United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 5, 2000 Decided October 27, 2000
No. 99-1531
Qwest Communications International Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
MCI WorldCom, Inc. and
AT&T Corporation,
Intervenors
On Petition for Review of an Order of the
Federal Communications Commission
William R. Richardson, Jr. argued the cause for petitioner.
With him on the briefs were William T. Lake, Patrick J.
Carome, Julie A. Veach, Dan L. Poole, and Robert B. McKen-
na.
Lawrence E. Sarjeant, Linda Kent, John Hunter, Julie E.
Rones, William F. Maher, Jr., Stephen L. Goodman, and
Richard White, Jr. were on the brief for amicus curiae in
support of petitioner.
Joel Marcus, Counsel, Federal Communications Commis-
sion, argued the cause for respondents. With him on the
brief were Christopher J. Wright, General Counsel, Daniel
M. Armstrong, Associate General Counsel, Joel I. Klein,
Assistant Attorney General, U.S. Department of Justice, Rob-
ert B. Nicholson, and Christopher Sprigman, Attorneys.
John E. Ingle, Deputy Associate General Counsel, Federal
Communications Commission, entered an appearance.
Anthony C. Epstein argued the cause for intervenors
WorldCom, Inc. and AT&T Corp. With him on the brief
were Thomas F. O'Neil, III, William Single, IV, Mark C.
Rosenblum, Peter H. Jacoby, Judy Sello, and David Lawson.
James P. Young entered an appearance.
Before: Williams, Sentelle, and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Rogers, Circuit Judge: Qwest Communications Interna-
tional, Inc. ("Qwest") petitions for review of a decision by the
Federal Communications Commission ("Commission") to dis-
close raw audit data to competitors in connection with a
notice of inquiry concerning the validity and reasonableness
of statistical sampling for equipment not found or not verifia-
ble during a field audit.1 See In re Ameritech Corporation
Telephone Operating Companies' Continuing Property Rec-
ords Audit et al., Memorandum Opinion and Order, 15
F.C.C.R. 1784 (1999) ("Order"). Qwest contends that the
Order is contrary to s 1905 of the Trade Secrets Act, 18
__________
1 U S West Communications, Inc., which filed the petition for
review, is a wholly-owned subsidiary of U S West, Inc. During the
pendency of this appeal, U S West, Inc. merged and became Qwest
Communications International, Inc. Accordingly, we refer to Qwest
as the petitioner.
U.S.C. s 1905 (1994), because nothing in s 220(f) of the
Communications Act of 1934, 47 U.S.C. s 220(f) (1994), autho-
rizes the Commission to release otherwise protected informa-
tion. Qwest further contends that the Commission's Order
violates its own longstanding policy to provide special protec-
tion to audit information. We hold that s 220(f) provides
sufficient authorization for disclosure of trade secrets, but
that the Commission has failed to explain how its Order is
consistent with its policy regarding the treatment of confiden-
tial information. Accordingly, we remand the case to the
Commission for further proceedings.2
I.
Under Part 32 of the Commission's regulations, the Region-
al Bell Operating Companies ("RBOCs") are required to
maintain detailed accounting records of property used in their
local telephone operations, including the property's descrip-
tion, location, and cost. See 47 C.F.R. ss 32.2000(e)-(f). The
records, which serve various regulatory functions, including
the setting of rates and the assessment of charge allocations,
must conform to a uniform accounting system prescribed by
the rules and must be sufficiently detailed to allow the
property's physical existence to be confirmed during a spot
check conducted by the Commission. See id.
In 1997, the Commission's Common Carrier Bureau's Ac-
counting Safeguards Division ("Bureau") began an audit of
the RBOCs' records for hard-wired central office equipment
in order "to determine if their records were being maintained
in compliance with the Commission's rules and to verify that
property recorded in the accounts represented equipment
used and useful for the provision of telecommunications ser-
vices."3 During the audit, each piece of equipment was
__________
2 In view of our disposition of the Commission's reliance on
s 220(f), we do not address the Commission's reliance on s 154(j),
47 U.S.C. s 154(j) (1994). See Order, 15 F.C.C.R. at 1788 p 8 &
n.23.
3 The seven RBOCs were Ameritech, Bell Atlantic, BellSouth,
NYNEX, Pacific Bell, Southwestern Bell, and U S West Telephone
categorized or "scored" as "(1) found [as described]; (2) found
in another location; (3) not found/missing; or (4) unverifia-
ble." The Commission explained that part of the audit in-
cluded "statistical sampling techniques so that the findings
for the sample could be extended as representative of all of
the equipment in the category audited, i.e., hard-wired central
office equipment." After reviewing the RBOCs' comments on
draft reports, the Bureau's final audit reports revealed that
the RBOCs may have overstated their book costs by as much
as five billion dollars.4 The RBOCs filed objections, in the
words of one Commissioner, "aggressively attack[ing] the
audits, the competence of the auditors, and the credibility of
the audit design."5 Qwest challenged the Bureau's final audit
report, claiming that it failed to reflect additional data ac-
counting for a majority of items scored as "not found," and
reaffirming its conclusion that the audit was fatally flawed for
statistical and other reasons.6 In support of the latter point,
__________
Companies. See Public Notice, The Accounting Safeguards Divi-
sion Releases Information Concerning Audit Procedures for Con-
sidering Requests by the Regional Bell Operating Companies To
Reclassify or "Rescore" Field Audit Findings of Their Continuing
Property Records, 14 F.C.C.R. 6243, 6243 (1999). The hard-wired
central office equipment constitutes approximately one-fourth of the
RBOCs' total capital investment. See Press Release, FCC Releases
Audit Reports on RBOCs' Property Records, Feb. 25, 1999 ("FCC
Press Release").
