Chapter 03: When could releasing information cause prejudice to commercial interests?
General considerations relevant to the test of 'prejudice'
3.1 In order to decide whether or not disclosure could
prejudice commercial interests it is necessary to identify:
the interests themselves and how disclosure might prejudice them,
and
whose interests they are.
3.2 A department's, or other body's, commercial interests
might, for example, be prejudiced where a disclosure would be likely to:
damage its business reputation or the confidence that customers,
suppliers or investors may have in it;
have a detrimental impact on its commercial revenue or threaten
its ability to obtain supplies or secure finance; or
weaken its position in a competitive environment by revealing market-sensitive
information or information of potential usefulness to its competitors;
3.3 It is important to note, however, that a simple assertion
by an individual or body that there would be prejudice to his or its interests
is not sufficient. The assertion must be supported by reasoned argument,
and where practicable by empirical evidence. In particular it is not sufficient
for a body simply to mark a document commercial in confidence for the information
in it to be exempt. But it is also important, in this and other contexts,
to be alert to the differences between using this exemption to protect the
interests of a third party and using it to defend a public authority's own
interests. These differences are considered in further detail below.
3.4 Commercial sensitivity will often decay over time
- in some cases quite quickly. The question to be considered is whether
the prejudice applies at the time the request is received. For example release
of information about a new product prior to public release could be damaging,
but after release might not be.
3.5 Examples of information the disclosure of which may
have a particular potential to damage commercial interests include:
research and plans relating to a potential new product;
product manufacturing cost information;
product sales forecast information;
strategic business plans, including for example, plans to enter,
develop or withdraw from a product or geographical market sector;
marketing plans, to promote a new or existing product;
information relating to the preparation of a competitive bid;
information about the financial and business viability of a company;
and
information provided to a public authority in respect of an application
for a licence or as a requirement of a licence condition or under
a regulatory regime.
Prejudice to a third party's commercial interests
3.6 Departments are likely to hold a wide range of information
the disclosure of which could come within the terms sections 43(1) ) and
43(2) of the Act by virtue of the effects of that disclosure on a third
party. Departments might need to be particularly alert to this possibility
where the information was itself originally obtained from the third party.
But it may be a possibility in a range of other circumstances too.
3.7 Departments may obtain commercially sensitive information
from third parties in a number of ways, for example:
as a result of legal, regulatory, or licensing requirements (this
may very well be subject to specific statutory requirements preventing
or requiring release, and may therefore be more appropriately considered
under sections 21 and 44); [footnote 2].
In the course of policy development - for example information obtained,
usually voluntarily, to inform and influence the development of policy,
or changes to law or regulation (here, potential overlap between section
43 and sections 35 and 36 should be borne in mind); [footnote
3]
through providing support for business - for example information
provided by a company or trade association to a public authority to
obtain advice, help with a specific project, and/or financial assistance;
[footnote 4] and
through contracts, for example for products, services or research.
[footnote 5]
3.8 Departments may also hold commercial information through
having developed their own information about businesses, including assessments
of product performance and financial viability. And they may hold commercial
information on various products and services in their role as purchasers.
They will also obtain commercial information as a result of regulatory or
licensing requirements.
3.9 In situations where a third party has provided information,
for example voluntarily, where the third party concerned is bidding for
a contract, an important element of considering whether the disclosure of
information would be likely to prejudice the commercial interests of a third
party will be the terms on which the information was obtained by a public
authority in the first place. Although the third party's expectations of
commercial confidence cannot determine of the question of prejudice, they
will often provide important evidence as to the third party's perspective
as to the likely effects of disclosure. Establishing that perspective at
the outset of a transaction and, where appropriate, consultation at the
time of disclosure are likely to be important steps in considering whether
there is an empirical case for reliance on section 43. It must be stressed
that the prejudice to third party interests have to be assessed objectively
and by the authority, but the third party's perspective must be take into
account in that process. And, of course, where a disclosure would be likely
to prejudice the interests of a third party, it may be appropriate to consider
an approach to that third party with a view to establishing its willingness
or ability to waive or mitigate that prejudice.
3.10 However it should also be noted that public authorities
will not only receive commercially sensitive information as a result of
entering into transactions but also as a result of regulatory or licensing
requirements [footnote 6]. In this context, in
contrast to transactional situations, the terms upon which the information
was obtained by the public authority are likely to be of much lesser importance.
