Aluminum Co. of America v. FTC, 83 Civ. 5093(ADS).

• Decision Date: 08 May 1984
• Docket Number: No. 83 Civ. 5093(ADS).,83 Civ. 5093(ADS).
• Citation: 589 F. Supp. 169
• Parties: ALUMINUM COMPANY OF AMERICA, General Motors Corporation, Minnesota Mining and Manufacturing Company, and Union Carbide Corporation, Plaintiffs, v. FEDERAL TRADE COMMISSION, Defendant.
• Court: U.S. District Court — Southern District of New York

589 F. Supp. 169

ALUMINUM COMPANY OF AMERICA, General Motors Corporation, Minnesota Mining and Manufacturing Company, and Union Carbide Corporation, Plaintiffs, v. FEDERAL TRADE COMMISSION, Defendant.

No. 83 Civ. 5093(ADS).

United States District Court, S.D. New York.

May 8, 1984.

Weil, Gotshal & Manges, New York City, for plaintiffs; Salem M. Katsh, Helene D. Jaffe, New York City of counsel.

F.T.C., Washington, D.C., F.T.C., New York Regional Office, New York City, for defendant; John H. Carley, Howard E. Shapiro, Joanne L. Levine, Washington, D.C., Salvatore F. Sangiorgi, New York City, of counsel.

MEMORANDUM OPINION AND ORDER

SOFAER, District Judge:

The plaintiffs, four of America's largest manufacturing companies, have sued the Federal Trade Commission ("FTC") to prevent disclosure of their "line of business" ("LB") financial reports to persons who are not regular, fulltime FTC employees. They have moved for summary judgment on the ground that the FTC's action in allowing access to research consultants violates sections 6(h) and 10 of the FTC Act ("Act"), 15 U.S.C. §§ 46(h), 50, as well as the confidentiality provision of the Criminal Code, 18 U.S.C. § 1905. Plaintiffs also contend that by allowing such access the FTC has authorized conduct in violation of its own rules of ethics, and that the FTC's rule interpreting section 6(h) of the Act was adopted in violation of the Administrative Procedure Act (APA), 5 U.S.C. §§ 553, 706. Plaintiffs seek an order requiring the FTC to modify its confidentiality rules governing LB reports and enjoining the FTC from any further disclosures of plaintiffs' individual company LB data to persons other than officers or regular employees of the FTC.

The FTC has also moved for summary judgment, asserting that its research consultants are "special employees," who qualify for access to individual company LB data under section 6(h) as a matter of law. It denies any violation of applicable statutes, regulations, or rules of ethics, and claims its adoption of the LB confidentiality rules was procedurally valid. The FTC's arguments are correct and, no material issue of fact being in dispute, judgment must be entered in its behalf.

I. The LB Program and Access to LB Data.

The LB program is a major statistical survey designed to collect financial data from large manufacturing companies on sales, intracorporate transfers, costs, profits, and assets; to break down these data by specified lines of business, or product categories; and to aggregate and publish these data in a manner that does not reveal the individual data of constituent companies. The FTC hopes to use individual and aggregated LB data to identify areas of the economy in which profits are relatively high or low and to assess relationships between market structure and performance. Relevant findings could thereafter be used to target particular markets for industry-wide investigations into potential antitrust violations or unfair trade practices. See Appeal of FTC Line of Business Report Litigation, 595 F.2d 685, 691 (D.C.Cir.), cert. denied, 439 U.S. 958, 99 S.Ct. 362, 58 L.Ed.2d 351 (1978).

The FTC began developing the LB program in 1970. After extended consideration and revisions, an LB form was approved by the General Accounting Office. Subsequently, the FTC ordered 450 of the nation's largest domestic manufacturing concerns to file LB reports disclosing certain financial data for 1974. Motions to quash the FTC orders were filed by 150 companies. Appeal of FTC Line of Business Report Litigation, 595 F.2d at 692. The FTC sued successfully in the United States District Court for the District of Columbia to compel these corporations to file the LB data. In re FTC Line of Business Report Litigation, 432 F.Supp. 291 (D.C.1977), aff'd, 595 F.2d 685 (D.C.Cir.), cert. denied, 439 U.S. 958, 99 S.Ct. 362, 58 L.Ed.2d 351 (1978). Plaintiffs have all filed the reports required by the FTC for 1974.

