# Appendix — Wearly v. Federal Trade Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2278%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1980 - **Citation:** 449 U.S. 822 ## Text lupreme Court, U. &y7"% Fo EILED” \ Supreme Court of the United OCTOBER TERM 1979 No. 79-1658 W. L. WEARLY, INGERSOLL-RAND COMPANY, and THE TORRINGTON COMPANY, ODAK, JR., CLERR Petitioners, —_—V.— FEDERAL TRADE COMMISSION, et al. Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT JOSEPH W. BURNS MARTIN J. NEVILLE LOVEJOY, WASSON, LUNDGREN & ASHTON Professional Corporation 250 Park Avenue New York, New York 10017 Telephone: (212) 697-4100 MILES W. KIRKPATRICK CHARLES W. SMITH MorGan, Lewis & BOCcKIUS 1800 M. Street, N.W. Washington, D.C. 20036 Telephone: (202) 872-5000 Attorneys for Petitioners INDEX TO APPENDIX Proceedings in the Third Circuit 1. Opinion, February 8, 1980.00.00... eee la 2. Order Amending Opinion, i‘ebruary 13,1980 15a 3. Order Denying Rehearing and Amending Opi- DAB, BTN BO, BI vaso sisesinssesecessssescosecocetsovenres 16a 4. Judgment, February 8, 1980.00.00... 20a 5. Brief of Amici Curiae Chemical Specialty Manufacturers Association, et al. ...............000. 21a Brief of Amicus Curiae Wards Cove Packing a REREIE aS aang UDO ae Sy WnenS SE ae SO 35a Proceedings in the District of New Jersey 4. Cppimbem, Cetotber 16, TSTS i....cccccccicsicsscscssscscscscee 52a 8. Final Judgment, November 29, 1978............... 89a 9. Opinion, November 30, 1978.00.00... 93a Be Se NINE Wh BIO csvcsecicsvsssicescosveiassoisicbcsommseren 110a 11. Plaintiffs’ Exhibit A, FTC Letter to Wearly, September 16, 1976, and FTC Rule § 2.13 os fe GS 8 ee ewe ene 124a 12. Plaintiffs’ Exhibit B—FTC Subpoena to , JY B® Randall H. Brook Attorney 46a FEDERAL TRADE COMMISSION WASHINGTON. D.C. 20580 berice OF THE SECRETARY 47 JAN 1979 Douglas M. Fryer, Esquire Moriarty, Mikkelborg, Broz, Wells and Fryer 3300 Seattle First National Bank Building Seattle, Washington 98154 Re: , Freedom of Information Act Request Salmon Industry File Number 751-0024 Dear Mr. Fryer: This is in response to your letter of December 29, 1978 requesting information on the above-captioned files, You are granted partial access to the material requested, even though you are seeking material which was released previ- ously. Due to clerical error some material which is exempt from mandatory disclosure pursuant to 5 U.S.C. Section 552: (b) (3) specifically exempted from disclosure by statute; (b) (4) trade secrets and commercial or financial infor- mation obtained from a person and privileged or confiden- tial; (b)(5) inter-agency or intra-agency memorandums or letter which would not be available by law to a party other than an agency in litigation with the agency, was released. This error has been corrected and the eleven page: have had the appropriate deletions made in order to prevent any future release of this material. , You may petition the Commission for access to the material which is being withheld within thirty days from the date all the accessible material is made available to you. You may petition either because you believe that the material is not exempt under the law, or because you believe that the Commission should exer- cise its discretion and release the information notwithstanding its exempt status. If requesting discretionary release, you 47a Douglas M. Fryer, Esquire -2- should state your interest in the subject matter and the pur- pose for which it would be used if access is granted. Plezse include a copy of your original letter and this response with your appeal. The request should be addressed Freedom of Infor- mation Act Appeal, Office of the General Counsel, Sixth Street and Pennsylvania Avenue, N.W,, Washington, D.C. 20580. The accessible files in the investigation will be forwarded to the Seattle office of the Federal Trade Commission. You may inspect the documents by contacting Ivan C. Orton, Esquire, of this office, at the 28th Floor, Federal Office Building, 2840 Second Avenue, Seattle, Washington 98174, (206) 442-4655. Copies of these documents will be made available to you, if you so desire, at a fee equivalent to the cost of duplication. The undersigned is deemed the sole official responsible for the denial of any portion of your request, Sincerely, Carol M. Thomas Secretary 48a Law orrices MORIARTY, MIKKELBORG, BROZ, WELLS & FRYER C™amcs © wom entry UA 3300 SCATILE-FIMST NATIONAL BANK BUILDING C™eOcs €. yates p--tn iro ~ aga SEATTLE, WASHINGTON 96°54 ern pee St tee (206) 623-8690 AACHONOLO ee WET ® THOwAS OLSON aoees" 2 enemve January 24, 1979 ceanece On users Ms. Carol M. Thomas Secretary Federal Trade Commission Washington, D.C. 20580 Re: Freedom of Information Act Regquest-Salmon Industry File: 751-0024 Dear Ms. Thomas: Reference is made to your letter of January 17, 1979, regarding the above. We hereby request that all documents obtained from Wards Cove Packing Company, Inc., Bumble Bee Seafoods Division of Castle & Cooke, Inc. and Columbia Wards Fisheries in connection with FTC investigation No. 751-0024 be returned. The investigation has, as we understand it, been closed and return would avoid any further “clerical errors" by which confidential information was released. We wish you to know that this information was very con- fidential and has now.been made available to several of a my clients' competitors. Alternatively, we request that we be given a list of those documents which were released. If this is not possible we request that we at least be allowed to review the mat- erials. Since the materials belong to our clients, and since some of the information was released due to your error | we do not believe any fee is appropriate. | | | We request the foregoing since the release of the con- fidential financial and other data has been made to our competitors and also because it is in the possession 49a C. Thomas January 24, 1979 Page two of attorneys for plaintiffs in a civil antitrust case in which our clients are defendants. We also request copies of all correspondence dealing with your release of the materials. A ( Very truly yours, ] f ‘ M4 en ay ‘ :~\ Wega ae Uf As Douglaq M. Fry DMF/eb ces: I.C. Orton A. Brindle enclosure 50a FEDERAL TRADE COMMISSION iF) see ae RECEIVED) 15 Second Avenue attle, Washington 98174 ym 206) 442-4655 FeB7 1979 February 6, 1979 Moriarty, Mikhelborg, Braz, Wets & Fryzé Douglas M, Fryer Moriarty, Mikkelborg, Broz, Wells & Fryer 3300 Seattle First National Bank Bldg. Seattle, Washington 98154 Re: FOIA Request Salmon Industry Dear Mr. Fryer: As indicated in Mr. Thomas' letter to you of February 1, 1979, the Seattle office is responding to your request that all documents submitted by Castle § Cooke, Inc. be returned. It is my understanding, from talking with the Office of the Secretary, that it is Commission policy to not return documents unless agreements to that effect were reached prior to fas aaa being turned over. Therefore, your request is enied, Sincerely, ny Ortr— Ivan Orton Attorney 5la FEDERAL TRADE COMMISSION WASHINGTON, D. C. 20580 nce OF THE SECRETARY Douglas M. Fryer, Esquire R Moriarty, Mikkelborg, Broz, FEB5 1979 Wells, & Fryer 3300 Seattle-Frist National stonarty, Minvetbort, BFS! Weis & Fryer Bank Building Seattle, Washington 98154 Re: Freedom of Information Act Request Salmon Industry File Number 751-0024 Dear Mr. Fryer: This is in response to your letter of January 24, 1979 requesting information on the above. For that portion of your letter which requests you be provided with a copy of the information which was erroneously released in response to a previous Freedom of Information Act Request, your request is granted. This is being released to you as counsel for Castle & Cooke, Inc., and will not be released to any other party. The enclosed document is the only infor- mation supplied by your client which was mistakenly released. This is being provided to you without charge. The Freedom of Information Branch has been in contact with the Commission's Seattle Regional Office to discuss that * portion of your request that all documents submitted by Castle & Cooke, Inc., be returned. This office will not be addressing itself to that portion of your request. The Seattle Regional Office will be responding to this matter. Sincerely, Carol M. Thomas Secretary Enclosure 52a W.L. WEARLY, Ingersoll-Rand Company, The Tor- rington Company, Plaintiffs, V. FEDERAL TRADE COMMISSION, Michael Pertschuk, Chairman, Calvin J, Collier, David A. Clanton, M. Eliza- beth Hanford Dole, Paul Rand Dixon, Defendants. Civ. No. 77-1860. United States District Court, D. New Jersey. October 18, 1978. > Christiansen, Jube & Keegan by Sam Radin, Newark, N.J., for plaintiffs Ingersoll-Rand Co. and The Tor- rington Co.; Burns, Van Kirk, Greene & Kafer, New York City, by Joseph W. Burns, New York City, of counsel. Carpenter, Bennett & Morrissey, Newark, N.J., for plain- tiff W.L. Wearly by David M. McCann, Newark, N.J.; Morgan, Lewis & Bockius, Washington, D.C., by Miles W. Kirkpatrick, Washington, D.C., of counsel. Robert J. Del Tufo, U.S. Atty. by Donald J. Volkert, Jr., Asst. U.S. Atty., Newark, N.J. for defendants; Mark W. Haase, Sp. Atty., Washington, D.C., Arthur W. Adelberg, Washington, D.C., of counsel. OPINION BIUNNO, District Judge. This litigation grows out of an administrative subpoena issued to Wearly, who is chairman of Ingersoll-Rand (I-R), which in turn owns all the stock of its subsidiary, Tor- rington. The subpoena was issued in connection with a 53a non-public investigation designed to look into the ques- tion of antitrust aspects of activities or arrangements con- ducted through joint ventures, stock acquisitons, and the like. The specific subject matter deals with “needle roller bearings” (NRB) and “loose needle rollers” (LNR). As everyone knows, there are many kinds of bearings for axles and shafts. The earliest form is the common journal, going back to the wheelbarrow and the wagon. The wheel is of immense value for the physical reason that rolling friction is much lower than sliding friction under most conditons, and since friction causes waste of energy, its reduction increases the efficiency of machines to do useful work. Even with the development of Babbitt metal for journals, however, sliding friction remained between the shaft and the simple journals. The first important im- provement, growing out of tec’:nological advances in me- tallurgy, was the ballbearing. Set between two “races” of hardened steel, the smooth, round and hard steel balls made it possible to substitute rolling friction between shaft and journal. It will be recalled that at the start of World War II, the nation’s railroads had just begun the process of replacing the simple journal box on frieght cars with roller bearings, to eliminate breakdowns from “hot boxes” and sharply reduce maintenance. After the ball bearing, there came roller bearings, ta- pered and double tapered roller bearings, thrust bearings, and eventually the needle roller bearing. Each of these forms of bearing are variations of the basic concept of substituting rolling friction for sliding friction. Each form is designed to deal with the wide range of loads and stresses encountered in all kind of machines that have rotating axles or shafts. The list of applications is no 54a doubt enormous, ranging from the bicycle, through the many devices with shafts in automobiles, refrigerators, washing machines, oil burners, attic fans, and other ap- pliances, through manufacturing equipment such as tur- ret latches and milling machines, to sophisticated gyros- copes for space craft with rotational speeds of 10,000 r.p.m. or more.’ The defendants, who are the Federal Trade Commis- sion and its members, issued the subpoena involved not to I-R or Torrington, but to Mr. Wearly, chairman of I-R. Since the non-public investigation is directed to corporate activity, the reason for addressing Mr. Wearly is obscure. Various responses at the hearings suggest that the reason is “strategic”, whatever that may mean, but the only dif- ference the court has been able to discern is that an indi- vidual who is subpoenaed and who resists the command after a judicial enforcement order is subject to the peril or jeopardy of imprisonment, which the corporation is not. Thus, the use of an individual subpoena is particularly strange in a case like this, where the subpoena is “duces tecum”, and the main object is to obtain specified catego- ries of documents, and where the agency has made clear that it will accept the documents by mail along with a verifying affidavit, as compliance with the subpoena without the personal appearance of the witness being re- quired. This practice for non-public investigations is es- 1 This kind of history, background and descriptive information is the subject of judicial notice under F. Ev. Rule 201, by reference to com- monly available sources of information whose reliability is not open to question. One reference is the article on BEARINGS, Antifriction, in Vol. 3, Encyclopedia Americana (1957 ed). The volume WHEELS (Life Science Library, 1967) observes at p.12 that the earliest known record of a vehicular wheel is a sketch made by an accountant (!) in Sumer about 3500 B.C. A sketch on p.14 details a primitive roller bearing made of an oak hub, wooden rollers and axle, found in Denmark along with other parts of a 1st Century B.C. funeral wagon. 55a sentially the same as‘the Grand Jury subpoena for cor- porate records. Such subpoenas are routinely satisfied through arrangements with the U.S. Attorney to turn over to him the requested documents without any witness appearing before the Grand Jury.’ After the subpoena was issued and served, conferences followed. Such conferences are also commonplace and routine. Their object is to arrive at a clearer and sharper definition of the classes of documents called for. It is fairly usual for the supoena duces tecum to have attached. a list of categories of documents on a “boiler plate” format, that either does not match the particular records of the enterprise, or else calls for types of documents of such massive bulk and number as to be essentially useless to the agency and unreasonably burdensome on the supplier. For most categories, these matters were resolved by negotiations, and as to those the court understands that the documents have been supplied. The controversy here involves a number of categories of documents which, for lack of a better term, the court has chosen to describe as documents containing “pro- prietary information”. This information includes not only trade secrets, secret processes and secret devices, but also a great mass of management data, evaluations, plans, pro- duction and production results of a kind that traditionally and historically is never disclosed outside the company, except on protected and privileged conditions usually es- tablished by contract, nor even within the company ex- 2 A very good narrative account of the common practices followed in gathering documents by subpoena duces tecum for Grand Jury pur- poses is found in Hawthorne v. Director of Internal Revenue, 406 F. Supp. 1098 (D-Pa., 1976). In that report, Judge Edward R. Becker sets ser the description (essentially the same as in this District), at pp. 1105- 7 56a cept to those persons who have a “need to know” the infor- mation in order to execute their functions.’ In respect to these, an irresolvable impasse was reached. The position of plaintiffs was basically two-fold: one claim was that the request was unreasonable, exces- sive and beyond authority; the other was that defendants were either unable or unwilling to provide adequate secu- rity protection if the data were disclosed, or, if they did, that such arrangements could not be relied on. The controversy is real, and it is specific. It is plaintiffs’ position that this proprietary information is absolutely vital and essential to its ability successfully to compete in the marketplace with all competitors, domestic and for- eign, the largest worldwide competitor probably being SKF of Sweden. They assert that this is the kind of infor- mation which, in the shrouded world of industrial es- pionage, is precisely the kind that competitors would give their eye teeth for. If they must give it to FTC for the purposes of the non-public investigation, they will do so with the utmost reluctance and with their “heels dug in”. But, even then, they are unwilling to provide it unless effective means are provided to assure that the integrity and safety of the information will be fully protected against disclosure to competitors, either directly or by 3 The property right, of course, is in the information set out by the documents. To retain its quality as property, the information must be kept “secret”, as discussed later. Distinguish this characteristic from a copyright or a patent, where the information must be made public in _ to obtain the different kind of property interest which resides in them. For a useful decision distinguishing between pieces of paper and the information written on them, see Booth v. City of New York, 268 App. Div. 502, 52 N.Y.S.2d 135 (1944). That case involved the professional services of official court reporters and the typed transcripts of proceed- ings they prepare, in the context of a sales tax law. 57a public dissemination. It is on this aspect that the con- troversy mainly centers.‘ Proprietary information, of course, is but one form of intangible personalty, in the same general category as stocks, bonds, mortgages, copyrights, letters patent, and the like. The major characteristic that distinguishes pro- prietary information from such other forms is that while the disclosure of A’s ownership of a particular security in no way affects his ownership thereof or his rights therein, the disclosure of the tenor and content of proprietary in- formation destroys its value as well as the property in- terest in it. The value resides not in the pieces of paper on which the information is recorded, but in the information itself. Once that information becomes public, the property aspect is gone. The law in regard to proprietary information, although well known and generally recognized, seems not to have been treated in any comprehensive way, and the decisions reflect indirect aspects depending on the context in which 4 If the agency were in a position to “use” the information to engage in the manufacture and sale of NRBs or LNRs in competition, as in a governmental manufacturing arsenal for military equipment, it might be argued that the subpoena would amount to a “taking” for public use, for which just compensation would be required. That is not this case. Rather, as the court understands the issue, the agency wants to ex- amine the information in its non-public investigation in order to con- sider whether anti-trust laws have been violated. This does not amount to putting the information to “use”. For that purpose, a “taking” is avoided by making certain that the information is not disclosed to competitors or to the public, whether under the FOIA or otherwise, since such disclosure would destroy the property interest and would amount to a “taking” for private use. Plaintiffs’ point, then, amounts to saying that just as they would not agree to disclose the information to a licensee without suitable provi- sions to assure integrity and safety, they are entitled to equivalent protection before turning it over to the agency. The same would be true of confidential disclosures to an investment banker to support a private loan, or to an interested buyer of the Torrington operation, under condi- tions to protect and return the proprietary information if the transac- tion is not consummated. 58a disputes happen to arise. In part, this may be due to the awareness of owners of proprietary information to adopt and follow careful practices to prevent disclosures. Some decisions arise out of the conduct of a former employee who attempts to use the proprietary informa- tion for the benefit of himself and a competitor. Others involve conduct by competitors who manage to obtain the information by unequitable, unfair, or improper means. Decisions of these kinds are generally equity cases where, if the showing for relief be made, the traditional remedy is that of injunction. This is for the obvious reason that money damages are usually incapable of ascertainment, and so the damage is “irreparable” in that form.* - 5 New Jersey has long recognized and given protection to trade secrets, both by way of injunction and damages. Salomon v. Hertz, 40 N.J.Eq. 400, 2 A. 379 (Ch. 1885); Stone v. Grasselli Chem. Co., 65 N.J.Eq. 756, 55 A. 736(E & A 1903) (which is evidently the first ruling by the highest court, and which reviews the state of the law throughout the country), Sun Dial v. Rideout, 16 N.J. 252, 108 A.2d 442 (1954); Adolph Got- - tscho, Inc. v. Amer. Marking, 35 N.J.Super. 333, 114 A.2d 19 (Ch. 1954), aff'd, 18N.J.467, 114 A.2d 438 (1955), damage award modified, 26 N.J.229, 139 A.2d 281 (1958); cover the bulk of the span, with many other cases between. In general, injunction to restrain employee disclosure is grounded primarily on the property concept; but relief has been given where some trust relation is violated, even though the plaintiff had pirated the trade secret from another, Vulcan, etc. v. American Can, 67 N.J.Eq. 243, 58 A. 290 (Ch. 1894); 70 N.J. 588, 62 A. 881 (Ch. 1905), revd, 72 N.J.Eq. 387, 67 A. 339 (E & A 1906). Sometimes the issue arises in connection with a covenant not to compete, as in Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 274 A.2d 577 (1971), which recognizes that “the employer has a patently legitimate interest in protecting his trade secrets as well as his confidential busi- ness information and he has an equally legitimate interest in protecting his customer relationships.” Another kind of intangible property protected by New Jersey law is categorized as “literary property”. A recent example of this protection is found in Krahmer v. Luing, 127 N.J.Super. 270, 317 A.2d 96 (Ch. 1974), in which a contractor made use of house plans for one house, to build another, and was sued by the architect for pirating his work. Construction of the first house was held not to be such a general publica- tion as would justify copying the plans, since the building was the result of the plans, not a copy of them. 59a A few cases deal with the question whether a secret process is “property” within the meaning of corporation laws requiring that capital stock of a corporation must be paid for in money or “property”. See, e.g., Durand v. Brown, 236 F. 609 (CA-6, 1916). For a comprehensive discussion of the same question involving the issuance of stock in exchange for patents, a closely related question, see Atlas Trailers, etc. v. McCallum, 118 Tex. 173, 12 S.W.2d 957 (1929). In practical experience, the question arises most fre- quently, and quite frequently, in the context of the law of evidence. The “trade secret” privilege is well-established at common law and is regularly applied in the federal courts. However, the matter arises at the trial level, as an evidence issue collateral to almost any kind of case, and is routinely dealt with at that level with relatively little re- cording in the reports. There can be no real doubt that the trade secret privi- lege, as a rule of evidence, is grounded on the property nature of the trade secret and that it recognizes the fact that disclosure of the tenor and content destroys both the value and the property. In balancing the eed for evidence against the property right, the well-recognized concept is that the privilege is a qualified one in the sense that disclo- sure will be required (so that the evidence may be availa- ble) but under the control of a protective order (to the end that the proeprty not be “taken”).® 6 Since I-R (the target of the inquiry) is a New Jersey corporation and owns all the stock of Torrington, the situs of this class of intangible personalty is doubtless located here under the usual rule and is governed by New Jersey property law. The only other State whose law might apply is Connecticut, where Torrington is based. Connecticut is one of the original states and also a common law state. Its law is usually the same as New Jersey’s. Any difference in law has not been briefed or researched. In any event, Mr. Wearly’s domicile is irrelevant as he is merely an officer and has no ownership interest in the proprietary 60a See, for example, F.R.Civ.P. 26(c), for one formulation. The sense of this rule is so weil understood, and so regu- larly applied, that competent counsel have no difficulty, in most cases, in preparing a suitable protective order for entry by consent. When it adopted the Federal Rules of Evidence, by Pub.L. 93-595, 88 Stat. 1926, the Congress was wholly unable to come to agreement on any of the proposed privi- lege rules. In the rules prescribed by the Supreme Court on November 20, 1972, there were specific privilege rules, among which was Rule 508 dealing with trade secrets. The tenor of that rule follows the recognized characteris- tics without noticeable change. The key sentence said: “When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require.” information, although he is obliged, as an agent entrusted with it, to see to its protection, and is the witness subpoenaed. The earliest case discussing the subject in New Jersey appears to be Salomon v. Hertz, 40 N.J.Eq. 400, 2 A. 379 (Ch. 1885). That case was referred to Stone v. Grasselli Chem. Co., 65 N.J.Eq. 756, 55 A. 736 (E & A 1903), which was followed in Taylor, etc. v. Nichols, 73 N.J.Eq. 684, 69 A. 186(E & A 1908). Taylor is mentioned in Herold v. Herold China, etc., 257 F. 911 (CA-6, 1919) for the proposition that the practice of making disclosures of trade secrets in camera and under seal “is well established.” Of other New Jersey cases, two more worth reading are Paper, etc. v. Newlin, 101 N.J.Eq. 115, 137 A. 314 (Ch. 1927) and Sun Dial Corp. v. Rideout, 17 N.J. 517, 111 A.2d 881 (1955). Sun Dial is especially of interest as it recognizes that while an injunction is ordinar- ily required to specify what is prohibited, this cannot be done when the resiraint is against use or disclosure of trade secrets, for such an injunc- tion would be a public record and would itself destroy the property. Instead, the practice is endorsed of recording the details in a transcript made in camera and held under seal, as the ancient practice evidently was. More recently, and not in a trade secret context, the New Jersey court has approved and encouraged the use of protective orders as a basis fur securing testimonial responses. See Mahne v. Mahne, 66 N.J. 53, at 62, 328 A.2d 225 (1974); Gero v. Cutter, 66 N.J. 443, at 446, 332 A.2d 593 (1975) and Cashen v. Spann, 66 N.J. 541, at 545, 334 A.2d 8 (1975). 6la The House and Senate and Conference Committee re- ports disclose that this rule did not give rise to any prob- lem. Rather, sharply differing views in regard to the inclu- sion of a newsperson’s “shield” law, and the scope of the privileges for “Secret of State” and “Official Information” were not capable of resolution, and instead of adopting any specific privilege rules, the Congress enacted a general rule, Fed. Ev. Rule 501, which calls for application of “the principles of the common law as they may be inter- preted by the courts of the United States in the light of reason and experience”. For the purposes of the present controversy, the court is satisfied, and finds, that the formulation of proposed Rule 508 adequately reflects the principles of the common law in the sense required by Fed. Ev. Rule 501. The enactment of evidence rules by the Congress was the federal culmination of an effort first reflected by the adoption of the Model Code of Evidence by the American Law Institute in 1942. That formulation was the result of a prolonged study, for which Edmund M. Morgan was Reporter, John M. Maguire was Assistant Reporter, and John H. Wigmore was Chief.Consultant. In turn, the Model Code was followed by the Uniform Rules of Evi- dence drafted by a committee of the National Conference of Commissioners on Uniform Laws, approved in 1953 by the Conference and by the House of Delegates of the American Bar Association, as well as by the American Law Institute the following year. The Uniform Rules draft formed the basis for a report of May 25, 1955 by a committee of the Supreme Court of New Jersey, headed by Mr. Justice Nathan L. Jacobs and which included other distinguished members such as the late Mr. Chief Justice Joseph Weintraub, former Mr. Jus- tice Frederick W. Hall, former Superior Court Judge Al- ™ W.L. WEARLY, INGERSOLL-RAND COMPANY, THE TORRINGTON COMPANY, Plaintiffs, —_—Vi— FEDERAL TRADE COMMISSION, MICHAEL PERTSCHUK, Chair- man, CALVIN J. COLLIER, DAVID A. CLANTON, M. ELIZABETH HANFORD DOLE, PAUL RAND DIXON, Defendants. + November 30, 1978 APPEARANCES: CHRISTIANSEN, JUBE & KEEGAN, Esqs., (Newark) Attorneys for Plaintiffs Inger- soll-Rand Company and The Torrington Company, By: Sam Radin, Esq. BURNS, VAN KIRK, GREENE & Ka. FER, Esqs.,(N.Y.). By: Joseph W. Burns, Esq., (N.Y.) of counsel 94a CARPENTER, BENNETT & MORRIS- SEY, Esqs. Attorneys for Plaintiff W.L. Wearly, By: David M. McCann, Esq. (Ne- wark), MorGaN, LEwIs & BOcKIUS, Esqs., (D.C.) By: Miles W. Kirkpatrick, Esq. (D.C.), of counsel » ROBERT J. DEL TUFO, Esq. U.S. At- torney, By: Jerome B. Simandle, Esq. (Ne- wark) Attorney for defendants MARK W. HAASE, Esq., Special At- torney ARTHUR W. ADELBERG, Esq., and GERALD P. NORTON, Esq., Deputy General Counsel, (Washington) of counsel ae OPINION BIUNNO, District Judge. At the hearing of November 3, 1978, which was set to hear the parties on the form of final judgment to carry out the opinion of October 18, 1978, defendants asked leave to make a submission for reconsideration, and that leave was granted. The submission has been received, and is decided here. Reconsideration is denied, for the reasons stated here. Each major head argued is taken up sepa- rately. 