4 See FCC Press Release. The audit indicated "that approxi-
mately 11 percent of the [RBOCs'] equipment could not be found,
and approximately 14 percent was either unverifiable or found in
another location." Order, 15 F.C.C.R. at 1786 p 3.
5 In re U S West Telephone Operating Companies' Continuing
Property Records Audit, Order, 14 F.C.C.R. 5731, 5827 (1999)
(Commissioner Tristani, issuing separate statement).
6 Qwest's individualized audit report indicated that of the 1188
hard-wired equipment-item records randomly sampled and "scored"
for the audit, 294 (24.7% of the sampled items) "contained substan-
tive deficiencies and did not comply with the Commission's rules."
Id. at 5736 p 3. See also id. at 5743 p 21. Of the 294 deficient
records, 152 (12.79% of the sampled items) described equipment
Qwest submitted an analysis by Deloitte & Touche's "quanti-
tative techniques expert," who raised doubts about the audi-
tors' sampling methodology and their evaluation techniques.
The Commission, in turn, issued a notice of inquiry in April
1999, seeking public comment on ten criticisms relating to the
audits. See In re Ameritech Corporation Telephone Operat-
ing Companies' Continuing Property Records Audit et al.,
Notice of Inquiry, 14 F.C.C.R. 7019, 7021-22 p 6 (1999)
("NOI"). The only issue relevant here is Issue 2: namely,
"[t]he validity and reasonableness of the methodology used by
the Bureau's auditors in determining whether to rescore or to
modify a finding during a field audit that equipment was 'not
found.' "7 Previously, in February 1999, the Commission
determined, over the dissent of two Commissioners, that
pursuant to the RBOCs' waivers of confidentiality, the release
of the audit reports and the RBOCs' responses to them was
in the public interest.8 MCI thereafter filed a Freedom of
Information Act request, pursuant to 47 C.F.R. s 0.461,
seeking public release of the RBOCs' explanations and sup-
porting documentation regarding their equipment not found,
the Bureau's audit workpapers showing the scoring of partic-
ular items, and the continuing property records themselves.9
__________
that could not be verified against the record; 123 (10.35% of the
sampled items) described equipment that could not be found; and
19 (1.60% of the sampled items) described equipment that could
only partially be located. See id.
7 NOI, 14 F.C.C.R. at 7021 p 6. Commissioner Furchtgott-
Roth indicated apparent agreement with some of the RBOCs'
criticisms of the audit's methodology, process, and overall conclu-
sions. See In re U S West Telephone Operating Companies'
Continuing Property Records Audit, Order, 14 F.C.C.R. at 5832-35
(Commissioner Furchtgott-Roth, dissenting in part).
8 See FCC Press Release.
9 MCI sought the release of three types of information:
[1] any materials that the RBOCs have submitted to the
[Bureau] to explain why hard-wired [central office] equipment
items were not found by the auditors or to support claims that
items in the audit sample should be "rescored." ... [This
Qwest opposed the release of the raw audit data on three
principal grounds: First, releasing the requested information
is barred by s 220(f) of the Communications Act and previous
Commission rulings and would be an unjustified departure
from the Commission's established practice of not releasing
audit-related materials, except in exceptional cases; second,
the requested information is confidential commercial informa-
tion, voluntarily submitted, and thus exempt from release
under Exemption 4 of the Freedom of Information Act, 5
U.S.C. s 552(b)(4); and third, the requested information con-
stitutes pre-decisional deliberations and as such, is protected
by Exemption 5 of the Freedom of Information Act, 5 U.S.C.
s 552(b)(5), and s 0.457(e) of the Commission's rules, 47
C.F.R. s 0.457(e). Qwest indicated that it was opposing only
the request for release of data submitted regarding the "not
found" and "unverifiable" audit items, explaining that these
items "contain[ed] detailed information including pricing in-
formation on specific items used in the provision of telecom-
munications services...." These items, in Qwest's view,
were comprised of "highly sensitive business information
which MCI could use to unfairly improve its competitive
position" relative to Qwest and other market competitors.
The Bureau ordered release of the requested raw audit
data to parties under a protective order. The Bureau relied
on ss 154(j) and 220(f) of the Communications Act as provid-
ing the Commission with explicit authorization for the discre-
tionary release of audit materials otherwise protected from
release under the Freedom of Information Act and the Trade
__________
includes] narrative explanations and supporting documentation
such as invoices, telephone equipment orders, property record
input forms, engineering drawings, and photographs[;] [2] any
audit workpapers generated by [Bureau] staff during the
course of the audits that show or support the item-by-item
scoring of the items in the audit sample[;] [and 3] [Continuing
Property Records] detail (vintage, description, etc.) for any
items scored "partially found," "not found," or "not verifiable"
at any time during the audit process.
