIA. In Reveal’s case, Synopsys argued that all they had to do was submit a statement from the company labelling the information as secret. But Reveal pointed out that even in Argus Leader, the Court considered how other members in the industry treated the information at issue. The Justice Department has interpreted Argus Leader similarly to mean that confidentiality “must normally be established at least with evidence about general industry practices.” Lower federal courts have also considered the records of “other competitors” in similar cases.
Last, the Ninth Circuit faces one major question left unanswered by Argus Leader: whether courts should consider foreseeable harm when looking at business records. In 2016, Congress amended FOIA to add a requirement that in order to withhold records, the government must show that a foreseeable harm would result from their disclosure (in addition to showing that the documents fall into the nine exemptions of FOIA). But the FOIA request at issue in Argus Leader was filed in 2011, before this “foreseeable harm” requirement went into effect, so the Supreme Court didn’t address it. Here, Reveal argued that disclosing diversity numbers on Synopsys would not result in a foreseeable harm to the company, particularly where Synopsys discloses nearly synonymous data on its website. Synopsys however argued that this would destroy the rule of Argus Leader and reinstate the old “competitive harm” test. If the Ninth Circuit agrees with Synopsys, companies will have an even stronger argument in claiming all records they submit to the government are not public.
Whether the Ninth Circuit answers these questions on records disclosures or leaves them for future courts to decide, they must be addressed. Reporters at Reveal and other outlets continue to have their FOIA requests stonewalled by companies who claim their records are “confidential” without having to back up that claim. The public’s ability to hold these companies accountable is diminishing as corporate entities are able to assert an exemption from disclosure in ever more fantastical ways. And while members of Congress have previously introduced amendments to fix Exemption 4 after Argus Leader, right now the future of access sits in the courts.
Victoria Baranetsky is General Counsel at The Center for Investigative Reporting and a fellow at the Tow Center for Digital Journalism at Columbia University. She argued the Synopsys case on Reveal’s behalf before the Ninth Circuit.
Shawn Musgrave is the First Amendment Fellow at The Center for Investigative Reporting. Before law school, Shawn was an investigative reporter, with work published in Politico, The Boston Globe, and elsewhere.