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California Approves Final Green Chemistry Regulations, Disapproves Key Trade Secret Provisions

Beveridge & Diamond, P.C., September 5, 2013

On August 28, 2013 the California Office of Administrative Law (“OAL”) partially approved and partially disapproved the California Department of Toxic Substances Control’s Safer Consumer Products Regulations, also known as California’s Green Chemistry regulations.  The approved regulations will go into effect on October 1, 2013.  The disapproved provisions, without which DTSC cannot properly review claims that information submitted to the Department is entitled to trade secret protection, were sent back to DTSC to be revised.  This article provides a high-level summary of the final structure of the Green Chemistry regulations and discusses the implications of OAL’s rejection of the trade secrecy provisions of the regulations.

High-Level Summary of Green Chemistry Regulations

OAL’s approval of the California Green Chemistry regulations is the final step in a five-year process that began when the California Safer Consumer Product legislation, AB 1879 and SB 509, was signed into law in 2008.  The process included three public comment periods on the regulations, an additional public comment period on the Initial Statement of Reasons, and three public comment periods on various studies and reports that were part of the rulemaking file.

The adopted regulations establish a four-step regulatory process under which DTSC will:

  1. Identify candidate chemicals based on eight hazard traits (carcinogenicity, reproductive toxicity, mutagenicity, developmental toxicity, respiratory sensitivity, endocrine disruption, neurotoxicity, and/or persistent bioaccumulation);
  2. Develop a list of priority products containing those chemicals;
  3. Require responsible entities (typically manufacturers, but potentially importers, assemblers, and/or retailers) to alert DTSC that they manufacture priority products containing chemicals of concern and to analyze possible alternatives; and, finally
  4. Determine a regulatory response for each priority product, which may include requiring supplemental information, requiring product warnings, instituting use restrictions, banning products, mandating engineering or administrative controls, requiring end-of-life product management, and/or requiring the responsible entity to fund efforts find a safer alternative.

Under the regulation, the initial list of candidate chemicals is expected to include over 1,200 chemicals selected from preexisting lists assembled by 23 authoritative bodies.  But only approximately 230 of those chemicals will be evaluated for development of the first Priority Products List.  DTSC plans to list a priority product only if it finds potential exposure to the candidate chemical and potential for exposures to cause “significant or widespread adverse public health and/or environmental impacts.”  Once priority products are listed, the candidate chemicals that resulted in the listing will be classified as “Chemicals of Concern.”

DTSC has 180 days from the effective date of the regulations to identify the first set of (no more than five) priority products.

OAL Disapproval of Trade Secrecy Provisions (April 2014)

When OAL approved the Green Chemistry Regulations, it disapproved the adoption of three subsections for failing to comply with the Clarity Standard of the California Administrative Procedure Act, Govt. Code Section 11349.1(a)(3).  Two of those three subsections, 69509.1(a) and (c) relate directly to trade secrecy claims made for information submitted to DTSC as part of the alternatives analysis.  Given the wide-reaching trade secrecy implications of the Green Chemistry Initiative, it is not an overstatement to say that the regulations require a broader disclosure of product formula and other classic trade secret information to the State of California than any other environmental regulatory regime in the history of the state.  The fact that two key components of the trade secrecy regulations were rejected is notable with wide-reaching implications.

The reason that OAL rejected Section 69509.1(c) is that under the regulations, DTSC will reject a claim of trade secrecy protection if the information “does not meet the substantive criteria for trade secret designation . . . ,” but fail to make clear what “substantive criteria” DTSC will look to for evaluating a claimed trade secret.  DTSC has proposed amending the provision to read that it will disclose claimed trade secret information if the information submitted under Section 69509(a) “does not establish that the information claimed to be trade secret meets the definition of ‘trade secret’ in section 69501.1(a)(66).”  This amendment is expected to satisfy OAL.

The reason that OAL rejected Section 69509.1(a) is that under the regulations, “upon receipt of [claimed trade secret] information . . or at any time thereafter, the Department may review the trade secret claim.”  OAL correctly notes that this provision does not allow affected persons to know when a review will occur, nor what factors would be considered in determining when DTSC will or will not review a claim.  DTSC likely tried to utilize this flexible, optional language to blunt the massive burden of being required to conduct a trade secrecy review of all claimed trade secret information, which DTSC lacks the resources to do.

To clarify the provision, DTSC proposed amended language providing that it “shall review a trade secret claim and supporting information for compliance with the requirements of this article before disclosing the information that is the subject of the trade secrecy claim.”  DTSC will either conduct the review in response to a specific Public Records Act request or if it has some other reason to believe that the claim should not be honored.  Substantively, this provision is no different from the “may review” language, since technically DTSC was already required under existing law (the Uniform Trade Secrets Act and Public Records Act) to determine the validity of the trade secret claim before releasing the information to the public.  Hence, the change may not solve the two issues raised by OAL:  clarifying how affected parties will know when DTSC will review claims and describing the factors DTSC will consider in determining whether or not to review a claim.  Despite the fact that the change is largely illusory, it may be enough for OAL that DTSC switched from permissive “may” language to absolute “shall” language.

Interestingly, because subsections (a) and (c) were not adopted, DTSC lacks the authority to initiate a review of a trade secrecy claim or to reject the claim.  Currently, the only way it could disclose claimed trade secret information would be to notify a claimant under Section 69509.1(b) that information provided under Section 69509(a) is insufficient and the claimant fails to provide additional information within the time period set forth by DTSC.

Pressure from industry and the environmental community likely explains DTSC timely release of revised regulations for 15-day notice-and-comment on August 23, which actually predates the public announcement of OAL’s disapproval.  Industry’s interest stems from its massive investment in the trade secret information that will be disclosed to DTSC -- companies will naturally be hesitant to disclose valuable trade secret information until they know the exact procedures DTSC will use to protect it.  Environmental groups believe the immediate clarification of subsections (a) and (c) is necessary to prevent responsible entities from abusing trade secrecy claims.  The fact that DTSC cannot even evaluate the validity of claims until subsections (a) and (c) are adopted provides ample reason for the environmental community and industry to champion immediate action.  The public comment period on the proposed amendments to the trade secrecy provisions closes on September 9, 2013.

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If you have any questions about this article, compliance with the Green Chemistry regulations, or the disclosure of trade secret information to DTSC, please contact Laura Duncan LDuncan@bdlaw.com, (415) 262-4003 or Daniel Brian DBrian@bdlaw.com, (415) 262-4016.