MCI stated that release of the requested raw data was crucial for
responding to the questions asked in the NOI, particularly Issue 2.
Secrets Act. Relying also on "the Commission's duty to
ensure that parties are given a reasonable opportunity to
make informed comment on Issue No. 2," the Bureau viewed
"the unique situation" created by the question posed in Issue
2 to require the release of information that is "not routinely
made available to the public, even under protective orders."
The Bureau concluded that the question regarding the "audi-
tors' rescoring process can only be answered by allowing
parties interested in filing comments to review this [raw data]
material." The Bureau's protective order limited access to
the requested materials to (1) counsel for a party participat-
ing in the NOI proceeding and (2) technical advisors or other
persons authorized by such counsel. In the Bureau's opinion,
the protective order "reasonably ameliorated" any potential
competitive harm to the RBOCs. All of the RBOCs except
Bell Atlantic appealed to the Commission.
The Commission affirmed the Bureau's decision to release
the raw audit data subject to a protective order, relying
principally on the Commission's explicit authority under
s 220(f): "[G]iven the importance of Commission audits to
the effective performance of the Commission's statutory re-
sponsibilities with respect to carriers, [the Commission] be-
lieve[s] the [Communications] Act's statutory scheme fully
envisions that, in some cases, disclosures of carrier-supplied
audit information might become necessary in the course of
carrying out the Commission's enforcement and regulatory
policymaking functions."10 Order, 15 F.C.C.R. at 1789 p 8.
The Commission also imposed "more stringent" terms for
access to audit materials, modifying the protective order (1)
to restrict access to the audit materials to "persons without
decision making authority or influence regarding competitive
issues," (2) to redact "vendor-specific pricing information,"
and (3) to limit the materials to be released to those relating
to Issue 2.11 Id. at 1790-91 p p 13-14. The Commission also
__________
10 In a footnote, the Commission cited s 154(j) as an alternate
source of its authority. See Order, 15 F.C.C.R. at 1788 n.23.
11 Noting that MCI had not requested disclosure of materials
concerning undetailed investment, the Commission decided not to
require access to such information. See id. at 1791 p 14.
provided that the RBOCs could suggest, for Bureau approval,
other redactions to the auditors' workpapers and the RBOCs'
comments. Qwest petitioned for review of the Order.12
II.
Qwest contends that the Commission's decision to release
protected confidential information violates the Trade Secrets
Act because the Commission is not "authorized by law" to
disclose otherwise protected information. Section 220(f) of
the Communications Act, Qwest maintains, is "a nondisclo-
sure statute that itself prohibits agency employees from
releasing information obtained during audits...." Because
s 220(f) is "wholly silent as to the power of the Commission
to issue [ ] directions" for release of such material, Qwest
continues, the statute's "logic and purposes reflect no [Con-
gressional] intention to authorize the Commission to disclose
confidential information based solely on the exercise of its
own unbounded 'discretion.' "
The parties agree that the material ordered disclosed by
the Commission is covered by the Trade Secrets Act. Hence,
the question is whether the Communications Act vests the
Commission with authority to disclose information covered by
the Trade Secrets Act, or more specifically, whether, for
purposes of s 1905 of the Trade Secrets Act, the Commission
was authorized under s 220(f) of the Communications Act to
allow Qwest's competitors access to Qwest's raw audit data.
The parties disagree about our standard of review. We
agree with the Commission that our principal inquiry of the
meaning of s 220(f) follows the familiar two-part test under
Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 842-43 (1984):
The court "must give effect to the unambiguously expressed
intent of Congress" or in the absence of such intent, consider
whether the agency's interpretation is a "permissible con-
struction of the statute." Id. at 843. Necessarily, however,
we must first examine what Congress intended by s 1905 of
__________
12 The court granted Qwest's motion for a stay pending review.
the Trade Secrets Act, and in this regard, as Qwest contends,
our review is de novo. Hence, we look first to the language
of s 1905 and seek guidance from its structure and history.
See Chrysler v. Brown, 441 U.S. 281, 296 (1979). We then do
much the same in examining s 220(f) of the Communications
Act, reaching the Commission's interpretation of its enabling
statute only if Congressional intent is unclear.
Section 1905 of the Trade Secrets Act prohibits the unau-
thorized release of trade secrets and commercial information,
unless "authorized by law," subject to punishment by fine and
imprisonment and removal from office or employment. See
18 U.S.C. s 1905.13 The history of the Act, which was
originally enacted in 1864, traces back to Congressional con-
cern over disclosures of business information by "feckless or
corrupt revenue agents." Chrysler, 441 U.S. at 296. When
Congress in 1948 consolidated three statutes barring or limit-
ing the release of such information, it sought to address the
demands of the new administrative state and thereby broad-
ened the reach of the Trade Secrets Act. See CNA Fin.
Corp. v. Donovan, 830 F.2d 1132, 1149 n.122 (D.C. Cir. 1987).
