United States: Fracking Trade Secret Rules: A Tug Of War Without Winners

Last Updated: October 29 2013
Article by   Orrick

In the approximately 31 states with known reserves amenable to hydraulic fracturing, or "fracking," a tug of war is being waged between an oil and gas industry seeking to protect its proprietary processes and environmental groups that want to know the secret sauce.  Because fracking was carved out of federal oversight in 2005, determining where the balance lies has been left to the states.  Not surprisingly, consensus is not the order of the day.  Trade Secrets Watch prepared a state-by-state chart that highlights the key provisions of the states currently requiring disclosure.  To view the chart, click here: flipbook / PDF.

Long a bystander, California has now entered the fray with the passage of S.B. 4, which Governor Brown signed into law on September 20, 2013.  Its statutory regime favors those seeking disclosure.  Not only does California now require disclosure of "each and every" chemical used, including additives, but it expressly excludes the identities of those chemical additives from trade secret protection — a step that goes beyond any other existing regulatory regime.  It also sets a particularly high bar for maintaining information as a trade secret when that status is challenged.  To overcome such a challenge, the holder of trade secret information must obtain either a declaratory judgment from a court, or an order granting a preliminary injunction holding that the information claimed to be a trade secret is subject to protection.  Additional measures tipping towards disclosure include requiring written justification for claiming trade secret status, and developing a single website for reporting fracking details.

No other state applies the California scheme — but then again, no two states apply the same regulatory regime.  While many states delegate regulation to administrative bodies like state oil and gas boards, others have passed legislation that specifically addresses fracking.  As noted in our charts, the disclosure requirements under these differing regulatory frameworks vary widely across the states.  Some states, like Illinois, only require disclosures of fluids used in high-volume fracking.  Others, like Mississippi, limit disclosure requirements to chemical constituents considered hazardous by OSHA (pursuant to 29 C.F.R. 1910.1200(g)(2)).  And while a few states such as California require disclosures both before and after fracking treatments are applied, the majority of states only require disclosure after the fact.

The standard for determining whether fracking information qualifies for trade secret protection presents a similar patchwork quilt across the states.  Colorado, Oklahoma, and others have incorporated the standard for trade secret protection set forth in the Uniform Trade Secrets Act.   But Arkansas and Louisiana use the standard under the federal Emergency Planning and Community Right-to-Know Act (EPCRA), and a significant number of states have not specified any operative standard.  A few states offer protection from the disclosure of trade secret information for limited time periods, while other states permit operators to simply withhold proprietary information.  Meanwhile, states like Colorado, Ohio, and Tennessee have developed more nuanced approaches to protection that require written justification and allow for public challenge.  This patchwork approach to fracking regulation presents challenges for both the industry and public:  industry players must wade through a confusing array of regulations to establish trade secret protection over their processes, and the public is similarly confronted with a bewildering variety of paths for obtaining information about fracking operations.

The uneven application of trade secret protections across the states would seem to be in no one's interest.  For industry players with operations spanning multiple states, trade secrets are put at risk by whichever state provides the least protection — a loss of protection in one state likely destroys trade secret status in all states.  For environmental groups, the uneven treatment presents a dizzying challenge for keeping track of the adequacy of disclosures.  The time to establish a uniform standard that eliminates risks to trade secrets created by patchwork rules, yet also lends transparency to the process, appears long overdue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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