abroad, its unit overhead costs-and thus its total unit costs-would have declined. Just as costs help to determine prices, so also do prices have an influence on costs an economic reality which is completely overlooked in this "foreign competition" argument.

SEPTEMBER 6, 1962.

MEMORANDUM FROM ESTES KEFAUVER RE SUBPENAING OF "COST DATA" IF PERTINENT TO A VALID LEGISLATIVE INQUIRY

QUESTION

Are the steel companies entitled to refuse to comply with the Antitrust Subcommittee subpena on the ground that the information called for is "confidential,” and that "production and public disclosure *** [thereof] would be very detrimental to *** [their] competitive position at home and abroad?" (Republic Steel Co. letter of August 10, 1962).

ANSWER

Although in court cases trade or business secrets are entitled to some special protection to avoid unnecessary harm to the producing party's competitive position, such information must nevertheless be produced if material is pertinent.

(1) There are no cases dealing expressly with the problem insofar as congressional committees are concerned, but a congressional committee has at least as much right as a private party or a Government agency in a court

case;

(2) Merely "confidential" information is not privileged, unless it falls into the category of a trade secret; there is some doubt as to whether cost data are entitled to the protection of a trade secret like a secret process;

(3) Even if cost data are entitled to protection as a business secret, if adequate measures are taken to prevent disclosure of the damaging information, the material must be produced.

DISCUSSION

A. The rules applicable to congressional hearings

Research has disclosed no decisions specifically involving refusals to produce alleged trade or business secrets before a congressional committee. The decisions in civil court cases, however, would seem to be authoritative. As will appear below, these court cases grant no absolute immunity to trade secrets; at most, they permit a qualified immunity where the necessity for such records does not appear; and (2) no safeguards for secrecy are possible. Neither of these two necessary conditions applies to the present situation for (1) the public interest in the committee's obtaining this information would seem at least as great as a private party's; and (2) we have indicated a willingness and method for maintaining secrecy.

Moreover, it is well established that legislative committees may adopt even less restrictive rules of evidence than obtains in courts of law. See I Wigmore on Evidence, sec. 4K (3d ed. 1940). ("Experience seems to indicate that if these [congressional] investigative proceedings were hampered by intricate rules and legal formalities, their effectiveness would be materially lessened.") At the very least, the rules applicable to congressional hearings should be no more restrictive than those in judicial proceedings.

B. The scope of the protection for trade or business secrets

Although the steel companies attempt to justify their refusal to produce the cost data in question on the ground that it is "confidential" what they probably mean is that the data is privileged as a business secret. Merely "confidential" data is entitled to no protection. Thus, in Communist Party v. Subversive Activities Control Board, 254 F. 2d 314 (D.C. Cir. 1958), the court said, with reference to FBI files:

"There is a vast difference between confidential and privileged. Almost any communication, even an ordinary letter, may be confidential. Such a document may not relate to any matter of high public concern. But privileged means that the contents are of such character that the law as a matter of public policy protects them against disclosure. A communication from a person to his banker may be confidential, but it is not privileged; certain of his communications to

his doctor or his lawyer are not only confidential but also privileged; the law does not permit their disclosure even under subpena by a court."

As to business secrets the general rule in court cases is stated in Wigmore as follows:

"It is clear that no absolute privilege for trade secrets is recognized. On the other hand, courts are apt not to require disclosure except in such cases and to such extent as may appear to be indispensable for the ascertainment of truth."

8 WIGMORE ON EVIDENCE, SEC. 2212

(MCN. ed. 1961)

And in Moore's Federal Practice, it stated quite explicitly that "if the information is relevant and necessary to the presentation of the case, it will be required. The court may impose special conditions to protect the party" (4 Moore's Fed. Prac., sec. 26.22 [3] (1950)),

The cases fully support these statements; indeed, some go further and indicate that business secrets relating to costs, expenses, and the like, are entitled to almost no protection, and certainly to less protection than formulas and processes.

Thus, in Caldwell-Clements, Inc. v. McGraw-Hill Pub. Co., 12 F.R.D. 531, 545 (S.D.N.Y. 1952), an antitrust suit between two competitors involving a request for cost data, among other things, the court first laid down the following general rule: “* * * Where information is relevant and necessary to the presentation of a case the consequence of disclosure of trade secret is not a bar to discovery. [Citations omitted] *** On the other hand the circumstances might warrant the issuance of a protective order * *

It then went on to say: "*** The secrets involved, [cost and revenue data] while something the defendant would want to keep to itself, do not amount to a secret process or an item or service sold in trade. They would seem to be matters that could be brought out on the trial and therefore should be amenable to the discovery process" (545).

And more recently in Sandee Mfg. Co. v. Rohm & Hass Co., 24 F.R.D. 53 (N.D. Ill., 1959), another antitrust suit between two competitors, the court forced the defendant to disclose its cost data and internal bookkeeping, stating that (1) the information was relevant to charges of unlawful pricing; and (2) the information was not secret or confidential. Insofar as secret technical processes were concerned, the court went on, the defendant had no absolute privilege therefor, but limiting safeguards would be provided, if full disclosure of these processes were not essential to the case.

See also Paramount Film Dist. Corp. v. Ram, 91 F. Supp. 778 (E.D.S.C. 1950) (all data as to transactions with defendant's competitors); Singer Mfg. Corp. v. Brother Int'l Corp., 191 F. Supp. 322 (S.D.N.Y. 1960) (defendant, a competitor of plaintiff, was granted information in antitrust suit as to sales and prices; such data held not really a trade secret); Crocker-Wheeler Co. v. Bullock, 134 Fed. 24 (W.D. Ohio 1904) (books showing expenses, customers, and methods not shown to competitor only because not shown to be relevant); C. F. Simonin's Sons v. American Can Co., 30 F. Supp. 901 (E.D. Pa. 1939) (antitrust suit plantiff granted information about defendant's dealings with plaintiff's competitors).