As the court has previously recounted, Congress "recog-
ni[zed] that increased governmental access to financial rec-
ords and commercial operations of individuals and entities ...
had to be accompanied by some restraint on the freedom of
__________
13 Section 1905 provides in relevant part:
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 [or her] in
the course of his [or her] 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 department ... ,
which information concerns or relates to [ ] trade secrets ...;
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 under this title, or imprisoned not more than one year, or
both; and shall be removed from office or employment.
18 U.S.C. s 1905 (emphasis added).
governmental employees to disseminate such data to third
parties." Id.
The limits established by the Trade Secrets Act, however,
are not inconsistent with authorizations granted to federal
agencies to release data when necessary for the carrying out
of the agencies' statutory responsibilities. In National Parks
and Conservation Ass'n v. Kleppe, 547 F.2d 673 (D.C. Cir.
1976), the court noted that the Trade Secrets Act is "merely a
general prohibition against unauthorized disclosures of confi-
dential commercial or financial information." Id. at 687 n.50.
The court in CNA, continuing to explore the nature of the
statute, observed that the Trade Secrets Act:
seems to embody a congressional judgment that private
commercial and financial information should not be re-
vealed by agencies that gather it, absent a conscious
choice in favor of disclosure by someone with power to
impart the force of law to that decision. The Act at-
tempts to forestall casual or thoughtless divulgence--
disclosure made without first going through a delibera-
tive process--with an opportunity for input from con-
cerned parties.
CNA, 830 F.2d at 1141 (emphasis added).
In the leading case on the question of the authorization
required by s 1905 for release of trade secrets, the Supreme
Court interpreted the phrase "authorized by law" not to have
"a special, limited meaning." Chrysler, 441 U.S. at 298.
Instead, the Supreme Court instructed that the exercise by
an agency of quasi-legislative power "must be rooted in a
grant of such power by the Congress and subject to limita-
tions which that body imposes." Id. at 302. More directly,
the Court stated that "[w]hat is important" is whether the
reviewing court could reasonably conclude that the statutory
grant of authority contemplated the regulations providing for
release of information. Id. at 308. Thus, in rejecting the
contention that an Executive Order directing the Secretary of
Labor to adopt regulations as are "necessary and appropri-
ate" meant that all regulations so promulgated have the full
"force and effect of law," the Court focused on whether there
was a "nexus between the regulations and some delegation of
the requisite legislative authority by Congress." Id. at 304.
Looking at the statutory sources for the Executive Order,14
the Court concluded that "it is clear that when it enacted
these statutes, Congress was not concerned with public dis-
closure of trade secrets or confidential business informa-
tion...." Id. at 306. By way of illustration, the Court
contrasted the situation in NBC v. United States, 319 U.S.
190, 217 (1943), where, based on the language and logic of the
Communications Act, which vested comprehensive powers in
the Commission, the Court upheld Commission regulations
that extended beyond technical, engineering requirements.
See Chrysler, 441 U.S. at 308. A mere housekeeping statute,
on the other hand, whose history indicated that it was "simply
a grant of authority to the agency to regulate its own affairs,"
would not suffice to authorize disclosure of confidential busi-
ness information because it was not intended to provide
authority for limiting the scope of the Trade Secrets Act. Id.
at 309.
Under s 220(a) of the Communications Act, the Commis-
sion is authorized to direct the kind of financial books and
records that carriers must maintain so that the Commission
can fulfill its mandate of ensuring that carriers' rates and
practices are just and reasonable. See 47 U.S.C. s 220(a).
In establishing a uniform system of accounts, the Commission
is charged with "ensur[ing] a proper allocation of all costs to
and among telecommunication services, facilities, and prod-
ucts...." Id. s 220(a)(2). Under s 220(c), the Commission
"shall at all times have access to and the right of inspection
and examination of all accounts, records, and memoranda"
maintained by the carrier pursuant to s 220. In addition, the
Commission may use public accounting services. In this
connection, subsection (c) provides an exception to nondisclo-
sure laws as well as a nondisclosure limitation on persons
__________
14 Among the possible sources were the Federal Property and
Administrative Services Act of 1949, Titles VI and VII of the Civil
Rights Act of 1964, and the Equal Employment Opportunity Act of
1972. See Chrysler, 441 U.S. at 304-05 & nn.34-36.
having access to information submitted to the Commission.
Subsection (c) provides that "[a]ny provision of law prohibit-
ing the disclosure of the contents of messages or communica-
tions shall not be deemed to prohibit the disclosure of any
matter in accordance with the provisions of this section." Id.
s 220(c). The statute further provides that any person con-
ducting a Commission audit shall have the powers of the
Commission under subsection (c) and shall be subject to
subsection (f) "in the same manner as if that person were an
employee of the Commission." Id.15 Section 220(f), in turn,
provides:
No member, officer, or employee of the Commission shall
divulge any fact or information which may come to his
[or her] knowledge during the course of examination of
books or other accounts, as hereinbefore provided, except
insofar as he [or she] may be directed by the Commission
or by a court.
Id. s 220(f) (emphasis added).