95a Dismissal, stay or transfer Many administrative agencies are authorized by law to issue subpoena in the course of their work. So far as known, none has authority to enforce its own subpoena. Enforcement is a matter for the judicial branch alone. Subpoena enforcement proceedings in the federal courts are a generally undefined type of proceeding. There is hardly a motion day without one or more items of this kind, mainly from IRS. There are also “walk-in” applica- tions, mostly involving grand jury subpoenas. The common characteristic of all these proceedings is that they are summary in nature, not plenary. This action is plenary. It asserts property interests for adjudication of their nature, and of the respective rights, duties and legal relations of the parties. The controversy between the par- ties is real and sharply defined. It involves unavoidable constitutional aspects. None of the decisions relied on by defendants decides these questions. In brief, defendants’ posture is to avoid, or put aside a ruling on the merits. They seek to postpone it until such time as the property right has already been invaded and the property itself destroyed by disclosure. Why any administrative agency should press so hard for a disposition which decides nothing, and only perpetu- ates the controversy is beyond understanding. Nothing in this court’s ruling prevents the agency from having the information it seeks in order to carry out its statutory function. All that the decision does is to adjudicate that the con- tested information is in fact proprietary, and that while the agency may have it for its own work, it may not dis- close it to others without suitable protection against de- struction. 96a Defendants made it eminently clear, at the last day of trial on July 13, 1978, that even though the court had ordered everything they sought gathered in one place un- der secure control, they had no intention of inspecting that material. It is therefore clear that the issue is not whether the material may be seen, but whether defendants shall have control of the decision whether to disclose its contents. No one who owns proprietary information can safely allow another to have that control. Thus, the controversy impli- cates the right of controlling disclosure. If A pledges property to B as security for a debt owed to B, and B asserts a right to decide whether to convert the property to some other purpose, the controvery arising from the diametrically opposed claims of right are real, they are ripe and they are justiciable. The declaratory judgment remedy was conceived for precisely that kind of situation. Nothing has been shown to warrant alteration of the court’s ruling on this ground. Mandatory counterclaim The ruling made was that defendants’ claim of right to an order for enforcement of its subpoena came within the rule on mandatory counterclaim. Defendants argue that at the time answer was filed, the extended return date of the subpoena had not yet arrived. The argument goes to form, not substance, and is the kind of argument that would make Chitty smile in glee. In the first place, the witness had already made it as clear and emphatic as he could that he would not produce the documents. This posture is at least an anticipatory breach, 97a and it was long ago that the courts decided that a claim - can be asserted, even though the time for performance had not arrived, under such circumstances. In the second place the argument carries the implication that the agency issuing the subpoena can easily circumvent the mandatory counterclaim rule by itself postponing the date for appearance, even though it was fully aware of the reality of the controversy. To allow this would be to allow deliberate subversion of the purpose and object of the rule. In a declaratory judgment action, it is not necessary that the claim have “matured” in this sense. If it were, there would be no point to the declaratory judgment rem- edy. The argument on this point is unpersuasive. Investigative Authority The argument is made that the opinion endorses denial of the information to the agency under its subpoena. The opinion does no such thing. On the contrary, the action taken in the course of trial made the contested documents available to defendants for the purposes of the investiga- tion. The argument puts up a straw man. The fact that defendants have not seen the subpoenaed documents is due solely to their own deliberate refusal to look at them. This argument is specious. Property Law It is argued that property law of the States cannot con- trol federal agencies. Like it or not, the fact is that the Supreme Court has ruled otherwise. The most recent expressions of which the court is aware are Board of Regents v. Roth, 408 U.S. 564, at 577-578 98a (1971), and Paul v. Davis, 424 U.S. 693, at 709 (1976). Both decisions recognize the obvious, namely that while the Constitution protects property rights or interests, the rights and interests themselves nearly always are created by or are defined by state law. Whatever differences there may be in state property law in other respects, the recognition of property interests in proprietary information is well-nigh universal. Even were it not, federal agencies and federal courts are bound by the Constitution to guard and protect those interests. Whether a federal agency is “independent,” or is part of a department in the Executive Branch is hardly pertinent. The Constitution binds all. Were this not so, “indepen- dent” agencies might delude themselves into believing that they are above the law. Those who do not study his- tory are doomed to repeat it. This nation does not need to repeat the Spanish Inquisition, the Star Chamber or the drum-head court-martial. Disclosure to FTC It is argued that disclosure of proprietary information to FTC does not amount to a waiver, or otherwise termi- nate the property interest. This point is argued semanti- cally as though the subject were the waiver or loss of an evidential privilege. But, as the opinion decides, the evi- dential privi lege is no more than a facet reflecting the property interest that underlies it. The property interest is unique in that its existence ends with disclosure. It follows that to disclose the information without unequivo- cal assurance that it will be kept confidential is to risk loss of the property. The risk arises with the uncontrolled dis- closure. The actual loss of the property occurs with disclo- sure to competitors or to the public. The declaratory judg- 99a ment remedy is designed to establish the right and to . eliminate the risk. When actual outside or non-confiden- tial disclosure occurs, it is too late for any effective rem- edy. The declaratory remedy establishes that when the agency obtains the proprietary information it possesses someone else’s property; it is essentially a fiduciary. The agency, as such, has no right to destroy that property. It is the law in this circuit that the Declaratory Judg- ments Act should have a liberal interpretation, Sim- monds, etc., v. Elastic, etc., 275 F.2d 485 (CA-3, 1958); Davey, etc., v. American, etc., 137 F.2d 68 (Ca-3, 1942), cert.den. 320 U.S. 761. And the decision whether to grant or deny this remedy is discretionary; the decision (either way) will not be reversed in the absence of an abuse of discretion. Davis v. Romney, 490 F.2d 1360 (CA-3, 1974); General Motors v. Volpe, 457 F.2d 922 (CA-3, 1972). As this court sees the controversy, the declaratory judgment remedy is warranted on the black letter of the law without the benefit of a liberal interpretation, and to the extent that discretion is involved, its exercise in favor of the remedy far outweighs the converse. The instance of admitted disclosure in the SKF pro- ceeding was discussed at some length on the last day of trial on July 13, 1978. In that matter Torrington was a witness subpoenaed to provide records for a hearing be- fore an administrative judge in a proceeding against SKF. Before submitting the documents (not after), Torrington was provided with a protective order of the administra- tive judge, calling for 15 days’ notice to Torrington if anyone intended to offer its data in evidence, so that its receipt could be protected. There is no explanation of the 100a method by which it was done, but evidently SKF’s counsel was furnished with the supposedly protected Torrington data, and that counsel offered it in evidence in camera, without notice to Torrington. There then followed a ruling of the administrative judge which ef fectively disclosed to all competitors the proprietary information involved. See Tr., 7/13/78, p. 127, 1. 4 to p. 181, 1. 23. This was done without notice to Torrington. This incident occurred in connection with hearings on an administrative complaint against SKF, for which the agency does have published rules (unlike a non-public in- vestigation proceeding). Defendants relied on the last sen- tence of FTC Rule 3.45, which specifically reserves to the administrative law judge and to the Commission an un- controlled “right” to disclose the protected information without notice or opportunity to be heard. Accordingly, the administrative law judge’s protective order was a clear case of the classic situation where “The large print giveth and the small print taketh away.” The reservation of a “right” to disclose proprietary in- formation at the will or whim of the administrative law judge or of the Commission is diametrically opposed to the long-established and careful practice reflected in the deci- sions cited in footnote 6 of the main opinion dated October 18, 1978. As observed there, even an injunction in a trade secret case does not disclose the identity of the trade se- cret. That information is recorded in camera, and sealed. This example, by itself, is enough to show that disclo- sure to the Commission, even under formal rules not available for a non-public investigation entails too great a risk and so requires judicial protection. 10la Nor is it pertinent: to argue that plaintiffs have not requested the protective agreement offered as a practice (though not by formal rule) in non-public investigations. In the first place, that practice requires that the pro- prietary information be first supplied without any kind of protection. Staff then does no more than recommend that the Commission approve a protective agreement, without any assurance that it will do so. In the second place, the nature of the protective agree- ment given, if authorized, is known and is in the record. As adjudicated by the main opinion, the terms offered are inadequate, and are unacceptable. These facts being clearly established, there is no point to going through the exercise first, before judicial adjudication, with the integ- rity of the proprietary information meanwhile in jeopardy through unprotected disclosure. The risk or threat is present and real. As with fire insur- ance, the risk must be protected by obtaining a policy before a fire. Once a fire occurs, it is too late to buy a policy. The policy insures the risk and indemnifies the loss should one occur. The remedies of declaratory judgment coupled with a protective order are insurance against the risk clearly shown by the record. The agency is not denied the infor- mation by the judgment; it is provided with it, even though it has chosen deliberately not to look at anything for many months. What the agency may not do, under the protective or- der provisions is destroy the property, and it is conceded on the record that the agency is bound by the Fifth Amendment. 102a The “property” and “taking” aspects This argument ignores the recognition, as property, of information of the kind involved here in Kewanee v. Bi- cron, 416 U.S. 470 (1970), cited and quoted in the main opinion, as well as the New Jersey cases and statutes there mentioned. It is without substance and avoids the issue. A requirement for disclosure to an agency without ad- vance protection to foreclose further disclosure is what gives rise to the risk of loss, against which the owner is entitled to protection. The argument that no “taking” oc- curs until there is an outside disclosure ignores the exist- ence of the risk without insurance, and ignores the right of an owner to have a declaration that the agency has no valid claim of right to disclose to others. Title to realty may be in controversy, but either claimant is entitled to a declaration of the title without awaiting a physical tres- pass. Defendants concede that plaintiffs are entitled to an adjudication, but want that step postponed even though the risk may meanwhile mature. Everything needed to be known then is known now, and delay or postponement only aggravates the risk, without insurance against the risk meanwhile. Nor is there any sense in speculating whether the agency might agree to acceptable protection. The oppor- tunity to offer such an agreement has been available ever since this suit began, and a suitable offer would have likely mooted the case. Yet, no suggestion of an offer was made until the last day of trial and, to say the least, it was an offer no one could rationally accept. See Tr. 7/13/78, p. 50, 1. 