Issue:

In his request for an opinion, Commissioners Smith asked the Commissioner to address the following issue:

Discussion:

As the Commissioner noted in vb:

The Minnesota Department of Revenue is responsible for enforcing the Minnesota Unfair Cigarette Sales Act,' Minnesota Statutes, sections 325D.30-325D.42. SUPERVALU, a company, submitted cost of doing business' data to Revenue to comply with the requirements of section 325D.32, subdivision 10(c). A Revenue inspector obtained additional information during an on-site review. According to Commissioner Smith, a competitor of SUPERVALU has requested access to all of the data associated with the SUPERVALU filing, including supporting financial details, formulas, methodology, and calculations.' . . . .

The actual information consists of:

• A table of individual named employees' salaries, with cost allocations to cigarette sales;
• shipping costs and trucking income attributable to stated volumes of cigarettes shipped;
• inventory and product turnover information;
• warehouse, building, stamping and payroll expenses;
• sales volumes; and
• other financial summary information.

SUPERVALU maintains that the data in question, which a Revenue inspector obtained directly from company files, are classified as trade secret under Minnesota Statutes, section 13.37.

Section 13.37, subdivision 1 (b), provides:

'Trade secret information' means government data, including a formula, pattern, compilation, program, device, method, technique or process (1) that was supplied by the affected individual or organization, (2) that is the subject of efforts by the individual or organization that are reasonable under the circumstances to maintain its secrecy, and (3) that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

Under section 13.37, subdivision 2, trade secret data are classified as nonpublic (data not on individuals) and as private (data on individuals.)

In Advisory Opinion 99-009, the Commissioner stated that, although the record was not clear, it was his understanding that the data in question were compiled by the Department of Revenue, not SUPERVALU. Based on that understanding, the Commissioner concluded that the data did not qualify for trade secret protection under section 13.37. In his May 21, 1999, letter, Commissioner Smith stated: [p]lease be advised that the data in question are, in fact, verbatim copies of data compiled by SUPERVALU.

Accordingly, the Commissioner of Administration has reviewed the entire file to determine whether Revenue and/or SUPERVALU have demonstrated, through substantive evidence, that the compilation of data in question qualifies as trade secret under section 13.37. Further, the Commissioner intends, in this opinion, to set forth in greater detail the criteria that must be met for data to be protected as trade secret under section 13.37.

SUPERVALU's position is that the data in question are a compilation within the meaning of section 13.37, subdivision 1(b). To be considered trade secret under section 13.37, government data must satisfy four elements that comprise the statutory definition: 1) it must be a collection of information; 2) that was supplied by the affected individual or organization; 3) that is the subject of reasonable efforts to maintain its secrecy; and 4) that, a) derives independent, i.e., on its own, economic value, b) from not being generally known to or readily ascertainable by, c) other persons who can obtain economic value from its disclosure or use.

In order for a compilation to be a trade secret within the meaning of section 13.37, the data must be a compilation that, in and of itself, is information that derives independent economic value from not being known to others. A compilation of information which is compiled by the affected organization in its normal course of carrying on its operations, such as a list of employees and their salaries, is not the type of compilation that should qualify for trade secret protection under section 13.37. To be consistent with other items listed in the first element of the trade secret definition, a compilation that qualifies for trade secret protection ought to be a unique kind of compilation, the preparation of which results in some kind in some kind of direct economic gain to the compiler.

Acceptance of the position advocated by SUPERVALU would have significant implications for the treatment of data submitted by private companies to government entities. For example, there is already a considerable body of specific statutory treatment of various types of financial and commercial information submitted by companies seeking loans and other benefits from government entities. The Commissioner is convinced that in allowing compilations to be possible trade secrets, the Legislature must have intended something other than just those ordinary compilations of information that businesses prepare as part of their day-to-day operations.

The data in question, or access to the data, were clearly supplied by SUPERVALU, and therefore satisfy the second statutory element to be trade secret.

The third element requires that the data in question are the subject of reasonable efforts to maintain their secrecy. In a 1989 memorandum, Revenue informed cigarette and tobacco distributors, including SUPERVALU, of the following: [p]lease keep in mind that all information submitted to the department under this law [the Minnesota Unfair Cigarette Sales Act] is public. Therefore, after we review the detailed cost data, we will most likely return it to the distributor. There is nothing in the record to indicate that SUPERVALU, having been provided the notice in that memorandum for ten years, made any assertion of trade secret protection for the data it routinely provided to Revenue over the ten-year period until Revenue notified the company that it had received a request for access to the data by a SUPERVALU competitor.

It is perhaps understandable that SUPERVALU relied upon Revenue's statement that the data likely would be returned. In the instance of the specific data at issue here, SUPERVALU appears also to have relied upon a promise of confidentiality from the Revenue inspector who reviewed the company records. However, SUPERVALU's acknowledgment of the 1989 Revenue memorandum raises questions about the extent of the company's efforts to maintain the secrecy of the data. It is difficult to accept a claim that the data are trade secret given that SUPERVALU has been on notice for nearly a decade that Revenue considered the data to be public and SUPERVALU continued to provide the data to Revenue without making trade secret claims or labeling the data in any way as trade secret.