Subsection (f), first mentioned in s 220(c) after a sentence
that removes any legal obstacles to the disclosure of informa-
tion submitted to the Commission in accordance with s 220,
places nondisclosure burdens on all persons having access to
confidential information submitted to the Commission. Thus,
its strict limitation on how confidential information is to be
handled arises in a context in which the Commission will have
access to information that is otherwise protected by law from
disclosure. Nevertheless, Congress alluded to the possibility
of disclosure by the Commission (and the court). Qwest's
contention that s 220(f) is "an integral part of a nondisclo-
sure statute" is correct so far as it goes. However, viewing
s 220(f) as directed to nondisclosure does not mean that its
__________
15 The other provisions of s 220 are not directly applicable to
this analysis. Section 220(b) concerns depreciation charges, see 47
U.S.C. s 220(b), while subsection (d) establishes a penalty against
carriers for failure to comply with the record-keeping provisions,
see id. s 220(d), and subsection (e) establishes a penalty for false
entries in, and destruction or alteration of, records by any carrier.
See id. s 220(e).
last clause has no role to perform, much less nothing to do
with the conditions under which disclosures may occur. Un-
der Chrysler, s 1905 is satisfied without a provision of law
that expressly refers to trade secrets. See Chrysler, 441 U.S.
at 308.
Congressional intent to allow an exception to nondisclosure
seems implicit in the statutory scheme. In the Communica-
tions Act of 1934, Congress delegated broad authority to the
Commission in carrying out its responsibilities for oversight
of licensing, rate making, and carrier practices. See 47
U.S.C. s 151 et seq.; NBC, 319 U.S. at 217-20. Significantly,
in s 220, Congress placed in the Commission the responsibili-
ty to "ensure a proper allocation of all costs." 47 U.S.C.
s 220(a)(2). With the additional provisions authorizing au-
dits, it reasonably follows that Congress contemplated that
the Commission would be reviewing the type of data at issue
here. Thus, unlike the statutes that were considered by the
Supreme Court in Chrysler, see 441 U.S. at 304-09, s 220
focuses on the need for the Commission to have access to
confidential information regarding licensees and others, and
to determine how such information is to be protected when
the Commission carries out its responsibilities. The former is
addressed in s 220(c), the latter in s 220(f). When Congress
consolidated various statutes on trade secrets in 1948, it gave
no indication that federal agencies' interpretation of their
authority to release confidential data was in error, much less
no longer of force and effect.16 Nothing in Chrysler suggests
that a comparable situation existed with respect to the stat-
utes considered in that case. See Chrysler, 441 U.S. at 308.
To the extent Qwest contends that s 220(f) is too broad an
authorization, in its view leaving the Commission with unfet-
tered discretion, we offer two responses. First, contrary to
Qwest's contention, Chrysler does not require that the statu-
tory authorization under s 1905 be directed, or limited, to
__________
16 See, for example, s 20(7)(f) of the Interstate Commerce Act
of 1887, 49 U.S.C. s 20(7)(f) (1976) (current version at 49 U.S.C.
ss 11904, 14908, 16103 (1994 ed. Supp. I 1995)), which is the
apparent model for s 220(f).
trade secrets.17 Rather, as the Supreme Court emphasized in
Chrysler, the important question is whether the reviewing
court can reasonably conclude that the grant of authority
contemplates the regulations issued. See Chrysler, 441 U.S.
at 308. Chrysler's test is, in one sense at least, a non-
demanding one with respect to the purpose of the Trade
Secrets Act--namely, to ensure that Congress has authorized
release of covered information and that any such release
occurs only after deliberation by appropriate officials. See
CNA, 830 F.2d at 1141-42. Section 220(f) is consistent with
the restraint that Congress sought to impose in the Trade
Secrets Act because it permits release only on order of the
Commission (or the court) where, as the Supreme Court
noted, such release would be consistent with the purposes of
the Communications Act. See Chrysler, 441 U.S. at 307-08.
As we discuss in Part III, the Commission has adopted a
Confidential Information Policy and regulations for release
decisions to be made upon consideration of certain factors by
appropriate officials.
Second, other circuits have concluded that, under Chrysler,
a broadly stated grant of authority to disclose confidential
information suffices for purposes of s 1905. Thus, the
Fourth Circuit in Humana, Inc. v. Blue Cross, 622 F.2d 76
(4th Cir. 1980), upheld the Secretary of Health, Education,
and Welfare's "broad discretion to permit disclosure" where
the statute, 42 U.S.C. s 1306(a), provided that "[n]o disclo-
sure ... shall be made except as the Secretary ... may by
regulations prescribe ...." Id. at 78 (emphasis added).
Relying on Chrysler's test, that "[t]he grant of authority
relied upon by a federal agency in promulgating regulations
need not be specific; it is only necessary 'that the reviewing
court reasonably be able to conclude that the grant of author-
ity contemplates the regulations issued,' " id. (quoting Chrys-
ler, 441 U.S. at 308), the court concluded with respect to the
__________
17 Bartholdi Cable Co., Inc. v. FCC, 114 F.3d 274 (D.C. Cir.
1997), is not to the contrary, as Qwest suggests. Indeed, in
Bartholdi, the court did not reach the statutory question that is at
issue here. See id. at 281-82.
disclosure of cost reports, that "absent any action by the
Secretary, disclosure would be prohibited. Such material,
however, is not exempt from disclosure for by its very terms
the statute contemplates the issuance of regulations by the
Secretary permitting such disclosure." Id. at 79. In St.
