Qwest Commun. Int'l v. Fed. Commun. Comm'n.

• Decision Date: 27 October 2000
• Docket Number: No. 99-1531,99-1531
• Citation: 229 F.3d 1172
• Parties: (D.C. Cir. 2000) Qwest Communications International Inc.,Petitioner v. Federal Communications Commission and United States of America, Respondents MCI World Com, Inc. and AT&T Corporation, Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1172

229 F.3d 1172 (D.C. Cir. 2000)

Qwest Communications International Inc.,Petitioner v. Federal Communications Commission and United States of America, Respondents

MCI World Com, Inc. and AT&T Corporation, Intervenors

No. 99-1531

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 5, 2000

Decided October 27, 2000

On Petition for Review of an Order of the Federal Communications Commission

William R. Richardson, Jr. argued the cause for petitioner. With him on the briefs were William T. Lake, Patrick J. Carome, Julie A. Veach, Dan L. Poole, and Robert B. McKenna.

Lawrence E. Sarjeant, Linda Kent, John Hunter, Julie E. Rones, William F. Maher, Jr., Stephen L. Goodman, and Richard White, Jr. were on the brief for amicus curiae in support of petitioner.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Christopher J. Wright, General Counsel, Daniel M. Armstrong, Associate General Counsel, Joel I. Klein, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson, and Christopher Sprigman, Attorneys. John E. Ingle, Deputy Associate General Counsel, Federal Communications Commission, entered an appearance.

Anthony C. Epstein argued the cause for intervenors World Com, Inc. and AT&T Corp. With him on the brief were Thomas F. O'Neil, III, William Single, IV, Mark C. Rosenblum, Peter H. Jacoby, Judy Sello, and David Lawson. James P. Young entered an appearance.

Before: Williams, Sentelle, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge:

Qwest Communications International, Inc. ("Qwest") petitions for review of a decision by the Federal Communications Commission ("Commission") to disclose raw audit data to competitors in connection with a notice of inquiry concerning the validity and reasonableness of statistical sampling for equipment not found or not verifiable during a field audit.¹ See In re Ameritech Corporation Telephone Operating Companies' Continuing Property Records Audit et al., Memorandum Opinion and Order, 15 F.C.C.R. 1784 (1999) ("Order"). Qwest contends that the Order is contrary to § 1905 of the Trade Secrets Act, 18 U.S.C. § 1905 (1994), because nothing in § 220(f) of the Communications Act of 1934, 47 U.S.C. § 220(f) (1994), authorizes the Commission to release otherwise protected information. Qwest further contends that the Commission's Order violates its own longstanding policy to provide special protection to audit information. We hold that § 220(f) provides sufficient authorization for disclosure of trade secrets, but that the Commission has failed to explain how its Order is consistent with its policy regarding the treatment of confidential information. Accordingly, we remand the case to the Commission for further proceedings.²

I.

Under Part 32 of the Commission's regulations, the Regional Bell Operating Companies ("RBOCs") are required to maintain detailed accounting records of property used in their local telephone operations, including the property's description, location, and cost. See 47 C.F.R. §§ 32.2000(e)-(f). The records, which serve various regulatory functions, including the setting of rates and the assessment of charge allocations, must conform to a uniform accounting system prescribed by the rules and must be sufficiently detailed to allow the property's physical existence to be confirmed during a spot check conducted by the Commission. See id.

In 1997, the Commission's Common Carrier Bureau's Accounting Safeguards Division ("Bureau") began an audit of the RBOCs' records for hard-wired central office equipment in order "to determine if their records were being maintained in compliance with the Commission's rules and to verify that property recorded in the accounts represented equipment used and useful for the provision of telecommunications services."³ During the audit, each piece of equipment was categorized or "scored" as "(1) found [as described]; (2) found in another location; (3) not found/missing; or (4) unverifiable." The Commission explained that part of the audit included "statistical sampling techniques so that the findings for the sample could be extended as representative of all of the equipment in the category audited, i.e., hard-wired central office equipment." After reviewing the RBOCs' comments on draft reports, the Bureau's final audit reports revealed that the RBOCs may have overstated their book costs by as much as five billion dollars.⁴ The RBOCs filed objections, in the words of one Commissioner, "aggressively attack[ing] the audits, the competence of the auditors, and the credibility of the audit design."⁵ Qwest challenged the Bureau's final audit report, claiming that it failed to reflect additional data accounting for a majority of items scored as "not found," and reaffirming its conclusion that the audit was fatally flawed for statistical and other reasons.⁶ In support of the latter point, Qwest submitted an analysis by Deloitte & Touche's "quantitative techniques expert," who raised doubts about the auditors' sampling methodology and their evaluation techniques.