18 to p. 56, 1. 4; p. 89,1. 4 top. 91,1. 13. 103a Res judicata Mention has been made of the subpoena enforcement proceeding in the District of Columbia, and the order made there to comply with the subpoena. The entire re- cord there has been examined thoroughly, as it must be to weigh the claim of res judicata. From that record it is clear that no decision on the merits of the issues here was handed down there. At most, the ruling there was that plaintiffs would have to wait for a decision on the merits until after they had disclosed the documents to the agency. Whatever the correctness of that ruling may be (and this court expresses no view), the rationale for postponement is inapplicable here because the agency has had the means since then to look at the documents for the purpose of the non-public investigation for some months, under the original protec- tive order and its later particularizations. In fact, it was made explicit that the agency had instructed its staff not to look at the documents; Tr., 7/13/78 p. 95, 1. 7 to p. 96, 1. 25. This fact was not before the enforcement court. This deliberate inaction precludes any claim here that the issue is premature. Defendants had every opportunity to satisfy themselves on the issue and chose not to do so. Parties cannot be allowed, by dilatory tactics, to keep an issue premature. The court finds nothing to support the claim of res judicata, and this ground is also without substance. Exhaustion The exhaustion claim is merely a different way of argu- ing that plaintiffs should first submit the proprietary in- formation, ask for a protective letter, and if dissatisfied, 104a come to court. As noted above this course puts the infor- mation at risk for a period of time from delivery to the agency. Under these conditions, exhaustion is an unwarranted requirement without a protective order meanwhile. In this case, as noted above, the records have been available for some months and any lack of exhaustion is attribut- able to the agency’s own refusal to look at the documents. Nor is there any reality to the expressed concern that rejection of the exhaustion doctrine in a case like this will generate many civil suits to obtain judicial protection, thus burdening the courts and delaying the agency’s work. The concern is merely a self-inflicted wound. Given the ruling that proprietary information is entitled to advance protection before disclosure, the agency need only aban- don the wholly inadequate rules and practices it now has, to adopt fully adequate rules for complete protection, free of any alleged “discretion.” Such an obvious course would eliminate the source of such controversies and would gen- erate no judicial burden and cause no delay. The agency need only recognize that when it receives proprietary in- formation it holds the property of others, that it has no right to destroy it, and that it is bound to honor the Consti- tutional bar against a taking. Once it does this, its talented staff can easily prepare effective rules. The difficulty now is that the agency wants to control the protection, which it cannot do, and seeks to give only lip service to the constitutional com- mand. Highly sensitive proprietary information is furnished daily, all over the country, in countless transactions with licensees, with financial institutions, with interested buy- 105a ers, and others, under full protection by agreement or custom. This vast activity has not given rise to any notice- able amount of litigation nor has it hindered the transac- tions; the protection is obviously honored, and this expedi- tes the work. Injunctive relief The argument under this head needs no discussion. The opinion of October 18, 1978 did not grant an injunction, nor did the final judgment. The judgment grants declaratory relief (which, inciden- tally, is granted by courts of law as well as courts of equity, depending on the subject matter), sets out protec- tive order provisions, and retains jurisdiction for a num- ber of purposes broad enough to include extensive modifi- cation once the agency acts to provide full protection itself. Copies of documents The agency argues that plaintiffs must have other copies of the documents placed in the hands of the custo- dian, and that nothing prevents them from producing such other copies in response to the subpoena. This argument misconstrues the orders of this court in the same way they were misconstrued in the course of the trial. The aggregation of the documents and their placement in the hands of the custodian guarantees to the agency (a) their right to see them; (b) the integrity of the collection. Plaintiffs cannot, under this arrangement, unilaterally remove or alter any of the documents. They are secured. 106a Some of the documents inspected by the court had the appearance of computer printouts. It would hardly be sur- prising in 1978 if much of the information reflected by the documents were also stored in some medium of a com- puter memory, whether tape or disc or magnetic bubbles. But the fact that plaintiffs continue to possess their own information in some other form, or even as docu- ments, carries no implication that they are in violation of this court’s order to make the custodial deposit. The infor- mation is plaintiffs’ property and this court could no more deprive them of their own property than the agency can. What the agency wants is the information. That infor- mation has been gathered and secured for its use with full protection to its owners, and with assurance to the agency that what is there is as safe as though it had physical possession itself. It cannot ask for more. It would receive no more if it had suitable and complete protective proce- dures and the documents were turned over voluntarily in reliance thereon. The orders and the judgment protect the information and the agency cannot be allowed to circumvent that pro- tection by claiming that other copies can or should be made and supplied under the subpoena. The Exxon decision At various places in its submission, the agency relies on a decision of the Court of Appeals for the District of Col- umbia in Exxon Corp. v. F.T.C., No. 77-1302, slip opinion of October 19, 1978. That ruling came down a day after this court’s opinion, and one day before oral argument on appeal in the sub- poena enforcement case. 107a The transcript of the oral argument shows that the Court of Appeals had not had time to study this court’s opinion of October 18. 1978, and that counsel were not aware of the new Exxon ruling. That case was a narrow one, involving only the question of notice to parties before disclosure of their proprietary information, and safeguards to ensure continued confi- dentiality once it is disclosed to the Congress. The court there, while recognizing the need to protect the owners of valuable trade secrets, was reluctant to be- come engaged in what it considered to be “rule making” for the agency, and considered the imposition of a manda- tory notice period as skirting close to a temporary equiva- lent of quashing a Congressional subpoena. The decision here involves no such problems. As noted above, the declaration of rights, status and legal relations instructs the agency that it does not own the proprietary information belonging to others and cannot deal with it as its own. If it receives a request, whether FOIA or a sub- poena from Congress, it is duty bound to advance the owner's claim. This is no different in principle than the duty of an attorney to decline to disclose confidential com- munications with his client. It is no different than the duty of the employee, who knows a trade secret belonging to his employer, to advance the claim for the owner if called on subpoena. In those cases, the issue winds up in court anyway be- ° cause the Congress cannot enforce its own subpoenas any more than the agency can. This court does not share the confidence that the agency or the Congress will establish suitable policy. The agency resisted protection for the property because it 108a wants “discretion” to release it to competitors or to the public, without notice (e.g. FTC Rule 3.45), under no stated norm or standard. The Congress has been aware of the problem at least since Tobin v. U.S., 306 F.2d 370, (CA-DC, 1961) some 17 years ago, when the D.C. Court of Appeals urged that something be done, but it has done nothing since except to enact a very tentative approach in the provisions of S. 555 applicable only to the Senate and only last month. Nor does this court consider that the disposition in U.S. v. A.T. & T., 551 F.2d 384 (CA-DC, 1976) provides any solution. In that case the court did no more than remand to the District Court to try to work out a settlement. While many cases do get settled, and while courts encourage settlements, they cannot order settlements. If the parties cannot settle, the judicial function is to decide, no matter how difficult or delicate the decision may be. Only the judiciary stands as the bulwark for the rule of law. Only the judiciary can assure that the system of checks and balances between branches of government, and between government and the people, is maintained so that it can function as intended. Neither government as a whole, nor any branch, nor any department, nor any independent agency has any ex- istence except as a servant of the people. This high duty can only be performed if the judiciary has the courage to face the facts, apply the law, and decide. Other points The submission argues a number of other points which are alternative ways of advancing the same propositions already dealt with, and these are equally unpersuasive. The ; call for no further discussion. 109a Formal findings of fact and conclusions of law Plaintiffs have urged the court to draft forma’ findings of fact and conclusions of law, and made detailed submis- sions by proposed drafts. These have been thoroughly reviewed, and the court sees no purpose to adding to what is already in the record. F.R.Civ.P. 52(a) expressly provides that if an opinion or memorandum of decision is filed, it will be sufficient if the findings of fact and conclusions of law appear therein. The court has carefully reviewed the opinion of October 18, 1978 as well as this one, and is satisfied that the rule has been complied with. s/ VINCENT P. BIUNNO, U.S.D.J. Original to Clerk DAvID McCANN, Esa. JEROME B. SIMANDLE, AUSA SAM RADIN, Esa. 110a United States District Court Room 411, U.S. Post Office Building Newark, New Jersey 07102 VINCENT P. BIUNNO Judge MEMORANDUM Re: Wearly v. FTC, Civ. 77-1860 Final judgment in this case was signed November 29, 1978, filed November 30, 1978 and docketed December 4, 1978. An order denying defendants’ motion to reconsider the court’s opinion filed October 19, 1978 (and amended to add footnotes, filed November 16, 1978) was denied by order filed December 4, 1978 and docketed December 6, 1978. On December 14, 1978 defendant filed a motion to va- cate and amend the final judgment (which the motion called an “order”) and on the return date the motion was ordered to be decided under Rule 78, without oral argu- ment. On January 29, 1979, defendants filed a notice of ap- peal from so much of the final judgment as rejected the defense of res judicata. That appeal, as well as earlier appeals, is pending. From the time the motion to vacate or amend was filed, there was an intermittant flow of further submissions of various decisions thought to be pertinent, and responses thereto. Also, on February 1, 1979, defendants filed a motion for clarification of certain provisions of an interlocutory llla order of May 22, 1978, and after the April 18, 1979 deci- sion in Chrysler v. Brown, ___ US ____ (1979, the court invited submissions by the parties on its effect here. Finally, in early June, 1979, defendants filed a motion to certify, under 28 USC § 1292(b), the denial of their various (and earlier) motions to dismiss. This last motion was set for June 25, 1979 but because of an ongoing criminal jury trial which was running longer than ex- pected, all June 25 motions were carried to July 9, 1979 [Note: The criminal jury trial ended on July 6, 1979 when the jury were unable to agree upon a verdict; a mistrial was granted and retrial is set to begin on July 10, 1979]. The final judgment reserved, among other things, plaintiffs’ earlier motion for the imposition of sanctions. By separate orders to that end, each of those pending matters has been disposed of. To the extent that limited time allows, additional views are set out in this Memorandum, though it is less complete than had been hoped in view of the facts that the number of active district judges is now two less than it was six years ago whiie the criminal and civil workload has sharply increased. A. The various expressions of “trade secrets”, etc. The several federal statutes pertinent in this case use varying expressions on the subject. Perhaps the oldest, enacted in 1914 and not amended since, is the expression in 15 USC § 46(f), which authorizes the FTC to make public such portions of the information obtained by it as it shall deem expedient in the public interest, “except trade secrets and names of customers.” TR 112a The next oldest, 18 USC § 1905 forbids disclosure of information obtained by a government official or em- ployee (a) in the course of his employment, or (b) by reason of any examination or investigation made, or (c) by reason of any return, report or record made to or filed with gov- ernment. Information so obtained may not be disclosed if it “concerns or relates to” trade secrets, processes, opera- tions, style of work, or apparatus, or to the identity, confi- dential statistical data, amount or source of any income, profits, losses or expenditures, “to any extent not autho- rized by law.” Perhaps the newest is the F.0.1.A., 5 USC 552(b)\4), which speaks of “trade secrets and commercial or finan- cial information obtained from a person and privileged or confidential.” In the context of this case, these variations of expres- sion are not of moment. The decision here rests on the proposition and finding that the information contained in the disputed documents constitutes property entitled to protection against loss of the property interest by com- pelled submission to the agency and the consequent risk of loss of dissemination to a competitor or to the public. For this purpose, it does not matter what descriptive label is put on a given piece of information. The test is not the label, but the nature of the data as proprietary. Since rights of property arise by virtue of State law, and since property is constitutionally protected, none of the three branches of government may “take” it for private use, and may take it for public use only for just compensation. No statute, however phrased, may cut down these fundamentals. 