All companies, especially those engaged in the biotech and electronic high tech businesses, have sensitive information they wish to keep confidential. In the ordinary course of business, companies seek to protect their confidential information from unauthorized disclosure by means of contractual restrictions on employees, consultants, vendors and other third party contractors.
A company that will go or has gone public, however, must make detailed disclosures about its business because one of the regulatory procedures that the SEC has established. To be eligible for confidential treatment, the information sought to be protected must meet one of several FOIA exemptions from disclosure. The only one of these that is ever likely to be available is the one for trade secrets and commercial or financial information [that is] privileged or confidential.
To fulfill its purpose of ensuring that material information is disclosed to investors, the SEC takes a narrow interpretation of what information is eligible for confidential treatment under the exception for trade secrets and commercial or financial information.
It is not possible to claim confidentiality for any information otherwise required to be disclosed under the securities laws or any information the company has in fact already disclosed to the SEC without having made a confidential treatment request. Even if a contract does not contain information specifically required to be disclosed or already disclosed, the SEC will almost never accept a confidentiality request applicable to the entire contract, or even to sections or paragraphs of the contract. Instead, confidentiality requests must usually be made on a word-by-word or phrase-by-phrase basis.
For instance, in a 40-page patent and trade-secret licensing contract, the company might request confidential treatment only for the name of the other contracting party (if not already publicly known or previously disclosed), the term of the agreement, the exact technology covered and the pricing information (e.g., the royalty rate and any other fees). For each item requested to be kept confidential, the company must show that it has sought to keep the information confidential, that disclosure of the information would cause substantial harm to the company's competitive position and that this harm outweighs the need of investors to know the information.
To make a confidentiality request, the company, generally using its counsel, sends a letter to the SEC that itself contains no confidential information, because it has been held that a letter requesting confidentiality cannot itself be maintained confidential. With an attached but separate transmittal letter, which the SEC will keep confidential if requested, the company provides a detailed explanation and justification of its confidentiality requests and attaches the documents for which confidential treatment is being requested, providing for each document one clean copy and one with the portions requested to be held confidential so marked.(There is also a separate procedure for making confidentiality requests for the non-disclosure of documents that the SEC requests as supplemental information for its review, but which arenot required to be publicly disclosed.)
In response to a confidentiality request, the SEC staff routinely asks questions and provides comments. It may request that further information be provided explaining the justification for a given request or it may advise that the request should be withdrawn with respect to certain information. To the extent the request is finally granted, anyone making an FOIA request for the document will only be able to receive a copy that has the confidential information redacted, or blacked-out.
In our experience, a well thought-out, well-explained and limited request for confidentiality is generally granted. Even if the request for confidentiality is granted, a company should keep in mind that the SEC is still required to provide all such confidential information to other U.S. government agencies that request it and, in particular situations, to foreign governmental authorities.
*article courtesy of Wayne Shortridge and Ted Johnson of PHJ&W.