We reported previously in April 2014 on the ruling by the United States Court of Appeals for the District of Columbia Circuit striking down the part of the SEC’s conflict minerals rules that requires a registrant to describe its products as not “DRC conflict free” and upholding the remainder of the conflict minerals rules. Upon a rehearing of the case by the D.C. Circuit, the court on Aug. 18, 2015 reaffirmed its previous decision by a 2-1 vote.
In its April 14, 2014 decision, the D.C. Circuit struck down the requirement in the conflict minerals rules that an issuer describe its products as not “DRC conflict free” because it violates the First Amendment by compelling speech by the issuer.
The court granted a rehearing of the case at the request of the SEC in light of the intervening en banc decision of the D.C. Circuit in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc). In American Meat Institute, the D.C. Circuit limited the protections of the First Amendment against compelled speech in certain commercial speech contexts.
Because we are compassionate and prefer an audience that is not asleep, we will not delve into the court’s lengthy and complex First Amendment analysis. The important takeaway here for federal securities laws purposes is that the SEC’s challenge to the D.C. Circuit’s previous decision was unsuccessful, thus preserving the status quo.
We reported previously on the SEC’s response to the D.C. Circuit’s initial court decision in April 2014. Consistent with the court’s ruling, the SEC stated that registrants will not be required to describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.”
If a registrant voluntarily elects to describe any of its products as “DRC conflict free” in its conflict minerals report, it would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as required by the conflict minerals rules. Pending further action from the SEC, an IPSA will not be required unless a registrant voluntarily elects to describe a product as “DRC conflict free” in its conflict minerals report. As of the date of this blog post, the SEC has not taken further action regarding the IPSA requirement.
Compliance with the conflict minerals rules can be a substantial undertaking. Registrants should continue their compliance efforts and be prepared for the next Form SD filing deadline on May 31, 2016.