The Exemption Index: Section 43 – the exemption for commercial interests

Exemption Index logoFOIMan examines the commonly used exemption protecting information which if disclosed would prejudice commercial interests.

Summary

You’re a public authority and you want lots of companies to bid for your contracts so that you can ensure that you pay as little as possible for a good service. In order to ensure that the company you hire knows what it’s talking about, you need them to give you lots of information about their methods, and what they in particular can bring to the contract. But you’re worried that FOI will scare them off because anything they give you could become fair game for their competitors.

Then imagine yourself on the other side of a commercial venture. Your company has a great opportunity to pick up a valuable public sector contract. But dare you entrust your methods – which have been developed at great expense and through years of experience – to this public body? If your competitors got hold of your methodology and pricing structure, your advantage over them will be wiped out overnight. You’d be back to square one.

These concerns are what section 43 of the Act is designed to allay. The exemption provides a way to block disclosure of information that will harm the commercial interests of both public bodies and other organisations that they do business with. But it is a qualified exemption – subject to a public interest test – so there are no absolute guarantees…

This exemption is closely related to section 41 – the exemption for information provided in confidence, and may well apply where the specific requirements of that exemption mean that it can’t be used to protect documentation.

Information affected

Information that would (or would be likely to) affect the commercial interests of any party – including the public body itself. Could include documentation relating to procurement activities – contracts, tender submissions, sales figures, an authority’s purchasing position, but also things like a public body’s own marketing activities or products it has developed in a competitive market-place (eg course documentation in the higher education arena – though see comments below).

Things that FOI Officers need to know

  • the first subsection provides protection for “trade secrets”. This isn’t defined in the Act, but one Tribunal gave the example of the secret recipe for Coca-Cola (para 52). We might also refer to the “Colonel’s secret recipe” or Tony the Tiger’s special formula (if you’re of a certain age). Basically, it should be information used in business that is highly confidential, which gives its owner a competitive edge. Importantly, it shouldn’t be possible for someone to discover or reproduce it (para 53). There isn’t a great deal of case law on this subsection, perhaps because in most cases such information would be encompassed by the absolute exemption at section 41.
  • Some people think that the “trade secrets” exemption is an absolute exemption – this isn’t true. It is necessary to conduct a public interest test, even if you are convinced that the information concerned is a “trade secret”.
  • The more commonly used subsection at section 43 is the one for where disclosure “would, or would be likely to, prejudice the commercial interests of any person.”
  • The first stage in applying this subsection of the exemption is to establish whether the information is commercial in nature. “Commercial interests” can be interpreted broadly (para 42) (though see the discussion of financial interests v commercial interests under Things that requesters need to know below). Activities relating to the purchase or sale of goods or services (p4) can be described as commercial; but also anything affecting an organisation’s ability to be competitive in a market place. It is perfectly feasible for a public authority, even one that operates as a charity, to have commercial interests (para 31).
  • Given that both companies selling goods or services to public authorities, and the authorities themselves, can have commercial interests, it is important to state whose commercial interests you think will be prejudiced by disclosure. It may, of course, be both in some circumstances.
  • The next step is to set out what prejudice you envisage (p6) – in other words, what is the harm in disclosure? The widely accepted approach to this is set out in Hogan v IC, and summarised in the Commissioner’s guidance. You must remember to state how likely you consider the prejudice to be – choose between “would” and “would be likely to”.
  • If you are arguing that a third party – for example, a contractor – will be prejudiced by disclosure, make sure you consult them. The Commissioner and Tribunals have made clear (para 24) that they want to see evidence of the third party’s views.
  • As always, you must set out which information the exemption applies to. In relation to procurement activities, guidance issued by the Office of Government Commerce (OGC) has been recognised by Tribunals as being a useful guide as to what should and shouldn’t be withheld. One Tribunal indicated (para 87) that authorities should have to justify departing from this guidance (especially if withholding information that the OGC guidance indicates can be disclosed).
  • This subsection of s.43 is also subject to a public interest test. The OGC guidance referenced above states that: “[t]here is a strong public interest in showing who public money is being spent with, how much public money is being spent…and how the supplier arrived at the price…”.  Against that, many of the arguments an authority sets out as to the prejudice that disclosure would cause may well also serve as arguments as to why withholding the information would be in the public interest. For example, there is a public interest in public bodies being able to contract services effectively, so anything which prevents that (such as companies being fearful that commercially sensitive information will be disclosed to their competitors) will not be in the public interest. Generally speaking, it is not in the public interest for the market for particular goods or services to be distorted, through, for example, a company’s ability to compete being damaged. In the Student Loans Company case (para 55), the Tribunal took the view that damage to the ability of the company to pursue debtors was a valid argument in support of the exemption.
  • One area that has proved controversial is course materials. Whilst generally recognising that the organisation producing them has commercial interests (para 31), the Tribunals have proved reluctant to accept that disclosure would be likely to have a prejudicial effect. Universities have struggled to make this argument, but training materials developed by other public bodies are also difficult to withhold. The Commissioner does, however, appear to accept that in some circumstances, the exemption will apply to course materials – particularly where the materials are unique and the producer of the materials is operating in a competitive commercial environment.
  • As with many exemptions, there is the option to “neither confirm nor deny” whether information is held if it would or would be likely to prejudice the commercial interests of any party.

Things that requesters need to know

  • First off, has the public authority applied the exemption correctly? One common mistake is the conflation of “commercial” with “financial” interests. In Department for Work & Pensions v IC & Zola, the Tribunal agreed with the Commissioner in stating that possible increased expenditure on benefits was a financial interest, not a commercial one.
  • It’s not enough that there are commercial interests affected. The public authority has to demonstrate that they would, or would be likely to be, prejudiced. This was the problem that University of Central Lancashire had.
  • Public authorities should not apply “blanket” exemptions to whole contracts. It is necessary for them to analyse which sections need to be withheld (see the analysis at para 90), and to disclose the rest.

Essential case law

Recommended reading

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