(For example, there will be no contract indicating what was to be treated
as commercially sensitive and the third party's expectations of commercial
confidence is likely to be of less relevance. It should also be considered
that where a public authority has statutory powers of compulsion i.e. if
it can legally oblige people to provide information for certain purposes,
a duty of confidentiality may often arise in relation to that information.
Where this is the case the exemption under section 41 of the FOI (information
provided in confidence) will also need to be considered. Further where information
is required to be provided it should also be checked whether there is a
prohibition on disclosure of that same information in which case the exemption
in section 44 FOI (prohibitions on disclosure) will be relevant [footnote
7].
Prejudice to commercial relations with a third party
3.11 A disclosure may come within the terms of section
43(2) by virtue of the likelihood of prejudice to the commercial interests
of both the authority and a third party, where the relationship between
them is itself in the commercial interests of one or both parties and where
disclosure could damage that relationship and hence those interests.
3.12 This is again most likely to be the case where commercially
sensitive information has been supplied to the authority by the third party
- for example in one of the ways described above - although that will not
always or necessarily be the case.
3.13 In this context, there is likely to be considerable
overlap with the applicability of section 41. Where information has been
supplied by a third party in circumstances giving rise to a legal duty of
confidence, and disclosure would breach that duty, there is a clear potential
for the application of section 41. Where section 41 applies, then it should
always be considered before section 43. It is an absolute exemption, and
failure to withhold information where it applies has a potential to expose
an authority to legal action.
The connection between prejudice to the relationship and prejudice
to one or other party's (or both parties') commercial interests must
be real and demonstrable;
A third party's objection to a specific disclosure is one, but only
one, aspect of the overall relationship between the authority and
the third party and;
Where the relationship is expressed in contractual terms, the fact
that a disclosure would amount to a breach of contract may be a relevant
consideration on the question of commercial prejudice, but cannot
be considered separately from the commercial interests in the contract
terms themselves. Departments and agencies are strongly advised not
to accept confidentiality clauses in procurement contracts that conflict
with their obligations under the Act. Under the terms of the FOI Act
the decision as to whether to withhold or disclose the information
is ultimately a matter for the public body, regardless of whether
the information was originally supplied by a third party and the fact
that a disclosure would be in breach of contract cannot be determinative
of the legal obligations under the Act. However, where disclosures
are likely to come within the terms of section 43 because of the commercially
prejudicial effect of disclosure, establishing that likelihood at
the outset may assist with the process of applying the exemption at
the point where information is subsequently requested.
3.14 But even where a disclosure would not technically
fall within the terms of section 41, it is possible for a disclosure of
information to prejudice the commercial interests inherent in the maintenance
of good commercial relations between an authority and a third party. A number
of important points must be understood in this context:
3.15 The public interest balance (considered below) will
have to take into account not only the nature and extent of the prejudice
to the relationship but the context and quality of the relationship itself.
The public interest in promoting that relationship needs to be considered
in its own right.
Prejudice to a public authority's own commercial interests.
3.16 Certain Departments and agencies may find that they
hold a particularly large amount of information disclosure of which is likely
to prejudice their own commercial interests because they are themselves
engaged in commercial supply activities either as a prime or subsidiary
activity. Examples might include the Export Credit Guarantee Department,
Meteorological Office, Ordnance Survey, and the Environment Agency.
3.17 More generally all departments have commercial interests
as purchasers (for example of real estate, IT, office supplies, catering
and cleaning services, etc).
3.18 Section 43 makes provision for the protection of
authorities' commercial interests in either capacity.
3.19 Some cases require special consideration:
Procurement - The position of public authorities
in a procurement role is one in which they are likely to have strong
and specific commercial interests. It is also one in which the commercial
interests of third parties are likely to have to be considered. Annex
A considers some particular issues which may arise. Annex B considers
the Gateway Review Process for acquisition programmes or procurement
projects.
Public authorities' commercial interests in the disclosure
or publication of information - The FOI Act obligations
on public authorities to give or disclose information on request
apply to information that is subject to copyright (as explained
in the guidance on the application of section 44). But the commercial
effects of disclosure on the copyright holder- including cases where
copyright is held by the public authority itself - may nevertheless
be considered in relation to the exemption under section 43. But
it is not part of the function of section 43 to justify nondisclosure
of information by authorities within the terms of the Act merely
because they could make more money doing so by other means. Authorities'
commercial interests in the publication of information need to be
considered primarily within the context of sections 21 (which is
an absolute exemption) and 22 of the Act; and reference should be
made to the relevant guidance on those provisions.
