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Regulatory: The fracking debate creates a fractured legal landscape

Government regulation threatens trade secret confidentiality

The Uniform Trade Secrets Act has been enacted in some form by almost all states. A uniform national law of trade secrets, however, is still at best a distant prospect. It is probably not surprising that the state courts sometimes produce conflicting bodies of precedent interpreting the Trade Secrets Act, but at least the decisional law shares a common conceptual framework. By contrast, no such uniformity exists where the law of trade secrets intersects with state regulation of industrial and commercial activity. State legislatures and governmental agencies have taken varied and conflicting approaches to the difficult challenge of balancing the public interest in regulatory oversight against preserving the confidentiality of trade secrets. For companies operating in numerous states, these conflicting approaches can create a trap for in-house counsel and jeopardize protection of trade secrets.

Nowhere is this challenge more apparent than in the state laws and regulations governing hydraulic fracturing, or fracking. In recent years, technological advances in hydraulic fracturing have resulted in dramatic growth of fracking as a method for oil and natural gas extraction, accompanied by growing public interest in the composition of fracking fluids. Demands for disclosure create a quandary for industry, who regard the composition of these fluids as highly valuable trade secrets. Wide variation in the applicable state laws and regulations only increases the risk. In-house counsel must tread carefully to protect the company’s interests as an owner of valuable trade secrets while reassuring regulators and the public of the safety of the company’s activities, all the while recognizing that a solution that works in one state may be entirely unworkable in another.

At least fifteen of the twenty-nine states with confirmed hydraulic fracturing activity have laws requiring disclosure of information about the chemicals and additives in hydraulic fracturing fluid. Legislation requiring disclosure is pending in at least an additional seven states. Current and proposed disclosure requirements vary widely on when information about the chemical compounds in fracturing fluid must be disclosed, to whom information must be disclosed, how much information must be disclosed and whether there are any protections for trade secrets. If a state requires public disclosure, the parties are often required to post the information on the FracFocus Chemical Disclosure Registry. Other states require the parties involved in fracturing to submit information to a state agency. Some states also have special procedures for disclosure of the chemical compound information to health care providers.

The level of disclosure required in each state depends on how specifically a party must describe the fracturing fluid chemical composition and additives. Only seven states require that the Chemical Abstract Service number (CAS) be disclosed for all additives used. Of those seven states, Montana and Wyoming also require the rates and concentrations of each additive used. Other states, such as Ohio, require disclosure of the “maximum concentration” of additives in addition to the CAS number. States that do not require a CAS number limit the disclosure of chemicals to those defined as hazardous substances by the Occupational Safety and Health Administration and only require as much disclosure as would be included on a Material Safety Data Sheet.

Even those states that require detailed disclosures still provide protection for trade secrets, but again through varying approaches. In some states, companies may withhold disclosing information to a state agency the companies themselves deem confidential; whereas in other states, the information must be provided, but the agency decides whether the information is exempt from public disclosure. For example, Wyoming requires disclosure of the chemical compound, but the regulations provide that the state agency shall deny the right of inspection to information that is considered a trade secret.

Although most states do provide some level of protection for trade secrets, proposed agency rulemaking in Alaska would eliminate any trade secret exemption and would mandate detailed public disclosures. Although still awaiting final agency action, the proposed amendments provide a stark example of the challenges of protecting trade secret technology when the public demands strict regulation

Contributing Author

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Matthew Prewitt

Matthew Prewitt is a partner in the Chicago office of Schiff Hardin, where he concentrates in complex litigation and also co-chairs the firm's Trade Secrets Client Services...

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Contributing Author

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Katherine G. Cisneros

Katherine G. Cisneros is an associate in Schiff Hardin’s Chicago office.

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