DC Circuit Court Reaffirms Earlier Decision Partially Invalidating Conflict Minerals Rule on First Amendment Grounds
Pursuant to Section 1502 of the Dodd-Frank Act, which added new Section 13(p)(1) to the Securities Exchange Act of 1934, as amended, the SEC promulgated Rule 13p-1 (the “Conflict Minerals Rule”), which required that issuers that manufacture (or contract to manufacture) products in which conflict minerals are “necessary to the functionality or production of the product” are required to disclose whether or not their products contain tin, gold, tantalum, or tungsten mined from the Democratic Republic of Congo (the “DRC”) and nine of its neighboring countries. This provision was included in the Dodd-Frank Act at the request of legislators who believed that the process of mining for and producing these particular minerals in certain countries is contributing to a grave, ongoing humanitarian crisis in that region of Africa.
In April 2014, in National Association of Manufacturers v. SEC, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit Court”) issued a decision finding that a portion of the Conflict Minerals Rule violated the First Amendment of the United States Constitution, to the extent that issuers were required “to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’” In response to this decision, the SEC issued an order formalizing previous guidance that “[n]o company is required to describe its products as ‘DRC conflict free,’ having ‘not been found to be ‘DRC conflict free, or ‘DRC conflict undeterminable.’" However, in light of a subsequent decision by the D.C. Circuit Court expanding the application of a U.S. Supreme Court ruling that applies a lower threshold for a government to show that a law does not violate First Amendment rights, the SEC (along with Amnesty International) filed a petition for a rehearing of the panel decision, which was granted by the court in November 2014.
On August 18, 2015, in a 2-1 split decision, the D.C. Circuit Court reaffirmed its prior decision that the Conflict Mineral Rule “violates the First Amendment to the extent the statute and the rule require [issuers] to report to the Commission and to state on their website that any of their products have ‘not been found to be DRC conflict free.’” The SEC has not yet responded to this decision, and the fate of the Conflict Minerals Rule remains uncertain at this time. We do, however, expect that the SEC will issue additional guidance to provide clarity as to issuers reporting obligations in light of this decision, and we will keep you posted.
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