Trade Law

On August 18, 2015, the U.S. Court of Appeals for the D.C. Circuit reaffirmed its April 2014 decision in NAM v. SEC, where it held that certain portions of the SEC’s conflict minerals reporting requirements unconstitutionally compel speech. As we covered in previous blog posts, the court granted the SEC’s motion for rehearing following the court’s May 2014 decision in American Meat Institute v. U.S. Department of Agriculture. In its American Meat Institute decision the court addressed the standards of review that apply to commercial speech, including the standards applied in NAM v. SEC.

On November 18, 2014, the U.S. Court of Appeals for the D.C. Circuit granted the SEC’s motion to rehear the court’s decision in NAM v. SEC.  As covered in previous blog posts, the court’s NAM decision held that portions of the SEC’s conflict minerals reporting requirements run afoul of the First Amendment.  The D.C. Circuit’s ruling in a subsequent case, American Meat Institute v. U.S. Department of Agriculture, questioned the standard of review that the court applied in the NAM case. 

The American Meat case considered whether the scope of the standard of review for claims of government compelled speech established by the Supreme Court in the Zauderer v. Office of Disciplinary Counsel (1985) case.  The Zauderer standard is more relaxed than it was in Central Hudson Gas & Electric v. PSC of New York (1980).  Under Zauderer, if a government disclosure requirement is “purely factual” and “non-controversial” there must be a “reasonable fit” or “reasonable proportion” between the means and the ends.  The conflict minerals court declined to apply the Zauderer standard of review outside of consumer deception, whereas the American Meat court held that Zauderer does in fact “reach beyond problems of deception.” 

As mentioned here, on April 29, 2014, the National Association of Manufacturers (NAM), Chamber of Commerce and Business Roundtable filed a motion for stay with the SEC. The motion requested that the SEC stay its final Conflict Minerals Rule or at least stay the filing deadline for the Form SD and reports associated with the rule. This request followed the U.S. Court of Appeals for the District of Columbia’s holding that the SEC’s requirement that covered companies state which of their covered products “have not been found to be DRC Conflict Free” violates the First Amendment.

In summary, the petitioners argued that issuers will suffer irreparable injury in the absence of the stay due to loss of First Amendment freedoms and the financial implications of complying with the rule. They argue that the entire rule should be stayed because the resulting compelled statement is closely intertwined with the due diligence and country of origin inquiry. Since the “shaming mechanism” of the rule has been struck down on First Amendment grounds, petitioners argued the benefit of the rule is now questionable. Petitioners emphasized Commissioners Gallagher and Piwowar’s comments that “the listing of products – the apotheosis of the diligence process… is central to the rule.” Without the compelled disclosure requirements, the purpose of the rule is undermined and the due diligence requirements become an unnecessary burden to issuers. Petitioners assert that even the current proposed solutions (e.g., the SEC compiling its own list of products that are not conflict free) require a lengthy determination of the standards for classifying the products. The petitioners argue that there is not enough time to resolve these issues before the June 2, 2014, reporting deadline and thus the rule should be stayed until the process of implementing the court’s decision can be completed.