The most that has been done to protect the secret is to set up safeguards. For example, in United Parcel Delivery Co. v. Federated Dept. Stores, 14 F.R.D. 451 (D. Del. 1953), secrecy of plaintiff's records was essential because plaintiff had guaranteed such secrecy to its customers, many of whom were defendant's competitors. The court, therefore, made special arrangements so that defendant could get all the information it needed without infringing on the confidentiality of the affairs of others.

But this is as far as the courts will go. If the information is pertinent and essential, the claim of business secrets will be unavailing.

Assuming, arguendo, that cost data may be classified as "trade secrets," it is subject to subpena when pertinent to the issue under consideration. Federal Trade Commission v. Tuttle, 244 F. 2d 605 (1957) in which the court said:

"The respondents contend that the information sought by the Commission under the subpena in the case at bar would include the sales records of the individual companies and that those records may be properly classified as "trade secrets." Assuming, arguendo, that sales records of the individual companies are trade secrets under section 6(f), all that that section forbids is the publication of 'trade secrets and names of customers,' in public reports that the Com

mission may make 'from time to time' which it 'shall deem expedient in the public interest.' That does no mean that 'trade secrets and names of customers' may not be subpenaed by the Commission in any proceeding or investigation under the act. They may be subpenaed in litigation in the Federal courts, if the information is relevant and necessary to the presentation of a case" (at p. 616). Certiorari was denied in this case.

In United States v. Brewster, 154 F. Supp. 126 (1957) the court states as follows:

"It has been pointed out that neither an incorporated or an unincorporated association can assert an unqualified right to conduct its affairs in secret. United States v. Morton Salt Co., 1950, 338 U.S. 632, 636, 70 S. Ct. 357, 94 L. Ed. 401. However, a corporation may challenge an order for the production of records if it is unreasonable on grounds other than self-incrimination, i.e., if it is too sweeping, Hale v. Henkel, 1906, 201 U.S. 43, 76, 26 S. Ct. 370, 50 L. Ed. 652; if the information sought is not relevant to any lawful inquiry, Oklahoma Press Pub. Co. v. Walling, 1946, 327 U.S. 186, 208, 66 S. Ct. 494, 90 L. Ed. 614, or if it represents 'a fishing expedition' in quest of evidence of crime, Federal Trade Commission v. American Tobacco Co., 1924, 264 U.S. 298, 305–306, 44 S. Ct. 336, 68 L. Ed. 696" (at p. 134).

In upholding the validity of the subpena by the subcommittee of the Committee on Government Operations directing Brewster to produce "the books and records of (each organization) for the period from January 1, 1951, to December 31, 1955, including cash receipts and disbursements, canceled checks, general ledgers, bills and invoices, bank statements, check stubs, correspondence files, memorandums, and minutes of meetings" the court said:

"*** the court finds no supportable challenge to the constitutional validity of these subpenas. Their terms are only as broad as the scope of the inquiry. If subpenas like these are to fail, the unions will be cloaked with absolute im. munity and Congress must wait in the darkness until suspected union officers get around to volunteering confirmatory data" (at p. 135).

The Brewster case was reversed by the circuit court of appeals on grounds other than the validity of the subpena.

In United States v. Orman (207 F. 2d 148 (1953)), the court made the following statement with respect to the right of a committee to intrude upon the "right of privacy” where the material sought was pertinent to the investigation : *** The individual must reply, for the protection of his privacy, upon the requirements of pertinency discussed above. Where a congressional investigation enters a field to which the first amendment is applicable, courts will be particularly careful to check unlawful lines of inquiry. (Rumely v. United States, supra.) But even here it must be remembered that 'the right of free speech is not absolute but must yield to national interests justifiably thought to be of larger importance. The same is true of the right to remain silent. When legislating to avert what it believes to be a threat of substantive evil to national welfare, Congress may abridge either freedom.' (See Lawson v. United States, 1949, 85 U.S. App. D.C. 167, 176 F. 2d 49, 52, certiorari denied, 339 U.S. 934, 70 S. Ct. 663, 94 L Ed. 1352, rehearing denied, 1950, 339 U.S. 972, 70 S. Ct. 994, 94 L. Ed. 1379). Similarly under the fourth amendment: it is only 'unreasonable' searches and seizures which are prohibited. (See Zimmermann v. Wilson, supra.) It appears, therefore, that there is in law no absolute right of privacy apart from these familiar protections. (See Barsky v. United States, supra.)" "As shown above, the committee had reason to investigate Orman as it did. (Cf. Marshall v. United States, supra.) There could be no doubt in Orman's mind as to what information the committee desired, or the general purpose for which the committee had been appointed. Therefore Orman is in error in claiming a violation of his right under the fourth and fifth amendments and of his 'right of privacy' vis-a-vis the committee" (at p. 158).

In the case of Federal Trade Commission v. Electrio Bond and Share Company (1. F. Supp. 247) the court held that the Federal Trade Commission, under a resolution of the Senate directing FTC to investigate certain matters with respect to public utilities, had the power to require Electric Bond & Share Co. to produce under section 6(a) of the Federal Trade Commission Act the cost to a corporation of rendering all purchasing services to its subsidiary operating companies engaged in the interstate transmission of gas or electricity.

In connection with this discussion, attention is called to the following quotation from a decision of the U.S. Supreme Court in McPhaul v. United States (368 U.S. 372, at p. 379) relating to the failure of a witness to appear under a subpena to produce records.