Advocacy Groups File Brief In Conflict Minerals Rehearing

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By Michael Greene

Dec. 30 — The National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable Dec. 29 filed a supplemental brief asking a panel of the U.S. Court of Appeals for the District of Columbia to reaffirm its holding that the SEC's conflict minerals rule violates the First Amendment.

In their brief, the three groups claim that contrary to the SEC's arguments, the D.C. Circuit's ruling in an unrelated case—American Meat Institute v. Dep't of Argiculture—reaffirms that an earlier U.S. Supreme Court decision—Zauderer v. Office of Disciplinary Counsel—“does not apply unless the government-mandated statements are ‘of purely factual and uncontroversial information about the good or service being offered.'”

Accordingly, the appellants urge the court to amend its earlier ruling only “to clarify” that the Securities and Exchange Commission’s rule “is not a ‘purely factual and uncontroversial' disclosure requirement within the meaning of Zauderer.”

Rehearing

The SEC rule requires companies and foreign private issuers in the U.S. to disclose their use of so-called “conflict minerals”—gold, tantalum, tin and tungsten from the Democratic Republic of Congo and adjacent countries—if those minerals are “necessary” to a product made by the companies.

In April, a split D.C. Circuit panel deemed the rule unconstitutional to the extent that it requires issuers to report to the commission and to state on their websites that any of their products have not been found to be “DRC conflict free”. 

The panel concluded that the lower standard of First Amendment scrutiny under Zauderer didn't apply to the case because Zauderer review is limited to disclosures that are reasonably related to the government's interest in preventing consumer deception.

In July, however, the full D.C. Circuit concluded in American Meat that Zauderer review may apply to “government interests” as well as “correcting deception”.

In light of American Meat, the panel—comprising Judges A. Raymond Randolph, Sri Srinivasan and David Sentelle—Nov. 18 granted the SEC and Amnesty International's rehearing petitions. The panel asked the SEC and the other parties in the case to submit supplemental briefs explaining what impact American Meat has on the case's First Amendment issue.

Three Reasons

The SEC in its Dec. 8 supplemental brief claims that the D.C. Circuit's en banc ruling in American Meat “makes clear that the conflict minerals disclosure is consistent with the First Amendment”.

“The en banc court held that Zauderer applies to commercial disclosures of ‘purely factual and uncontroversial information about the good or service being offered' so long as they are supported by any sufficient governmental interest,” the SEC said. It added that the government's interest in “promoting peace and security in the DRC is substantial, even compelling.”

According to the business groups' supplemental brief, however, there are at least three reasons why the rule's compelled statement of whether products are “DRC conflict free” is not purely factual and uncontroversial: “it conveys an ideological and moral judgment rather than pure factual information; it is highly misleading and susceptible to misinterpretation; and it forces companies to convey a governmental position on a controversial topic.”

The business groups claims that the SEC's brief and other opposing briefs “focus on the required factual descriptions of the scope and results of due diligence investigations—which our constitutional claim never challenged—rather than on the mandate that companies then add the non-factual and highly controversial statement that those facts mean a product is not ‘conflict free.'”

According to the business groups' brief: “The First Amendment bars laws that require private speakers to parrot the government’s chosen vocabulary and contested characterization of a policy issue.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The supplemental brief is available at http://www.bloomberglaw.com/public/document/Natl_Assoc_of_Manufacturers_et_al_v_SEC_et_al_Docket_No_1305252_D/23.