The Commission, in turn, issued a notice of inquiry in April 1999, seeking public comment on ten criticisms relating to the audits. See In re Ameritech Corporation Telephone Operating Companies' Continuing Property Records Audit et al., Notice of Inquiry, 14 F.C.C.R. 7019, 7021-22 p 6 (1999) ("NOI"). The only issue relevant here is Issue 2: namely, "[t]he validity and reasonableness of the methodology used by the Bureau's auditors in determining whether to rescore or to modify a finding during a field audit that equipment was 'not found.' "⁷ Previously, in February 1999, the Commission determined, over the dissent of two Commissioners, that pursuant to the RBOCs' waivers of confidentiality, the release of the audit reports and the RBOCs' responses to them was in the public interest.⁸ MCI thereafter filed a Freedom of Information Act request, pursuant to 47 C.F.R. S 0.461, seeking public release of the RBOCs' explanations and supporting documentation regarding their equipment not found, the Bureau's audit work papers showing the scoring of particular items, and the continuing property records themselves.⁹

Qwest opposed the release of the raw audit data on three principal grounds: First, releasing the requested information is barred by S 220(f) of the Communications Act and previous Commission rulings and would be an unjustified departure from the Commission's established practice of not releasing audit-related materials, except in exceptional cases; second, the requested information is confidential commercial information, voluntarily submitted, and thus exempt from release under Exemption 4 of the Freedom of Information Act, 5 U.S.C. S 552(b)(4); and third, the requested information constitutes pre-decisional deliberations and as such, is protected by Exemption 5 of the Freedom of Information Act, 5 U.S.C. S 552(b)(5), and S 0.457(e) of the Commission's rules, 47 C.F.R. S 0.457(e). Qwest indicated that it was opposing only the request for release of data submitted regarding the "not found" and "unverifiable" audit items, explaining that these items "contain[ed] detailed information including pricing information on specific items used in the provision of telecommunications services...." These items, in Qwest's view, were comprised of "highly sensitive business information which MCI could use to unfairly improve its competitive position" relative to Qwest and other market competitors.

The Bureau ordered release of the requested raw audit data to parties under a protective order. The Bureau relied on §§ 154(j) and 220(f) of the Communications Act as providing the Commission with explicit authorization for the discretionary release of audit materials otherwise protected from release under the Freedom of Information Act and the Trade Secrets Act. Relying also on "the Commission's duty to ensure that parties are given a reasonable opportunity to make informed comment on Issue No. 2," the Bureau viewed "the unique situation" created by the question posed in Issue 2 to require the release of information that is "not routinely made available to the public, even under protective orders."The Bureau concluded that the question regarding the "auditors' rescoring process can only be answered by allowing parties interested in filing comments to review this [raw data] material." The Bureau's protective order limited access to the requested materials to (1) counsel for a party participating in the NOI proceeding and (2) technical advisors or other persons authorized by such counsel. In the Bureau's opinion, the protective order "reasonably ameliorated" any potential competitive harm to the RBOCs. All of the RBOCs except Bell Atlantic appealed to the Commission.

The Commission affirmed the Bureau's decision to release the raw audit data subject to a protective order, relying principally on the Commission's explicit authority under § 220(f): "[G]iven the importance of Commission audits to the effective performance of the Commission's statutory responsibilities with respect to carriers, [the Commission] believe[s] the [Communications] Act's statutory scheme fully envisions that, in some cases, disclosures of carrier-supplied audit information might become necessary in the course of carrying out the Commission's enforcement and regulatory policymaking functions."¹⁰ Order, 15 F.C.C.R. at 1789 p 8.The Commission also imposed "more stringent" terms for access to audit materials, modifying the protective order (1) to restrict access to the audit materials to "persons without decision making authority or influence regarding competitive issues," (2) to redact "vendor-specific pricing information," and (3) to limit the materials to be released to those relating to Issue 2.¹¹ Id. at 1790-91 p p 13-14. The Commission also provided...