Applying the Public Interest Test
3.20 If it has been decided that an exemption under either
Section 43 (1) or (2) could be applied there then needs to be a decision
made on the public interest in disclosure. In determining the public interest
in individual cases departments will need to evaluate in the first place
the value of the trade secret, or the nature of the prejudice (including
its likelihood and magnitude). The sensitivity of commercial information,
and the corresponding prejudice that may be caused to commercial interests,
will often decrease over time.
3.21 Section 43 may protect the commercial interests of
either a third party or the authority itself. At a very general level, there
is a public interest in protecting the commercial interests of both the
private sector (which plays an important role in the general health of the
economy) and the public sector (whose commercially-related functions need
in any event to be exercised in the wider context of the public interest).
3.22 Generally speaking there is a public interest in
the disclosure of commercial information in order to ensure:
that there is transparency in the accountability of public funds;
that there is proper scrutiny of government actions in carrying
out licensing functions in accordance with published policy;
that public money is being used effectively, and that departments
are getting value for money when purchasing goods and services;
that departments' commercial activities, including the procurement
process are conducted in an open and honest way; and
that business can respond better to government opportunities.
3.23 Factors that might weigh in favour of the public
interest in withholding information in this area include:
where disclosure would make it less likely that companies, or individuals
would provide the department with commercially sensitive information
in the future and consequently undermine the ability of the department/agency
to fulfil its role;
where disclosure would be likely to prejudice the commercial interests
of the department by affecting adversely its bargaining position during
contractual negotiations which would result in the less effective
use of public money;
where disclosure would, as a consequence, make it more difficult
for individuals to be able to conduct commercial transactions or have
other dealings with public bodies which are not a typical commercial
transaction - for example/ where an organisation obtains a grant or
financial assistance from a public authority - without fear of suffering
commercially as a result. It would not, for example, be in the public
interest to disclose information about a particular commercial body
if that information was not common knowledge and would be likely to
be used by competitors in a particular market to gain a competitive
advantage.
3.24 As noted at paragraph 3.4 above commercial interests
could be prejudiced in many circumstances and the degree of prejudice, and
the consequent balance of the public interest in disclosure will often be
time sensitive.
Footnotes:
Examples include: information obtained using the Health and Safety
at Work etc. Act 1974, Part IV of the Genetically Modified Organisms
(contained use) Regulations 2000, and EC Regulation 793/93 on the evaluation
and control of risks of existing substances. NB: a number of current
prohibitions on release are being reviewed with a view to reform using
the powers in section 75 of the FOI Act.
Often information in this category is provided without confidentiality
being requested, for example in public consultations. However on occasion
contributions are needed which will only be provided on a confidential
basis. In these cases the authority may, in accordance with the guidance
in the s.45 code of practice, accept a duty of confidence.
For example, a company may seek advice from a department about its
plans for a particular overseas market, and for this purpose provide
information about its future products and plans. Requests for financial
assistance will often include sensitive information about the project
and the financial position of the company. Also in this category are
grants made to companies in line with a published policy, and support
for trade fairs and events.
Information about public contracts above defined values is subject
to Procurement Regulations.
For example under the Export Control Act 2002 there are two main orders
giving the Secretary of State the power to grant licences. The Trade
in Goods (Control) Order 2003 (SI 2003/2765) and the Export of Goods,
Transfer of Technology and Provision of technical assistance (Control)
Order 2003 (SI 2003/2764). An applicant for an export licence has to
submit sufficient information to allow the Secretary of State to determine
whether or not to grant an export licence. This information will include
details of the goods to be exported or technology to be transferred
as well as details of the final recipient. The Secretary of State (via
the Export Control Organisation) will be in receipt of a significant
amount of information, which is commercially sensitive. (Strictly speaking
there is no statutory provision requiring this information to be provided
but if it is not it is unlikely that a licence will be issued).
For example there are restrictions on the disclosure of information
(except in specified circumstances) in Part 9 of the Enterprise Act.
