Corporate & Securities Blog

On April 14, 2014 the U.S. Court of Appeals for the D.C. Circuit struck down part of the U.S. Securities and Exchange Commission’s (“SEC”) controversial new “Conflict Minerals Rules” requiring publicly-traded companies to disclose whether their products contain certain minerals from certain central African countries. Despite this decision, until further notice public companies should continue to carry out efforts to comply with the SEC’s rules.

The D.C. Circuit held that the rules unconstitutionally sought to compel speech by requiring public companies to disclose their use of conflict minerals. The majority opinion stated that the requirement to disclose this information goes beyond disclosure that is merely factual and non-ideological and “requires an issuer to tell consumers that its products are ethically tainted,” and leaves a company unable to use its free speech right to dispute that assessment by remaining silent. The opinion continued by stating that the rule interferes with the First Amendment right to freedom of speech “by compelling an issuer to confess blood on its hands.” The dispute will now be sent back to the district court for further proceedings.

Despite its ruling, the D.C. Circuit stopped short of broadly invalidating the rule, upholding such requirements as having companies investigate whether their products include conflict minerals and file public reports on their investigations beginning in June. Companies will no longer, however, be required to list the specific products that might contain these minerals.

The SEC has estimated that compliance costs for the final rule would be $3 to $4 billion initially and $207 to $609 million annually thereafter. The rule has been opposed by pro-business groups including the U.S. Chamber of Commerce and the National Association of Manufacturers, which groups issued a statement that they were “pleased” with the ruling.

The case is National Association of Manufacturers v. U.S. Securities and Exchange Commission, 13-5252, U.S. Court of Appeals, District of Columbia (Washington).