113a In Kewanee Oil, 416 U.S. 470 (1974), the Supreme . Court accepted the definition in Restatement of Torts § 759 (1939) as the most commonly accepted definition of the term “trade secrets” as encompassing confidential in- formation which is not disclosed in the normal process of exploitation. And see Aronson v. Quick Point, ___. US ___, 99 S.Ct. 1096 (1979) where the information was necessarily disclosed by the marketing of the product it- self. By the definition of the Restatement, the term “trade secrets” includes lists of customers; the latter is one exam- ple of a trade secret. Proposed Fed. Ev. Rule 508, which is embodied in Fed. Ev. Rule 501, merely used the term “trade secrets”; it did not separately mention lists of cus- tomers or other items already within the definition. Since the constitutional test is the existence of a prop- erty right to keep and use the information, this court employed the more appropriate term “proprietary infor- mation.” The variety of kinds of trades and businesses is endless. No draftsman can hope to compile a complete list. No list is needed. If the information is carefully kept confi- dential, is disclosed only to those who need to know it for its application to the enterprise, and if open disclosure would be likely to cause harm to the enterprise by what would amount to unfair competition, it is proprietary re- gardless of the label. B. “Authorized by law” Both 18 USC § 1905 and 15 USC § 46(f) forbid disclo- sure of the contested documents. Nothing in 46(f) pro- vides any authority for disclosure. In that light, the lan- guage of 16 CFR § 4.10(1970) may be deceptive insofar as it suggests that the information may be made available on ll4a an F.0.1.A. request or by the Commission on its own mo- tion. Similarly, defendants’ representation at the hearing of May 7, 1979 (Tr. p. 27, 1.21 to p. 29, 1.7), appears to be incorrect. The text of 16 C.F.R. § 3.45 deals directly with in camera disclosures in formal proceedings before an ad- ministrative law judge. What is not understandable is the language that purports to reserve a right to disclose de- spite the in camera reception, without notice to the owner of the proprietary information. The court has found no statutory authority for those provisions in light of the flat prohibition of 15 USC § 46(f). That the information in the contested documents is proprietary was established at trial, both by the testi- mony of witnesses and the inspection of samples by the court. It was so established not by a mere preponderance but by clear and convincing proof. Defendants chose not to examine the documents though made available to them, and chose not to offer any evidence to controvert the claim. The court has been directed to no Act of Congress, and has found none by its own effort, that even suggests that disclosure of the proprietary information in suit is “autho- rized by law”, even an unenforceable one that contravenes paramount law. C. The R.MLI. decision In the Supplemental Memorandum of May 23, 1979, received here May 25, 1979, defendants press the argu- ment that a pre-delivery protective order is not necessary, and does not result in waiver, citing U.S. v. R.M.I. Corp., No. 78-2691 (CA-3, 5/2/79). The decision does not support the argument for several reasons. 115a The first of these is that while a grand jury may be . regarded as an arm of the executive branch for some pur- poses, the grand jury subpoena itself is issued by a court. For that reason, the Federal Evidence Rules apply, see Rule 1101(a) and (b). The exclusion of applicability to pro- ceedings before grand juries, Rule 1101(d\(2) has rules with respect to privileges carved out of the exclusion, both by the opening phrase of Rule 1101(d) and by Rule 1101(c). The second is that while the decision held that allowing of the privilege claim by intervention in a motion under Rule 16 was preferable to moving the question back to the investigative stage, it did not hold or suggest that the subpoenaed party could not raise the question at the in- vestigative stage. In fact, in this District, privilege claims are in fact asserted at the investigative grand jury stage. They normally come before the court as miscellaneous matters that “walk in” as they arise. Such claims are not treated as “premature”, but are decided. If the claim be valid, it is upheld. If it be valid but qualified, a suitable protective order is entered. It is only the procedures that must be adhered to before a witness can be coerced to comply by contempt that equate the grand jury subpoena with the administrative subpoena or summons. Nothing in the RMI case suggests that the prudent owner of proprietary information sought by grand jury subpoena would not or should not be heard at the investi- gative stage. Mechanically, the matter is easily handled by the entry of a protective order, subject to further pre- sentation and amendment at such time as a Rule 16 mo- tion is presented. It may never arise. The grand jury may return “no bill”. 116a The third, and perhaps most important reason, is that no issue of waiver (or risk of waiver) is discussed or de- cided in RMI. In fact, the RMI case illustrates the danger of waiting, rather than on asserting the privilege and securing an appropriate protective order at the earliest stage, i.e. be- fore turnover of the material. NL Industries was fortu- nate that it was given notice, nowhere expressly required, of the proposed turnover of its data to the indicted com- petitors pursuant to their request under Rule 16, F.R.Crim.P. Had the voluntary notice not been given, the material would have been disclosed to competitors and NL would have faced a much more difficult task in preventing improper use of it. D. The Chrysler decision The decision in Chrysler v. Brown, ___ U.S. ___ (1979) (on certiorari to this circuit) was looked to as.a potential guide for this case. To some extent it is, but the questions presented were too narrow and confined, and many questions involved here were not involved. A num- ber of points, however, are dealt with and are binding to that extent. These are as follows: 1. The Freedom of Information Act (FOIA), 5 USC § 552, is a “disclosure” statute. It mandates disclosure of agency record information coming within its scope at the request of any person making the request. The 9 categories of information described in § 552(b), as amended, are carved out of the enacting clause which is § 552(a). This is clear from the opening phrase in § 552(b) that: “This section [§ 552] does not apply to matters that Recietae! 117a The Chrysler court makes it clear that the language of § 552(b), which lists the 9 categories, is not authority of itself for the withholding of information in those catego- ries. The basis for withholding is to be found in other sources of law. At the same time, it follows that informa- tion coming within one or more of the 9 categories may not be obtained by virtue of the enacting clause of FOIA, § 552(a), unless the item is a qualification to the carving out process, as in the case of § 552(b)7). It is also noted that the Chrysler court did not address the significance of § 552(c), which states that: “This section does not authorize the withholding of information or limit the availablity of records to the public except as specifically stated in this section. ***” (Emphasis added). Just what the underscored phrase refers to will need to await a decision addressing that question. It may refer to exemption (b\3), which encompasses matters specifically exempted from disclosure by statute (other than the “open meetings” law, 5 USC § 552(b)), so long as the statute requires withholding in such manner as to leave no discre- tion on the issue, or establishes particular criteria for withholding, or refers to particular types of matters to be withheld. There may be others. What is involved here i the legislative technique of enacting a law by reference to another law. In some juris- dictions the legislative branch may not incorporate another law by reference. Thus in New Jersey, by amend- ment of 1875 toN.J. Const. 1844, Art. 4, § 7, par. 4, it was provided that: “No act shall be passed which shall provide that any existing law, or any part thereof, shall be made or “4 118a deemed a part of the act or which shall enact that any existing law, or any part thereof, shall be applicable, except by inserting it in such act.” The same text was carried over into N.J. Const., 1947, Art. 4, § 7, par. 5. The same concept was included in § 40 of the N.J. Evidence Act, 1960, NJSA 2A:84A-40 which, while authorizing court-promulgated rules to supercede existing statutes, required that such laws be expressly identified by official footnote to the Rule. And, see Wa- terfront Comm n, 39 N.J. 436, at 454-456 (1963) applying this concept with approval. There is no similar restraint on the Congress. In any event, the underscored phrase seems to mean, at least, that authority to disclose, if there be any, does not arise from the enacting clause § 552(a), for matters carved out of the Act by § 552(b). 2. Under this interpretation, the categories carved out by § 552(b) are not items that must be withheld from disclosure by virtue of § 552(b). Just as § 552(a) is no authority to disclose what falls within § 552(b), any re- quirement mandating withholding must be found else- where than in § 552(b). 3. The provisions of 18 USC § 1905, acriminal statute, while not one from which a private cause of action may be implied, does forbid disclosure of the kind of information it embraces, “to any extent not authorized by law.” The command is broad enough to embrace information coming to an officer or employee of the U.S. “in the course of his employment or official duties,” etc., without regard to the question whether the information is proprietary or not. Thus, information received in the course of government service, such as income, profits, losses or expenditures, 119a may not be disclosed even though the same information may appear in annual or quarterly reports by the submit- ter to its shareholders. What § 1905 forbids is the use of a government officer or employee as a source for providing the indicated categories of information. This is analogous to the attorney/client privilege, under which information given by the client to the attorney may not be obtained through the attorney, even in cases where the same infor- mation can be obtained (as by discovery) directly from the client. 4. Neither the provisions of 5 USC § 301 (the “house- keeping” statute) nor of Executive Order 11246 provided authority for rules and regulations having the force of “law”, in respect to disclosure of information of a pro- prietary nature. Neither one modifies or satisfies 18 USC § 1905. 5. The agency regulations on which the claim of authority was grounded did not have the force of “law” because they were adopted without compliance with the requirements of the Administrative Procedure Act in the context of “legislative” or “substantive” rulemaking. 5 USC § 553. 6. The basis for the Chrysler suit was found under the Administrative Procedure Act, with jurisdiction under 28 USC § 1331. The expression in 5 USC § 706 (2XF) was noted in reference to “trial de novo by the reviewing court”, but the need for de novo reveiw was left open because it had not been addressed by the decision of the Court of Appeals. E. The motion for certification Defendants have moved to have this court certify its order of December 12, 1977 and the final judgment of 120a November 30, 1978 to the Court of Appeals under 28 USC § 1292 (b), in that the orders involve a controlling ques- tion of law, that there is substantial ground for difference of opinion, and that an immediate appeal may materially advance the ultimate determination of the litigation. Final judgment was docketed December 4, 1978. The motion is denied for a number of compelling rea- sons. One is that in cases where § 1292(b) applies, it merely opens the door to an interlocutory appeal, but leaves it to the discretion of the Court of Appeals whether to invite the party to proceed into the room, or whether to close the door until after final judgment. For this purpose, the ap- plication to allow an immediate appeal must be made to the Court of Appeals within 10 days of the [interlocutory] order. Far more than 10 days have passed since the entry of the subject orders. This court does not believe it should add needlessly to the burdens of an already overworked Court of Appeals by making a certification that cannot be acted upon. Another is that § 1292(b) was never intended for the piecemeal appeal of interlocutory orders when the case has been completed and final judgment entered, as it has been in this case. Whether or not defendants have miscal- culated their strategy is not a matter for this court to decide. A final judgment was filed November 30, 1978 and docketed December 4, 1978, and it was appealable. If defendants appealed only a part of that judgment so as to have lost their otherwise available right to have review, after final judgment, of all interlocutory orders in this case, that is a matter that is properly considered and de- cided by the Court of Appeals, but not by a trial court. 