Mary's Hospital, Inc. v. Harris, 604 F.2d 407 (5th Cir. 1979),
the Fifth Circuit had reached the same conclusion about a
regulation authorizing disclosure of cost reports, stating that
"[s]ection 1306 bars the disclosure of Medicare providers'
costs reports unless the Secretary in his discretion promul-
gates a regulation like [the one being challenged] ordering
disclosure of these reports.... At the very least s 1306 may
reasonably be construed to contemplate the promulgation of
[a regulation such as is at issue]." Id. at 410. The Sixth
Circuit agreed in Parkridge Hospital, Inc. v. Califano, 625
F.2d 719 (6th Cir. 1980), interpreting the statute to be "a
broad grant of authority to the Secretary specifically to enact
regulations providing for the release of information filed with
the agency, at least when such disclosure serves the purposes
described in the statute." Id. at 724.
While Qwest would distinguish the statute in Humana,
Parkridge, and St. Mary's as reflecting Congress' clear intent
to permit disclosure of trade secrets, the effect of the last
clause of s 220(f) of the Communications Act is essentially
the same. That is, in both types of statutes Congress has
alluded in an "except" clause to the possibility of disclosure of
protected information, and in both circumstances assured that
the Secretary and the Commission must reach a considered
determination about releasing protected information. The
different statutory treatment by Congress can be said to
reflect not a difference in congressional intent but the fact
that the Secretary is an individual decision-maker, and by
requiring the promulgation of regulations, Congress con-
strained the Secretary's decision-making authority regarding
the release of protected information. Comparable constraint
inheres in the statutory requirements that the Commission
may act only as a deliberative body, when there is a quorum,
when parties may be heard, and when its actions are made on
the record. See generally 47 U.S.C. ss 154(h), (j).
Accordingly, we hold that the Communications Act, and
specifically, s 220(f), does not clearly rule out the Commis-
sion's interpretation, which we find reasonable.
III.
The question remains whether the Commission has acted
arbitrarily and capriciously in ordering the release of Qwest's
raw audit data to some of its competitors.18 See Chrysler, 441
U.S. at 318; Bartholdi, 114 F.3d at 279. Qwest contends that
the release order is "flatly inconsistent" with the Commis-
sion's prior assurance that raw audit data would be protected.
More particularly, Qwest contends that the Commission's
Order is contrary to its precedents on the treatment of
confidential information.19 Qwest calls attention to the un-
precedented nature of the release, maintaining that "whatev-
er authority the Commission may have to disclose trade
secrets in other kinds of proceedings in order to vindicate
rights to public participation, the logic and purposes of the
__________
18 Although Qwest states in its briefs that the "sole" issue on
appeal is whether the Communications Act authorizes the Commis-
sion to release trade secrets, and arguably the court is entitled to
take Qwest at its word, see Fed. R. App. P. 28(a)(9); J.S.G. Boggs v.
Rubin, 161 F.3d 37, 42 (D.C. Cir. 1998) (citing Carducci v. Regan,
714 F.2d 171 (D.C. Cir. 1983)); Adams v. Hinchman, 154 F.3d 420,
424 n.7 (D.C. Cir. 1998), the arguments in Qwest's briefs suffice to
preserve a second issue for appeal. The Commission has addressed
Qwest's contention on the assumption that the court might conclude
that the contention was properly preserved, and hence there is no
prejudice to the Commission as a result of Qwest's failure to clearly
designate in its briefs its alternative contention. See Fed. R. App. P.
28(a)(5), (8).
19 Before the Commission, Qwest argued that the release deci-
sion was not only contrary to statute, but "contrary to the Commis-
sion's own precedent regarding treatment of audit information" and
would adversely affect both Qwest's competitive position, and the
Commission's ability to perform future audits. In addition, Qwest
asserted that release breached the understanding and expectation
that it had in submitting such information to the Commission--
namely, that the information would be kept in confidence.
statutory provisions governing confidential agency audits are
quite different." The Order constitutes, in Qwest's view, a
"standardless 'discretionary' exemption from disclosure" justi-
fied solely on the Commission's unprecedented step of open-
ing audits to public comment.
The Commission's Confidential Information Policy in-
cludes three paragraphs regarding audits that are pertinent
here. See In re Examination of Current Policy Concerning
the Treatment of Confidential Information Submitted to the
Commission, Report and Order, 13 F.C.C.R. 24816, 24847-49
p p 53-55 (1998), amended by 14 F.C.C.R. 20128 (1999) ("Con-
fidential Information Policy"). Paragraph 53 provides that
only summary audit data will be released, and only under
special circumstances. See id. at 24847-48 p 53. Those spe-
cial circumstances arise when: "(i) the summary nature of the
data therein is not likely to cause the submitter substantial
competitive injury; (ii) the release of the summary data and
information is not likely to impair [the Commission's] ability
to obtain information in future audits; and (iii) overriding
public interest concerns favor release of the report." Id.