The need to assure confidential treatment for individual company LB data led Congress to enact special riders to the legislation appropriating funds for the FTC for the fiscal years 1975 through 1977. The riders provided that:

No part of these funds may be used to pay the salary of any employee, including Commissioners, of the Federal Trade Commission who —

(1) uses the information provided in the line-of-business program for any purpose other than statistical purposes. Such information for carrying out specific law enforcement responsibilities of the Federal Trade Commission shall be obtained under existing practices and procedures or as changed by law; or

(2) makes any publication whereby the line-of-business data furnished by a particular establishment or individual can be identified; or

(3) permits anyone other than sworn officers and employees of the Federal Trade Commission to examine the line-of-business reports from individual firms.

88 Stat. 1822 (1975); 89 Stat. 611 (1976); 90 Stat. 977 (1977) (emphasis added).

The FTC promulgated rules identical to the riders, interpreting section 3 of the rider to prohibit disclosure of the LB reports from individual firms "to any person outside the FTC including Congress, parties in court proceedings, governmental agencies, and members of the public." 40 Fed.Reg. 21542 (1975), 41 Fed.Reg. 28041 (1976), 41 Fed.Reg. 31703 (1976).

In February 1978, anticipating the availability of LB data for 1974, the FTC's Bureau of Economics formed a committee to develop research application procedures. William F. Long was appointed chairman. From the beginning of the committee's deliberations, FTC officials assumed that "special employees" would be used to perform a substantial amount of research work with the LB data. FTC officials believed even then that using special employees to study LB data was permissible under the riders and confidentiality rules. Long Declaration ¶ 6.

On October 16, 1979, because Congress had not enacted a special LB confidentiality rider to the FTC's 1978 fiscal appropriations legislation which would have applied to the 1977 data, the FTC published proposed confidentiality rules to govern 1977 LB reports. 44 Fed.Reg. 59552, 59554-55 (1979). The rules included the following statement: "No employee (including a special employee) shall be assigned to this Division of Financial Statistics unit unless he certifies that, during such assignment and after its termination for any reason, he will abide by the limitations in these rules." Id. at 59554. The FTC extended the deadline for compliance with the 1977 LB orders until 30 days following the issuance of final rules. In January 1980 the FTC began to allow access to individual company LB data to outside researchers acting as "special employees." Only then was the first complete set of LB data ready for use, due to litigation delays in obtaining the LB reports.

In March 1980 the FTC again published proposed 1977 LB Rules for comment. It omitted the October 1979 reference to special employees and adopted the language of the appropriations riders. 45 Fed.Reg. 18946, 18947-48 (1980). On May 28, 1980, the FTC Improvement Act was enacted into law, providing in relevant part:

No officer or employee of the Commission or any Commissioner may publish or disclose information to the public, or to any Federal agency, whereby any line-of-business data furnished by a particular establishment or individual can be identified. No one other than designated sworn officers and employees of the Commission may examine the line-of-business reports from individual firms, and information provided in the line-of-business program administered by the Commission shall be used only for statistical purposes. Information for carrying out specific law enforcement responsibilities of the Commission shall be obtained under practices and procedures in effect on May 28, 1980, or as changed by law.

15 U.S.C. § 46(h). Congress intended this statute to give the companies submitting LB reports the same confidentiality protections as the appropriations riders had provided. S.Rep. No. 96-500, 96th Cong., 1st Sess., reprinted in 1980 U.S.Code Cong. & Ad.News 1102, 1114. Congress did not indicate, however, whether the term "employees" included "special employees."

On August 27, 1980, the FTC published "final" confidentiality rules for the 1977 LB reports which reinserted the "special employee" phrase. These rules were published without further public notice. 45 Fed.Reg. 57230, 57231-32 (1980). The "final" 1980 rules were superseded in December 1981 by final uniform LB confidentiality rules governing LB reports for each year from 1974 to 1977. The 1981 rules currently in effect are virtually identical to the August 1980 rules and include the reference to special employees. The December 1981 rules became effective after a sixteen-month comment period, during which plaintiffs and others could and did comment on the inclusion of special employees as "designated sworn officers and employees" entitled to examine LB data. 46 Fed.Reg. 62703, 62706-08 (1981).

On September 26, 1980, plaintiffs filed a motion with the FTC to quash its effort to collect LB data for 1977 on the ground that the final confidentiality rules had been promulgated in violation of the APA and section 6(h) of the Act. On February 14, 1983, the FTC denied plaintiffs' motion as untimely, finding as well that FTC rules and governing statutes would provide adequate protection for the LB reports. The FTC determined that "the mere fact that special employees had access to individual companies' LB data in the course of their employment is not a violation, because such persons are legally designated and sworn officers of the FTC." Katsh Exhibit 30.

In 1981 the FTC suspended the collection of LB data for years after 1977 pending a cost-benefit analysis. The Commission has made no attempt to collect any LB data for years after 1977, and on April 11, 1984, the FTC voted against collecting further LB data....