121la Still another is that the present motion seems calcu- lated to give the impression that there was a bifurcated trial of some sort. That is not the case. All issues presented were heard and decided, and final judgment entered. This fact is not altered in any way by defendants’ choice to instruct counsel not to examine the disputed documents made available to them. Those documents were made available, under protective order, not only for discovery and trial purposes in this case but also for the purposes of the non-public investigation which gave rise to this suit. That this strategy was knowingly, voluntarily and intelli- gently made is beyond dispute; the record here bears it out. Nor is the fact altered in any way by the knowing, voluntary and intelligently made decision of defendants to instruct counsel to offer no proof at trial (except to mark in evidence the record of the proceedings in the enforcement and contempt suit in the District of Colum- bia, as support for the res judicata claim). Judging from the submission and argument, defen- dants evidently seek to create a right to reopen the trial, examine the disputed documents, and renew the trial. This cannot be done. Trial was completed to the extent that both sides chose to offer evidence. Neither side has a unilateral right to refuse to participate in discovery, and refuse to offer evidence, and then, when unhappy with the outcome, insist on trying the case over again. This is pre- cisely what defendants seek by the motion for certifica- tion. In any event, even if defendants have successfully enlarged the time allowed to file Notice of Appeal by the motion to vacate and amend the final judgment, Rule 4(a), F.R.App.P., that is a question to be dealt with by the 122a Court of Appeals, not this court, particularly since a “notice of appeal” was filed January 29, 1979 (docketed January 31, 1979). It is for that Court to decide whether successful enlargement of time bars the filing of notice of appeal before that time has run. In any event, the motion to vacate and amend the Final Judgment has now been denied. F. Other matters There is no need to discuss the various decisions sub- mitted to the court by defendants from time to time to as late as 5 PM on July 6, 1979. Suffice it to say that none involves the kind of plenary action presented, heard and decided here. None discusses the difference between a plenary action to resolve an ac- tual controversy, so that rights, duties and legal relations may be determined, in contrast to the very limited scope of “judicial review” (by way of the common law writ of certiorari in its effect), which would place it in the hands of administrative agencies to adjudicate property rights. Of course, the problem arises largely because the stat- utes involved have been inacted independently of each other, with no evident thought to their interrelation, and each with a different and conflicting purpose or motive. The practical solution, repeatedly suggested during this case, is for the agency to respect and honor claims of property interests in information submitted to them un- der the compulsion of law; to decline to disclose on request on that account; and if suit be brought by a requester, to counterclaim by way of interpleader and step out of the case. 123a Government agents obtaining proprietary data by com- pulsion are necessarily fiduciaries for the owner of that information. Their fiduciary duties oblige them to submit disputes to the courts, not to claim the right to decide them themselves. s/ VINCENT P. BIUNNO, U.S.D.J. July 9, 1979 Original to Clerk xc: CARPENTER, BENNETT & MORRISEY, ESQ, CHRISTIANSEN, JUBE & KEEGAN, Esq. DONALD J. VOLKERT, JR. AUSA 124a EXHIBIT A FEDERAL TRADE COMMISSION WASHINGTON, D.C. 20580 OFFICE OF THE SECRETARY September 16, 1976 W. L. Wearly, Chairman Ingersoll-Rand Company 200 Chestnut Ridge Road Woodcliff Lake, N.J. 07675 File No. 751 0025 Dear Sir: There is served herewith, by registered mail, a sub- poena for appearance at the instance of the Federal Trade Commission at an investigational hearing (or deposition) in connection with the above indicated matter pursuant to the Nonadjudicative Procedures of the Commission (Sub- part A of Part 2 of the Commission’s Organization, Proce- dures and Rules of Practice, copy of which is enclosed). The Commission representative in this matter, to whom any inquiry may be directed, is Mr. John Hoagland (202) 724-1423. You will take notice that the delivery of this subpoena to you by registered mail is legal service and subjects you to the penalty imposed by law for failure to appear. You are advised that the Commission’s Rules require that any motion to limit or quash a subpoena shall be filed within 10 days after date of service of the subpoena, or, if the return date is less than 10 days after service of the sub- poena, within such other time as the Commission may allow. Ten copies of such motion shall be filed with the Secretary of the Federal Trade Commission and a copy 125a thereof shall at the same time be mailed to the Commis- sion representative named in the paragraph above. You will be entitled to the compensation regularly al- lowed Government witnesses for attendance. There is en- closed a blank voucher upon which to make your claim; such voucher, as well as the subpoena, must be brought with you. Do not incur travel expense in obedience to the sub- poena in excess of that required from the place to which the subpoena is addressed without first receiving authori- zation to do so, orally or in writing, from the Commission representative. If you are temporarily located or per- manently residing at a place which would require such excess travel expense in order to obey the subpoena, you are directed promptly to notify the Commission repre- sentative; and if the representative fails or refuses to au- thorize such excess travel expense, you are directed to disregard the subpoena. You are also directed to disregard the subpoena if, for any reason, the Commission. repre- sentative authorizes you to do so. By direction of the Commission. /s/ Charles A. Tobin Charles A. Tobin Secretary Enclosures 126a § 2.13 Noncompliance with investigational proc- esses.—In cases of failure to comply with Commission in- vestigational processes, appropriate action may be initi- ated by the Commission or the Attorney General, including actions for enforcement, forfeiture, or penalties or criminal actions. 127a SUBPOENA DUCES TECUM UNITED STATES. OF AMERICA FEDERAL TRADE COMMISSION To __“. &. a 206 che Rand Company ; You ave hereby required to appear before__™‘John 8. Hoagland an Attorney and Examiner of , the Federal Trade Commission, at Roos 932 425 13th Street, 4... . a dee City of ___ashington, D.C. 20004 on the 15th day uf __ November _ » 292§ at 10:00 a. Pile No. 751 0025 ~ And hereby required to with you and produce at scid time end place the following eee, al dene (See attached Specifications) Fail not at your peril, 2s testimony whereof, the undersigned, encuthor- C8g tt tee ized official of the Federal Trade Commission, has oto Vas se, eae Bee hereunto set hig hand and caused the seal of said Federal Trade Commission to be Gffized at Yashington $27 34 8/0 OC. this_15 day 19.76 128a Federal Trade Commission Washington, D.C. 20580 Office of the Secretary August 12, 1977 Joseph W. Burns, Esquire Burns, Van Kirk, Greene & Kafer 521 Fifth Avenue New York, New York 10017 Re: Investigation of Ingersoll-Rand Co., et al., File No. 751 0025: Motion to Quash or Limit Subpoena Duces Tecum Issued to W. L. Wearly, Chairman, Ingersoll-Rand Company Dear Mr. Burns: This is in response to the motion of Ingersoll-Rand Company and W. L. Wearly, its chairman, to quash or limit the above-described subpoena. Taking note of the lengthy course of negotiation over the terms of com- pliance with this subpoena, and the partial fulfillment of its requests', the Commission has decided to grant the motion in part and deny it in part. The Commission has modified, clarified, and limited the subpoena to read as shown in the Appendix hereto. In all other respects, the Commission denies the motion, having made the follow- ing determinations with regard to the issues raised: 1. The Commission, in resolving to iitiate this inves- tigation, authorized an examination of possible “un- fair methods of competition in or affecting commerce 1 Specifications One, Two, and Six have been met, and some docu- ments have been sunpiied in response to additional specifications. 129a in the United States” in violation of section 5 of the - FTC Act or section 7 of the Clayton Act, “by means of joint venture(s), stock or asset acquisition(s) and/or agreement(s) or combination(s) in restraint of trade in or affecting the manufacture, sale or distribution of needle roller bearings or loose needle rollers in the United States.” (Emphasis added.) Contrary to movant’s assertion, investigated practices are thus not limited to the territorial confines of the United States. Anticompetitive acts implicating members of the U.S. needle roller bearing (hereinafter “NRB”) market may certainly involve foreign subsidiaries, joint ventures, and affiliates of such comnanies, and the Commission’s resolution of May 13, 1976 cites proper authority for and gives full notice of the Commission’s use of compulsory process to require the production of documents pertaining thereto. Nor is the fact that certain subpoenaed documents may be reposited in foreign sites an impediment to Commission process, either under general principles of federal law or the FTC Act. United States v. First National City Bank of New York, 396 F.2d 897, 900- 01 (2d Cir. 1968); In Re Grand Jury Subpoenas Duces Tecum Addressed to Canadian International Paper Co., 72 ¥. Supp. 1013, 1020 (S.D.N.Y. 1947). FMC v. DeSmedt, 366 F.2d 464, 468-71 (2d Cir.), cert. de- nied, 385 U.S. 974 (1966)?; SEC v. Minas de Ar- temisa, 150 F.2d 215, 217-18 (9th Cir. 1945). In fact, In DeSmedt, Judge Friendly thoroughly reviewed the legislative his- tory of the phrase “from any place in the United States,” and, realizing that his interpretation would apply to identical language appearing in § 9of the FTC Act and elsewhere, concluded that “the Federal Maritime Commission, like the Interstate Commerce Commission, the other fed- eral agencies, and the federal courts, can require a resident by subpoena to produce documents under his control wherever they are located.” FMC v. DeSmedt, supra, 366 F.2d at 471. 130a the Commission has secured the enforcement of an investigational subpoena requesting foreign docu- ments. FTC v. Intercontinental Diversified Corp., Misc. Action No. 75-77 (D.D.C. June 2, 1975) (docu- ments of Panamanian corporation, kept in Grand Ba- hama Island office). Finally, the Commission is not persuaded that movant lacks sufficient control over its subsidiary NSK-Torrington to accomplish return of specifica- tions dealing with the latter company. (See letter from Joseph W. Burns, Esquire, to Edmund B. Frost, Assistant Director, FTC Bureau of Competition, at 5 and 9 (May 10, 1977)). Ingersoll-Rand, through its wholly-owned subsidiary Torrington, owns 48% of the outstanding stock of NSK-Torrington, a company incorporated under the laws of Japan. (See letter from Joseph W. Burns, Esquire, to John R. Hoagland, attorney, FTC Bureau of Competition, at 4 (December 16, 1976)). Numerous cases have required a parent corporation to produce documents in the posession of its subsidiaries and affiliates, including those situated abroad. See, e.g., American Industrial Contracting, Inc. v. Johns-Manville Corp., 362 F. Supp. 879, 880 (W.D. Pa. 1971); George Hantscho Co., Inc. v. Miehle-Goss-Dexter, Inc. , 33 F.R.D. 332, 334-35 (S.D.N.Y. 1963); United States v. Standard Oil Co. (N.J.), 23 F.R.D. 1, 3-5 (S.D.N.Y. 1958). See also W. Fugate, Foreign Commerce and the Antitrust Laws, 114-18 (2d ed. 1973); 8 Wright & Miller, Fed- eral Practice and Procedure, § 2210 at 622-23 (1970). One court found enough control in a 44% stock in- terest to order production by that shareholder. So- ciete Internationale Pour Participations Industrielles et Commerciales, S.A. v. Clark, 9 F.R.D. 263, 265 13la (D.D.C. 1949). See Societe Internationale Pour Parti- . cipations Industrielles et Commerciales, S.A. v. Mc- Granery, 111 F. Supp. 435, 440-42 (D.D.C. 1953), affd sub nom. Societe Internationale Pour Participa- tions Industrielles et Commerciales, S.A. v. Brownell, 225 F.2d 532 (D.C. Cir. 1955), cert. denied, 350 U.S. 937 (1956).° If movant can reach the sub- poenaed records for its own use, it must produce them in response to the Commission’s subpoena. See First National City Bank of New York v. IRS, 271 F.2d 616, 618 (2d Cir. 1959), cert. denied, 361 U.S. 948 (1960). Where the Japanese Commercial Code grants to 10% or greater shareholders the right to inspect the corporation’s books and records‘, and where Ingersoll-Rand (through Torrington) has addi- tional access and copying rights to NSK-Torrington documents®, the Commission must conclude that movant can comply with the subpoena. 2. The Commission may compel the production of materials which are reasonably relevant to the in- quiry it is conducting. United States v. Morton Salt Co. , 338 U.S. 632, 642-43, 652 (1950); FTC v. Texaco, Inc., No. 74-1547, slip op. at 20-25 (D.C. Cir. Feb. 23, 1977), clarified by Orders of March 24, 1977, and As small an amount as 3% equity ownership has been held to consti- tute “controlling influence.” Transit Investment Corp., 23 S.E.C. 415 (1946), cited in Phillips v. SEC, 388 F.2d 964, 972 (2d Cir. 1968). Article 293-6, Shoho (Commercial Code), Law No. 167 (May 10, 1950). See Kabushiki Kaisha Ho Jiten (Stock Corporation Dictionary) 247 (S. Tanaka ed., 1970); M. Yazawa, “The Legal Structure for Cor- porate Enterprise: Shareholder-Management Relations Under Ja- panese Law,” Law in Japan, 561 (A. von Mehren ed., 1963). [NSK-Torrington] Formation Agreement of March 3, 2962, article oe ge mataiae Assistance Agreement of November 16, 1962; article VIII. 132a May 11, 1977, cert. denied, 45 U.S.L.W. 3805 (June 14, 1977). The Commission is satisfied that all of the subpoena’s specifications, as clarified and modified, meet that standard of reasonable relevance to the investigational purposes announced in _ the Commission’s resolution of May 13, 1976. 