Given the record before the Commissioner, namely: 1) that he does not know the nature of the verbal promises of confidentiality that a Revenue employee made to SUPERVALU; 2) the clear statement in the 1989 Revenue memorandum that the data are public; and 3) the fact that SUPERVALU apparently took no action for ten years to secure the data, the Commissioner cannot conclude that the third element has been satisfied.

The Commissioner is concerned that the 1989 memorandum contains what appears to be a promise to return official government records to regulated companies. In addition, a Revenue inspector may have made promises of confidentiality inconsistent with the statement in the memorandum that the data are public. Any indication made by Revenue that records would be returned, where the records in question document Revenue's official actions relative to its administration of the cigarette tax laws, had no legal effect. Given the requirements of the Official Records Act, Minnesota Statutes, section 15.17, and the Records Management Act, section 138.163 et. seq., such a promise would be void as against public policy.

The last element of the definition of trade secret has three sub-elements: 1) the data must have independent economic value from 2) not being generally known to, and not being readily ascertainable by proper means by, 3) other persons who can obtain economic value from its disclosure or use. On this point, in their comments submitted in connection with Advisory Opinion 99-009, Thomas L. Fabel and Thomas F. Pursell, attorneys for SUPERVALU, stated the following:

The fact that the information in question is in fact being sought by a SUPERVALU competitor, who cannot obtain it by proper means, says practically all that needs to be said about this final element in the definition of trade secret data. [The data in question] are among the company's most closely guarded commercial secrets in its cigarette or any other line.

The disclosure of this information to SUPERVALU competitors would give them a ready-made package of insights into the company's strengths, weaknesses and operations that only SUPERVALU's management now has. Knowing the identities and salaries of key employees would permit the competitors to raid fully trained and experienced personnel in a labor-tight market. The loss of this work force would be a severe blow to SUPERVALU and a great boon to the company's competitors. . . . .

In the Commissioner's view, Mr. Fabel and Mr. Pursell have not provided sufficiently detailed information as to each sub-element to support their position that the compilation of data derives actual or potential independent economic value to a competitor. First, they state that simply because a competitor wants a company's data, it must mean the data has independent economic value. There are other reasons, having nothing to do with economic value in the data, for a competitor to be interested in data collected as part of a Revenue audit. For example, the competitor may want to see if SUPERVALU is receiving the same treatment from Revenue that the competitor is receiving. Second, Mr. Fabel and Mr. Pursell do not explain how SUPERVALU's costs for the data described above at page 2 would give a competitor a ready-made package of insights into the company's strengths, weaknesses and operations.

In this instance, a simple statement that public access to these data would give a competitor insight into the company's strengths and weaknesses is not sufficient. What is needed to overcome the strong presumption that the data submitted to Revenue are public is a detailed, specific discussion of why access to the data would give a competitor a distinct economic advantage.

The Commissioner was not provided with specific, detailed information about the independent economic value of the data compilation; why it is not generally known and not readily ascertainable to its competitors; and explicitly how a competitor can obtain economic value from the data's disclosure or use. Therefore, the fourth element of section 13.37 has not been satisfied.

In order for the Commissioner to make definitive conclusions as to whether data are trade secret, the affected organization or the government agency, which are in the best position to make those determinations, must provide sufficient detailed information to demonstrate that all four elements of the definition of trade secret are satisfied. In this case, neither SUPERVALU nor Revenue has done so.

In addition, in his comments, Mr. Mosford stated that the data he is seeking from Revenue are merely an extension of the costs reported quarterly and annually to [SUPERVALU's] stockholders. . . . Mr. Mosford asked how data made public by the company can be considered trade secret.

The Commissioner is of the opinion that the best recourse to resolve issues such as those raised by Commissioner Smith is for the Legislature to consider amending Chapter 13 to classify as not public certain financial data provided to government entities by the private sector.

In his May 21, 1999, letter, Commissioner Smith also asked the Commissioner of Administration to address the following: whether, if the data in question are determined to be public, the issue of salary information of SUPERVALU employees can be resolved in some way other than a temporary classification, given that the data requestor has agreed to the redaction of employee names.

As the Commissioner observed in Advisory Opinion 99-009, it appears that Revenue obtained specific salary information on SUPERVALU employees that would not be protected from public disclosure, and suggested that, if that is the case, Revenue should consider applying for a temporary classification (see section 13.06) to protect the data. Revenue may be able to reach agreement with the data requestor in this case, but would face the same problem if it receives another request for the data from someone not amenable to that solution. Therefore, the Commissioner is still of the opinion that temporary classification is the most appropriate route for Revenue to take, until the Legislature has determined whether it wants to take action on the larger issues described above.

Opinion:

Based on the facts and information provided, my opinion on the issue raised by Commissioner Smith raised by is as follows:

Signed:

David F. Fisher
Commissioner

Dated: October 26, 1999