Time for the White House to Step In? Patchwork State Fracking Regulations Will Spawn FOIA and Trade Secrets Lawsuits

Revised post available here.

With a growing number of states demanding disclosure of its fracking recipes, the oil and gas industry is fighting to plug what it views as government-mandated leaks in its trade secrets pipeline.

Battles are brewing in state capitals and courts as the industry faces fourteen states (and counting) that now require disclosure of the chemicals they use for fracking (aka hydraulic fracturing), a liquid-based process of drilling and extracting oil and gas from shale rock below ground.  These regulations are intended to allow government agencies to evaluate the environmental and health impacts of fracking.  Some state agencies are mandating disclosure directly to the agency (California is considering this approach), while other agencies are taking a permissive approach and rely on information submitted to an industry-developed registry for fracking.

Once collected by a state agency, the receiving agency can generally disclose corporate fracking information to third parties.  These parties may include doctors in the case of a spill under California’s fracking bill, or any member of the public in response to state freedom of information act (FOIA) requests.  Environmental and public-health groups are advocating for a robust disclosure policy, while oil and gas companies argue that their fracking approaches are trade secrets and should not be subject to FOIA disclosures. (The issue is a little more nuanced than this, as some state FOIA statutes contain exemptions for trade secrets.)  This issue reached a head on April 17, when a Wyoming state court found that an industry fracking submission was exempt from FOIA.  Environmental groups are appealing to the Wyoming Supreme Court.

Though public and news media engagement in fracking is rising, the underlying issue — balancing the need for governmental regulation and the public’s right to know against the need to protect industry trade secrets — is not new.  The EPA has required disclosures of pesticides for licensing and other purposes over the last century, and has faced numerous challenges over the years.  For example, the Supreme Court case Ruckelshaus v. Monsanto, 467 U.S. 986 (1978), held that a constitutional takings analysis applies to government regulation involving disclosure of trade secrets.  Ruckleshaus does not say that every voluntary submission of trade secrets to the government is necessarily a compensable taking; rather, courts should analyze challenged regulations in light of the multi-factor test that has developed for a takings analysis.

Similarly, a large body case law has developed on so-called “reverse FOIA” cases, i.e. cases initiated by a private party to challenge a FOIA disclosure in the environmental, medical, and securities realms.  As a result, federal agencies like the FDA have developed regulations dealing with requests for trade secrets.  These cases are fact-specific, and the legal standards for evaluating them may differ from a particular state’s trade secret law.

We can expect a spate of litigation as a balance develops among government regulation, the public’s right to know, and the industry’s intellectual property rights.  The Obama administration is currently developing federal fracking regulations. Depending on how those regulations are interpreted and applied, they could eventually lead to a uniform body of law on the disclosure of trade secrets in this context.