3. In order to justify the non-enforcement of an in- vestigative subpoena, the subpoenaed party must demonstrate, not merely that the subpoena is burden- some, but that it imposes an undue burden. FTC v. Texaco, supra, at 39. See Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 208 (1946). Where In- gersoll-Rand has supported claims of ambiguity or unnecessary burden the Commission has clarified, modified, and limited the subpoena, recognizing, of course, that some burden and expense are necessary to achieve the legitimate goals of this investigation. See Oklahoma Press, supra, 327 U.S. at 217; Texaco, supra, at 40; Genuine Parts Co. v. FTC, 313 F. Supp. 855, 859 (N.D. Ga. 1970), aff'd, 445 F.2d 1382, 1391 (5th Cir. 1971). Most of movant’s objections have thereby been mooted. To the extent others survive, they are insufficient to sustain a showing of undue burdensomeness. Ingersoll-Rand raises burden objections to specifi- cations 9, 13, 14, 16 and 20. The revised specification 9 has clearly eliminated documents pertaining to movant’s acquisition of Torrington. All other docu- ments requested by that specification appear to be highly relevant to this investigation and must be pro- duced. Specifications 13 and 14 will be met if docu- ments at the top management level, viz., officers and directors, are produced where the term “managerial” is used. With respect to the demand in specification 133a 16 for materials filed with the U.S. Department of the Treasury, staff is prepared to negotiate arrange- ments for their inspection and copying at an Inger- soll-Rand office. Producing the limited number of documents which refer to NRB and have been filed with the other named authorities in specification 16 should not be overly burdensome. Finally, movant’s complaint about the scope of specification 20 misper- ceives the request: it calls for studies and analyses, not every paper which might “refer or discuss in some way the possibility or desirability of adding new facil- ities.” (May 10, 1977, letter, supra, at 9). As properly interpreted, the specification is not oppressive. Neither is the subpoena unduly burdensome be- cause of breadth. All but three specifications have been limited to movant’s proposed time frame. The remaining three have been reduced in scope to the minimum necessary to evaluate properly the matters under investigation at this point. Courts have ap- proved lengthy subpoena time spans in investiga- tions of possible long-standing antitrust violations. See Adams v. FTC, 296 F.2d 861, 867 (8th Cir. 1961), cert. denied, 369 U.S. 864 (1962). 4. The Commission may properly require the pro- duction of confidential information, including trade secrets. FTC v. Tuttle, 244 F.2d 605, 616 (2d Cir.), cert. denied, 354 U.S. 925 (1957). Section 6(f) of the FTC Act prohibits the publication of trade secrets and names of customers, but this section places no restrictions on subpoenaing such information from any parties who have it or transferring it to the Con- gress or other federal agencies, which actions do not constitute publication. See Ashland Oil, Inc. v. FTC, 548 F.2d 977 (D.C. Cir. 1976); Exxon Corp. v. FTC, 1977-1 Trade Cas. (CCH) 9 61,464 (D. Del. April 18, ieee 134a 1977); Exxon Corp. v. FTC, No. 76-0812, Union Car- bide Corp. v. FTC, No. 76-0793, and Kerr-McGee Corp. v. FTC, No. 76-0814, slip op. at 1(D.D.C. March 29, 1977), appeals filed. The recent Texaco decision upheld the adequacy of the Commissicn’s confiden- tiality assurances. Texaco, supra, at 43-44.° Recognizing, however, that movant may have a legitimate concern about the sensitivity of certain subpoenaed documents, the Commission will con- sider an application by Ingersoll-Rand for Commis- sion assurances of confidential treatment, which describes with particularity the documents for which such treatment is sought and provides adequate fac- tual grounds to support the application.’ The motion having been granted in part and denied in part, full compliance with the subpoena, as modified, is hereby directed. Return shall be made at the hour and place specified in the subpoena on September 12, 1977. By direction of the Commission. /s/ Carol M. Thomas (Mr.) Carol M. Thomas Secretary CERTIFIED MAIL RETURN RECEIPT REQUESTED ce: Ingersoll-Rand Company 200 Chestnut Riuige Road Woodcliff Lake, New Jersey 07675 CERTIFIED MAIL RETURN RECEIPT REQUESTED 6 Further supporting the protection the Commission is able to afford confidential documents is § 10 of the FTC Act, which contains criminal penalties for improper disclosure of information in the Commission’s possession. 7 Such a request will not, however, stay movant’s obligation to comply with the subpoena. 135a EXCERPT FROM SEPTEMBER 8, 1977 HEARING TRANSCRIPT IN WEARLY v. FTC, 77 Civ. 1860 (D.N.J.) From Page 22, Line 12, thereof To Page 26, Line 26 THE COURT: You also have criminal provisions, don’t, you? They don’t turn on that, do they? MR. HAASE: I don’t want to separate the confidential- ity provisions from the other issue— THE COURT: In this case, as I understand it from the argument, if a subpoena is served, a date is fixed, the witness fails to comply with the subpoena, even though he is claiming confidentiality, trade secret as to one or more items, he is exposed to the risk of criminal prosecution. MR. HAASE: Your Honor, the Supreme Court has held unequivocally that if the defendant produces—if the de- fendant interposes a good faith defense to a subpoena or toasummons, then the—no criminal penalties can attach. THE COURT: Can he be charged and prosecuted and subjected to the risk of trial even though he’s acquitted? MR. HAASE: Under the case of— THE COURT: Would you get an automatic dismissal or would they have to first pass on the questions of trade secret in the criminal trial? Suppose he’s wrong? MR. HAASE: I think it is subject to a motion to dismiss. THE COURT: Suppose he claims something to be a trade secret and it is decided it is not a trade secret. Then he’s stuck with a conviction, isn’t he? The issue whether the item is a trade secret or not is in dispute. He makes the claim, the FTC resists it. He’s prosecuted for failing to honor the subpoena. He is in jeopardy of going to jail if he’s wrong, isn’t he? 136a MR. HAASE: No. THE COURT: Why not? MR. HAASE: Because if he interposes what he believes is a good faith defense, even if the defense is not sustained in trial, nonetheless if it is a good faith defense, then he cannot be prosecuted. THE COURT: Is that subjective good faith or objective good faith? MR. HAASE: Well, let me quote from— THE COURT: In other words, what a witness may think is good faith and what a jury may think is good faith could be two different things, couldn’t they? MR. HAASE: In the case of Reisman v. Caplin, 375 U.S. 440, which involved a summons, an IRS summons, the Court reached this issue, and it said the statute, on its face, does not apply where the witness appears and inter- poses good faith challenges to the summons. It only pre- scribes punishment where the witness “neglects” either to appear or produce. The Federal Trade Commission statute uses the identi- cal language. Continuing, we need not pass upon the coverage of this provision in light of the facts here. It is sufficient to say that non-compliance is not subject to prosecution there under when the summons is attacked in good faith. This case— THE COURT: What do they mean by good faith? Is it subjective or objective? MR. HAASE: I think good faith necessarily is subjec- tive, yes. THE COURT: What? In other words, all he has to do is say I’m doing this in good faith and you’re stuck. You have to take his word for it? Subjective on the part of the wit- ness I’m talking about. 137a MR. HAASE: What the witness says and what the wit- ness believes are both subjective. I don’t think the court is necessarily stuck with what the witness says. THE COURT: Then he is in jeopardy if his belief is not accepted as having been in good faith, even though he may feel so. MR. HAASE: That’s correct. On the other hand, there has never been a prosecution under Section 10 of the Fed- eral Trade Commission Act in the entire 64 years in which the statute has been on the books. So we are talking about a very remote possibility, as- suming that the defendant’s good faith is really subject to challenge. We have no reason to believe that the defenses that the plaintiffs in this case interpose are not made in good faith. Now, the Reisman case has been held controlling in Federal Trade Commission— in the case of the Federal Trade Commission Act. Cases in the DC Circuit, in the Second Circuit, in the Fifth Circuit, in the Eighth Circuit all have held that the Reisman rationale equally applies in the case of the Federal Trade Commission Act. That is that criminal penalties may not attach— THE COURT: We are not arguing the preliminary in- junction today, you know. MR. HAASE: They are claiming they need a TRO be- cause they are going to be subject to criminal penalties. THE COURT: That’s one item. MR. HAASE: That’s the only item that if it is true could possibly support a TRO. The question of the confidentiality of the documents is a matter which is perfectly within their control, because if they decline to comply with the subpoena, the Federal Trade Commission obviously can’t disclose anything. 138a The only time the Federal Trade Commission would even be in a position to make any disclosures is after it seeks enforcement in a subpoena enforcement proceeding. THE COURT: It has been said where there is a dispute, particularly between citizens and Government agencies, . the civilized technique is not to have that confrontation but to use the declaratory judgment and get it answered first. Doesn’t that make sense? Why should there be an en- forcement proceeding? Why should the more drastic rem- edy be used when, if the parties are in disagreement as to what the law is, what the facts are, they have somebody else decide it first. 139a EXCERPT FROM OCTOBER 19, 1977 HEARING TRANSCRIPT IN WEARLY v. FTC, 77 Civ. 1860 (D.N.J.) From Page 303, Line 23 thereof To Page 304, Line 20. THE COURT: The question for the application for pre- liminary injunction, is considered on that aspect alone. Part of the dispute arises from the fact that while the trade secrets are the property of IR, which is designated as the subject of the non-public investigation order, the sub- poena is directed to and was served on Wearly rather than IR. In particular, Wearly claims to be in jeopardy of criminal prosecution under 15 U.S. Code section 50, first paragraph; a risk that the parties seem to agree would not apply if the subpoena had been directed to IR. While reported decisions on the subject are scanty, the jeopardy evidently can be real, as shown by the conviction of Mr. Austin Tobin, for contempt of Congress, U.S. vs. Tobin, 195 F Sup 588, District DC, 1961, reversed on other grounds, Tobin vs. U.S., 306 F 2nd 270, Court of Appeals, DC, 1962, certiorari denied, 1962. FTC argues, among other things, that no criminal pros- ecution appears to have been made under 15 U.S. Code Section 50, but it is understandable that Mr. Wearly pre- fersnot tobe _ the first to be so charged. For him the impact in that case would be 100 percent. Pans, 140a EXCERPT FROM OCTOBER 19, 1977 HEARING TRANSCRIPT IN WEARLY v. FTC, 77 Civ. 1860 (D.N.J.) Page 314 From Lines 1 to 14. THE COURT: So much having been said, it remains for the Court to deal with the request for preliminary injunc- tion. That there is jurisdiction seems clear in light of the Abbott Laboratories trilogy and the A. O. Smith case in this Circuit. That there is venue seems also to be clear in view of the fact that it is IR as the owner of the trade secrets, which is the real party in interest, and it is a citizen and resident in this District. It is also clear that there is a threat of irreparable harm. The irreparable aspect arises from the sheer impossibility of developing a measure of damages for improper dis- semination. It is not the amount of damage but the impos- sibility of ascertaining damages in monetary terms that make them irreparable. 14la Senate Report 96-500 96th Congress, 1st Session ENFORCEMENT AUTHORITY Section 6.—Section 6 eliminates the threat of criminal sanc- tions applied to those recipients of a Commission subpena who in good faith resist Commission subpenas by making such sanc- tions inapplicable prior to a judicial order of enforcement. This is similar to the procedures applicable to the enforcement of the. subpenas of several other administrative agencies, and it ac- cords the persons who are subjected to a broad investigatory subpena a reasonable opportunity to obtain judicial review of its legality. at 15-16 SECTION 10 OF THAT ACT Sec. 10. * * * [Any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry or to produce documentary evidence, if in his power to do so, in obe- dience to the subpoena or lawful requirement of the com- mission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdiction shall be punished by a fine of not less than $1,000 nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and imprisonment. ] Any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry, or to produce any documentary evidence, if in his power to do so, in obe- dience to an order of the a United States district court directing compliance with the subpena or lawful require- ment of the Commission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdic- 142a tion shall be punished by a fine of not less than $1,000 nor more than $5,000, or by imprisonment for not more than 1 year, or both such fine and imprisonment.