DC Circuit Reaffirms Its Decision on SEC’s Conflict Minerals Rule

On August 18, 2015, a panel of the US Court of Appeals for the DC Circuit reaffirmed its April 2014 decision in National Association of Manufacturers, Inc. v. SEC (NAM); the SEC and Amnesty International had petitioned for rehearing based on the Court’s July 2014 en banc decision in American Meat Institute v. U.S. Department of Agriculture (AMI). In its original NAM decision, the Court largely upheld the conflict minerals rule, but held that it violates the First Amendment to the extent it requires companies subject to the rule to describe any of their products as having “not found to be ‘DRC conflict free.’”[1]

The Court’s original NAM decision had declined to apply the relaxed First Amendment standard of review articulated in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985). It held that the Zauderer standard was limited to cases involving the government’s ability to compel commercial speech in order to prevent deceptive advertising and instead applied the stricter “intermediate” standard of review articulated in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557, 564-66 (1980). After the issuance of the original NAM opinion, the en banc Court in AMI decided that Zauderer also applied to compelled disclosure of “purely factual and uncontroversial information” at the point of sale, holding that the government had not violated the First Amendment when it forced companies to list country of origin information on the labels for their meat products.

In reaffirming its original NAM decision, the Court held that “Zauderer has no application to this case” (as it is unconnected to advertising or labeling at the point of sale). The Court then added, as an alternative basis for its decision (perhaps reflecting some doubt as to the Court’s analysis in AMI), “even if the compelled disclosures here are commercial speech and even if AMI’s view of Zauderer governed the analysis, we still believe that the statute and the regulations violate the First Amendment.” AMI requires identification and assessment of the governmental interest, followed by an evaluation of the “effectiveness of the measure in achieving it.” The Court found that the premise of the statute and the rule–that requiring companies to disclose that their products have “not been found to be DRC conflict free” will decrease the revenue of armed groups in the relevant countries and thus diminish the humanitarian crisis there—is “entirely unproven.” In commercial speech cases, the government cannot rest on “speculation or conjecture.”

The Court then stated that even if this were not a fatal flaw, the compelled disclosures are not “purely factual and uncontroversial” as required by AMI; the description at issue—whether a product is “conflict free” or “not conflict free”—was hardly “factual and non-ideological.”

On the basis of this analysis, the Court reaffirmed its initial conclusion that the conflict minerals rule violates the First Amendment to the extent it requires regulated entities to report to the SEC and state on their website that any of their products have “not been found to be ‘DRC conflict free.’”

The Court also issued an order restarting the period during which the parties may petition for en banc review. The SEC has not yet disclosed whether it intends to seek further review.