Paragraph 54 explains the Commission's view of audit
reports:
The Commission has a longstanding policy of treating
information obtained from carriers during audits as con-
fidential.... Carriers have a legitimate interest in pro-
tecting confidential information, and we agree that disclo-
sure could result in competitive injury to those who
provide such information to the Commission. This policy
is also designed to enhance the efficiency and integrity of
our audit process by encouraging carriers to comply in
good faith with Commission requests for information.
Moreover, the Commission considers the audit reports to
be internal agency documents that, consistent with FOIA
Exemption 5, generally should not be disclosed to the
extent they present staff findings and recommendations
to assist the Commission in pre-decisional deliberations.
Id. at 24848 p 54. Paragraph 54 also states that the Commis-
sion "will amend Section 0.457 of [its] rules to indicate that
information submitted in connection with audits ... will not
routinely be made available for public inspection." Id.
In paragraph 55, the Commission identified the standards
that it would apply were confidential audit information to be
released. Observing that it has "only rarely departed from
the general policy of withholding audit information from
public disclosure," the Commission advised nonetheless that,
[p]arties should note, however, that as in the past, we
may publicly disclose audit information in rare cases
where the underlying concerns that normally lead us to
withhold audit information from public disclosure are
diminished by the minimal risk posed by the release of
aggregate data or, where the data is otherwise not highly
commercially sensitive and disclosure is justified by sig-
nificant public interest factors.
Id. at 24848-49 p 55 (emphasis added). Thus, s 0.457 of the
Commission's regulations provides, in part, that "[t]he rec-
ords in this section are not routinely available for public
inspection," 47 C.F.R. s 0.457, and in subsection (d) that
"[t]rade secrets ... are not routinely available for public
inspection.... A persuasive showing as to the reasons for
inspection will be required in requests for inspection of such
materials submitted under s 0.461." Id. s 0.457(d).
Numerous cases reflect the Commission's application of
Paragraphs 53 and 54 of its Confidential Information Policy
and s 0.457 of its regulations.20 None Qwest maintains, until
now, involved the release, pursuant to Paragraph 55, to a
competitor of raw audit data in an audit or audit-related
proceeding. In applying its Confidential Information Policy,
the Commission has heretofore acknowledged a distinction
between summary audit data and raw audit data:
__________
20 See, e.g., In Re BellSouth Corporation BellSouth Telecom-
munications, Inc., Memorandum Opinion and Order, 8 F.C.C.R.
8129, 8130 p 7 (1993) ("BellSouth"); In Re Martha H. Platt, Memo-
randum Opinion and Order, 5 F.C.C.R. 5742, 5742 p 6 (1990)
("Platt"); In Re Scott J. Rafferty, Memorandum Opinion and
Order, 5 F.C.C.R. 4138, 4138 p 3 (1990) ("Rafferty"); In Re Western
Union Telegraph Company, Memorandum Opinion and Order, 2
F.C.C.R. 4485, 4486 p 10 (1987).
[T]he release of commercial and financial information of
only a summary nature does not present the concerns
about competitive harm that normally lead us to withhold
audit-derived information from public disclosure....
The Summary contains no detailed underlying commer-
cial or financial information submitted by the BOCs;
rather it presents a brief analysis of the aggregated
underlying data. The summary nature of this informa-
tion significantly diminishes the likelihood that the BOCs
will suffer any competitive harm.
In re Bell Telephone Operating Companies, Memorandum
Opinion and Order, 10 F.C.C.R. 11541, 11542 p 6 (1995).
Thus, the Commission has explained that it "withholds ...
raw financial data obtained from carriers during audits as
well as audit workpapers compiled by Commission staff" in
accord with its "general policy [ ] to withhold from public
disclosure audit reports prepared by Commission staff." In
Re GTE Telephone Operating Companies, Memorandum
Opinion and Order, 9 F.C.C.R. 2588, 2588 p 4 (1994). See
also BellSouth, 8 F.C.C.R. at 8129 p 8. "[A]udit reports
[that] contain substantial raw data and other information
provided by various [Local Exchange Carriers] that has not
been summarized, reformatted, or otherwise edited," the
Commission has explained, "[are] not routinely available for
inspection." Platt, 5 F.C.C.R. at 5742 p 6. The Commission's
view has been that the release of raw audit data "would likely
impair the Commission's ability to obtain necessary informa-
tion in the future." Rafferty, 5 F.C.C.R. at 4138 p 2. Where
the Commission has ordered the release of confidential finan-
cial information even if there is the possibility of competitive
harm as a result, the occasions appear to have been confined
to an adjudication, rulemaking, or a rate proceeding in which
a party has placed its financial condition at issue.21
__________
21 See, e.g., In re Alaskans for Better Media, Memorandum
Opinion and Order, 70 F.C.C.2d 1366 (1979); In re Classical Radio
for Connecticut, Inc. and WTIC-FM Listeners' Guild, Memoran-
dum Opinion and Order, 69 F.C.C.2d 1517 (1978); In re NTV
Enterprises, Inc., Memorandum Opinion and Order, 62 F.C.C.2d
722 (1976).