“. Any person who shall willfully make or cause to be made, any false entry or statement of fact in any report required to be made under this Act, or who shall willfully make, or cause to be made, any false entry in any account, record, or memorandum kept by any person, partnership, or corporation subject to this Act, or who shall willfully neglect or fail to make, or cause to be made, full, true, and correct entries in such accounts, records, or memoranda of all facts and transactions appertaining to the business of such person, partnership, or corporation, or who shall willfully remove out of the jurisdiction of the United Sta- tes, or willfully mutilate, alter or by any other means falsify any documentary evidence of such person, partner- ship, or corporation, or who shall willfully refuse to sub- mit to the commission or to any of its authorized agents, for the purpose of inspection and taking copies, any docu- mentary evidence of such person, partnership, or corpora- tion in his possession or within his control, shall be de- emed guilty of an offense against the United States, and shall be subject upon conviction in any court of the United States of competent jurisdiction, to a fine of not less than $1,000 nor more than $5,000, or to imprisonment for a term of not more than three years, or to both such fine and imprisonment. at 37-38 143a Senate Report 95-197, 95th Congress, 1st Session Section 8. Penalties for noncompliance with compulsory process Section 8 of the bill relates to civil penalties for non- compliance with compulsory process. Under present law, the FTC may issue a subpoena to secure information in a law enforcement action or issue a compulsory process or- der requiring companies to file annual or special business reports. Failure to comply enables the Commission to sue for enforcement of its order. In addition, the Act provides for civil penaities for the failure to comply with an FTC order to file an annual or special report. However, exising law does not provide for civil penalties for failure to com- ply with a subpoena. In such cases, the Commission may only seek criminal penalties against individuals and, be- cause of the extreme nature of such penalties, this author- ity has never been used by the Commission. at 5-6 Pan, 144a United States Constitution, Amendment V . nor shall private property be taken for public use, without just compensation. Section 6, Federal Trade Commission Act 15 U.S.C. § 46 § 46. Additional powers of Commission The Commission shall also have power— * * * * * (f) To make public from time to time such portions of the information obtained by it hereunder, except trade secrets and names of customers, as it shall deem expedient in the public interest; and to make annual and special reports to the Congress and to submit therewith recommendations for additional legisla- tion; and to provide for the publication of its reports and decisions in such form and manner as may be best adapted for public information and use. Section 9, Federal Trade Commission Act 15 U.S.C. § 49 § 49. Documentary evidence; depositions; witnesses For the purposes of sections 41 to 46 and 47 to 58 of this title the Commission, or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any docu- mentary evidence of any person, partnership, or corpora- tion being investigated or proceeded against; and the 145a Commission shall have power to require by subpoena the . attendance and testimony of witnesses and the produc- tion of all such documentary evidence relating to any mat- ter under investigation. Any member of the Commission may sign subpoenas, and members and examiners of the Commission may administer oaths and affirmations, ex- amine witnesses, and receive evidence. Such attendance of witnesses, and the production of such documentary evidence, may be required from any place in the United States, at any designated place of hearing. And in case of disobedience to a subpoena the Commission may invoke the aid of any court of the United States in requiring the attendance and testimony of wit- nesses and the production of documentary evidence. Any of the district courts of the United States within the jurisdiction of which such inquiry is carried on may, in case of contumacy or refusal to obey a subpoena issued to any person, partnership, or corporation issue an order requiring such person, partnership, or corporation to ap- pear before the Commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. Upon the application of the Attorney General of the United States, at the request of the Commission, the dis- trict courts of the United States shall have jurisdiction to issue writs of mandamus commanding any person, partnership, or corporation to comply with the provisions of sections 41 to 46 and 47 to 58 of this title or any order of the Commission made in pursuance thereof. The Commission may order testimony to be taken by deposition in any proceeding or investigation pending un- 146a der said sections at any stage of such proceeding or inves- tigation. Such depositions may be taken before any person designated by the Commission and having power to ad- minister oaths. Such testimony shall be reduced to writ- ing by the person taking the deposition, or under his direc- tion, and shall then be subscribed by the deponent. Any person may be compelled to appear and depose and to produce documentary evidence in the same manner as witnesses may be compelled to appear and testify and produce documentary evidence before the Commission as hereinbefore provided. Witnesses summoned before the Commission shall be paid the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depo- sitions are taken and the persons taking the same shall severally be entitled to the same fees as are paid for like services in the courts of the United States. Section 10, Federal Trade Commission Act 15 U.S.C. § 50 § 50 Offenses and penalties Any person who shall neglect or refuse to attend and _ testify, or to answer any lawful inquiry or to produce documentary evidence, if in his power to do so, in obe- dience to the subpoena or lawful requirement of the Com- mission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdiction shall be punished by a fine of not less than $1,000 nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and imprisonment. Any person who shall willfully make, or cause to be made, any false entry or statement of fact in any report required to be made under sections 41 to 46 and 47 to 58 of 147a this title, or who shall willfully make, or cause to be made, . any false entry in any account, record, or memorandum kept by any person, partnership, or corporation subject to said sections, or who shall willfully neglect or fail to make, or to cause to be made, full, true, and correct entries in such accounts, records, or memoranda of all facts and transactions appertaining to the business of such person, partnership, or corporation or who shall willfully remove out of the jurisdiction of the United States, or willfully mutilate, alter, or by any other means falsify any docu- mentary evidence of such person, partnership, or corpora- tion or who shall willfully refuse to submit to the Commis- sion or to any of its authorized agents, for the purpose of inspection and taking copies, any documentary evidence of such person, partnership, or corporation in his posses- sion or within his control, shall be deemed guilty of an offense against the United States, and shall be subject, upon conviction in any court of the United States of com- petent jurisdiction, to a fine of not less than $1,000 nor more than $5,000, or to imprisonment for a term of not more than three years, or to both such fine and imprison- ment. The Trade Secrets Act 18 U.S.C. § 1905 § 1905. Disclosure of confidential information generally Whoever, being an officer or employee of the United States or of any department or agency thereof, publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such depart- 148a ment or agency or officer or employee thereof, which in- formation concerns or relates to the trade secrets, proc- esses, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law, shall be fined not more than $1,000, or imprisoned not more than one year, or both; and shall be removed from office or employment. June 25, 1948, c. 645, 62 Stat. 791. Section 10 Administrative Procedure Act 5 U.S.C. § 701 § 701. Application; definitions (a) This chapter applies, according to the provisions thereof, except to the extent that— (1) statutes preclude judicial review; or (2) agency action is committed to agency discre- tion by law. (b) For the purpose of this chapter— (1) “agency” means each authority of the Gov- ernment of the United States, whether or not it is within or subject to review by another agency, but does not include— ~ (A) the Congress; (B) the courts of the United States; (C) the governments of the territories or pos- sessions of the United States; 149a (D) the government of the District of Colum- bia; (E) agencies composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them; (F) courts martial and military commissions; (G) military authority exercised in the field in time of war or in occupied territory; or (H) functions conferred by sections 1738, 1739, 1743, and 1744 of title 12; chapter 2 of title 41; or sections 1622, 1884, 1891-1902, and former section 1641(b)(2), of title 50, appendix; and ”» 6 ” 6 ” ”» 6 (2) “person”, “rule”, “order”, “license”, sanction”, “relief”, and “agency action” have the meanings given them by section 551 of this title. 5 U.S.C. § 702 § 702. Right of review A person suffering legal wrong because of agency ac- tion, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof. An action in a court of the United States seeking relief other than money damages and stat- ing a claim that an agency or an officer or employee the- reof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is an indispens- able party. The United States may be named as a defen- 150a dant in any such action, and a judgment or decree may be entered against the United States: Provided, That any mandatory or injunctive decree shall specify the Federal officer or officers (by name or by title), and their succes- sors in office, personally responsible for compliance. Nothing herein (1) affects other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground; or (2) confers authority to grant relief if any other statute that grants consent to suit expressly or impliedly forbids the relief which is sought. 5 U.S.C. § 703 § 703. Form and venue of proceeding The form of proceeding for judicial review is the special statutory review proceeding relevant to the subject mat- ter in a court specified by statute or, in the absence or inadequacy thereof, any applicable form of legal action, including actions for declaratory judgments or writs of prohibitory or mandatory injunction or habeas corpus, in a court of competent jurisdiction. If no special statutory review proceeding is applicable, the action for judicial review may be brought against the United States, the agency by its official title, or the appropriate officer. Ex- cept to the extent that prior, adequate, and exclusive op- portunity for judicial review is provided by law, agency action is subject to judicial review in civil or criminal pro- ceedings for judicial enforcement. 5 U.S.C. § 704 § 704. Actions reviewable Agency action made reviewable by statute and final agency action for which there is no other adequate remedy 15la in a court are subject: to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action. Except as otherwise expressly required by statute, agency action otherwise final is final for the purposes of this section whether or not there has been presented or determined an application for a declara- tory order, for any form of reconsideration, or, unless the agency otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency authority. 5 U.S.C. § 705 § 705. Relief pending review When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review. On such conditions as may be required and to the extent necessary to prevent irrepar ble injury, the reviewing court, including the court to which a case may be taken on appeal from or on application for certiorari or other writ to a reviewing court, may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings. 5 U.S.C. § 706 § 706. Scope of review To the extent necessary to decision and when pre- sented, the reviewing court shall decide all relevant ques- tions of law, interpret constitutional and statutory provi- sions, and determine the meaning or applicabililty of the terms of an agency action. The reviewing court shall— 152a (1) compel agency action unlawfully withheld or unreasonably delayed; and (2) hold unlawful and set aside agency actions, findings, and conclusions found to be— (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, author- ity, or limitations, or short of statutory right; (D) without observance of procedure required by law; (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or (F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. In making the foregoing determinations, the court shall review the whole record or those parts of it cited bv a party, and due account shall be taken of the rule of preju- dicial error. 153a JUDICIAL CODE OF THE UNITED STATES 28 U.S.C. § 1331 § 1331. Federal question; amount in controversy; costs (a) The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy ex- ceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws, or treaties of the United States except that no such sum or value shall be required in any such action brought against the United States, any agency thereof, or any officer or employee thereof in his official capacity. (b) Except when express provision therefor is otherwise made in a statute of the United States, where the plaintiff is finally adjudged to be entitled to recover less than the sum or value of $10,000, computed without regard to any setoff or counterclaim to which the defen- dant may be adjudged to be entitled, and exclusive of interests and costs, the district court may deny costs to the plaintiff and, in addition, may impose costs on the plaintiff. As amended Oct. 21, 1976, Publ.L 94-574, § 2, 90 Stat. 2721. 28 U.S.C. § 1337. Commerce and anti-trust regulations The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies. June 25, 1948, c. 646, 62 Stat. 931. 154a DECLARATORY JUDGMENT ACT 28 U.S.C. § 2201 (1979) § 2201. Creation of remedy In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1954, or a proceeding under section 505 or 1146 of title 11 any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such decla- ration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. 28 U.S.C. § 2201 (1979) § 2201. Further relief Further necessary or proper relief based on a declara- tory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment. 4 ~—\ --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2278%3A2. Public record. Not legal advice.