Cities Claim Trade Secret to Incentivize Headquarters


Trade Secret Claims to Protect Tax Incentive Disclosure

Recently, major cities of Michigan were involved in the bidding war over Amazon’s latest corporate campus.  In helping to craft bids for the site, the Michigan state government enlisted the help of the Michigan Economic Development Corporation (“MEDC”) in its quest to secure Amazon’s site.  But even though Michigan was unable to procure Amazon’s latest campus, the state government has resisted Freedom of Information Act (“FOIA”) requests to disclose how much was offered in tax incentives to Amazon under FOIA exemptions available if the information can be classified as “trade secrets.”

Maintaining Secrecy Through Non-Disclosure Agreements

In addition to claiming trade secret protection, to protect the tax incentives from being disclosed, the MEDC is also citing nondisclosure agreement protection as a basis for its choice of nondisclosure.  This MEDC decision to avoid disclosure comes at odds with other decisions to disclose.  For instance, the state government chose to disclose that it offered up to $2 billion in incentives to Amazon for a Grand Rapids location and previously offered more than $3 billion in subsidies to Foxconn Technology Group last year.

Concerns of Expansion of FOIA Exemptions

Critics of the trade secret protection claim are worried about why the state of Michigan would find it necessary to keep secret any incentives being offered to private parties.  In this case, the offer and nondisclosure agreement were signed with Dan Gilbert’s Rock Ventures.

The MEDC has already denied other FOIA requests, citing protection under a nondisclosure agreement signed with Rock Ventures.  Critics of MEDC’s maneuvering include the Michigan Coalition for Open Government.  The MEDC says that the reason why some incentive packages can be disclosed and why others cannot be disclosed is due to additional addendums in the Amazon deal that can be applied to different companies.  But critics of the FOIA refusal note that such use by the state could potentially expand the scope of FOIA exemptions in an unintended way and have a chilling effect on the public’s access to government information.

Interestingly, Amazon is not even a party to the nondisclosure agreement that is being used to block the FOIA request.  Moreover, it is important to note that the MEDC does not technically qualify as an official state department because it operates with both a mixture of public and private money.  As such, it is perfectly within its rights to choose to disclose some of its tax incentive plans while declining to do so for other clients.

Trend in Trade Secrecy Claims

While only time will tell whether the MEDC will be able to continue to successfully deny FOIA requests using claims of nondisclosure agreement protection as well as trade secret protection, such a trend may have troubling implications for the transparency of state (and at one point, perhaps, federal) tax incentive programs.  While intellectual property attorneys would be interested to know of this new use of claims of trade secret protection, it would behoove counsel in the field to stay atop of such developments as FOIA requests and trade secret protection typically do not overlap in such a manner.

For more information on this topic, please visit our Trade Secret Protection service page, which is part of our Technology & Data Practice.

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