Qwest and amicus United States Telecom Association point
out that audits "are not voluntary, afford no statutory right of
public participation, and have historically involved" only the
Commission and the entity being audited. Consistent with
these concerns, the Commission, has applied its Confidential
Information Policy strictly, allowing exceptions in audits and
related proceedings only for release of summaries of audit
data that do not reveal "competitively sensitive materials."
Confidential Information Policy, 13 F.C.C.R. at 24824 p 9.
While the Commission states that its Order establishes no
"precedent that compromises the integrity of the audit pro-
cess," Order, 15 F.C.C.R. at 1790 p 11, the Commission's
rulings, regulations, and Confidential Information Policy
reflect a different approach. As applied by the Commission,
the exceptional circumstances considered in the Confidential
Information Policy for audits and in Commission rulings
appear to have been confined to release of summary audit
data.
Still, the unprecedented nature of the Commission's Order
does not itself demonstrate arbitrariness. See Capital Net-
work Sys., Inc. v. FCC, 28 F.3d 201, 204-06 (D.C. Cir. 1994).
But, in view of the policy by which the Commission has
constrained the exercise of its discretion under s 220(f), its
decision to release Qwest's raw audit data to its competitors
likely would be arbitrary and capricious if the Commission
failed to explain how it reached the conclusions that (1) the
raw audit data is "otherwise not highly commercially sensi-
tive," and (2) "disclosure is justified by significant public
interest factors." Confidential Information Policy, 13
F.C.C.R at 24849 p 55. See also 47 C.F.R. s 0.457(d).
In addressing Qwest's claims of harm, the Commission
determined that its protective order, as amended, would
ensure that any competitive harm is minimal. See Order, 15
F.C.C.R. at 1790 p 12. This reasoning followed, the Commis-
sion concluded, because disclosure was for the limited pur-
pose of responding to Issue 2 as to sampled items not found,
unidentified, or found in another location. See id. This is not
the same as finding that Qwest's raw data is "otherwise not
highly commercially sensitive," or a finding that release of the
data would not adversely affect Qwest's competitive position.
Confidential Information Policy, 13 F.C.C.R. at 24849 p 55.
Indeed, the Commission appears to acknowledge that the
data is commercially sensitive, rationalizing release on the
ground that the protective order ensures against competitive
harm or ensures that such harm would be minimal.
In concluding that the public interest outweighs any po-
tential competitive harm to the RBOCs, the Commission
observed that the RBOCs raised issues that the auditors'
rescoring was not done correctly, and that the previously
released summaries of the auditors' general procedures
were insufficient to elicit useful information, which the
Commission defined in terms of being able to comment on
how the auditors' general procedures were actually imple-
mented. See Order, 15 F.C.C.R. at 1789 p 9. Observing
that it has "rarely, if ever, sought public comment on its
auditors' methodology and findings," the Commission stated
that it "was sufficiently concerned about the issues sur-
rounding the audits to invite public comment," and that
broader comment "will greatly assist" the Commission in
resolving the issues. Id. at 1790 p 11. Advising on appeal
that the focus of Issue 2 involving audit methodology is
unprecedented, the Commission repeats that "unusual
events call for an atypical response."
Missing from the Commission's decision is a discussion of
why such an unprecedented release of confidential audit
information is required for purposes of Issue 2. The Com-
mission stated that "useful information about the accuracy
and validity of the audits" could not be obtained "unless
commenters were allowed to examine how those general
procedures were actually implemented when the auditors
decided whether rescoring was appropriate." Id. at 1789 p 9.
But it is unclear why this is so. The Deloitte & Touche
analysis submitted by Qwest, for example, appears to suggest
that the sampling methodology could be evaluated in theoreti-
cal terms as applied to hypothetical situations or to a compos-
ite of raw data without identifying an individual RBOC's
sensitive commercial information. Other ways of avoiding the
release of raw audit data to competitors might be equally
effective for the Commission's purposes. Or, at least on the
basis of the record, the court cannot tell that other ways
would not be equally effective. Before invoking its "rare
case" exception to its nondisclosure policy, the Commission
must consider plausible alternatives and discount them before
resorting to the release of raw audit data. Otherwise,
Qwest's claim that the Order represents a standardless ex-
emption from the Commission's policy and precedent gains
force. A response that the protective order adequately pro-
tects Qwest against competitive injury misses the mark. The
Commission must explain why only the release of raw audit
data will achieve meaningful public comment. In submitting
audit data, Qwest was entitled to rely on the Commission's
announced policy and precedent on how it would handle
confidential audit information. Qwest is similarly entitled to
assurances that the unprecedented disclosures will be consis-
tent with the standards that the Commission has set for itself
and that the invocation of the "rare case" exception under
Paragraph 55 is warranted. See Motor Vehicles Mfrs. Ass'n
v. State Farm Auto. Ins. Co., 463 U.S. 29, 43 (1983).
Accordingly, we deny the petition in part, and we remand
the case to the Commission for further consideration.