On April 14, the US Court of Appeals for the District of Columbia Circuit issued an opinion in the lawsuit challenging the Securities and Exchange Commission’s conflict minerals rule which reversed, in part, the prior decision of the US District Court for the District of Columbia upholding the conflict minerals rule and remanded the case back to the district court for further proceedings. In the opinion, the court found that, to the extent that the conflict minerals rule requires an issuer to disclose that any of its products “have not been found to be ‘DRC conflict free,’” such portion of the rule violates the First Amendment’s prohibition against compelled speech. However, the remainder of the conflict minerals rule, including the provisions requiring issuers to conduct country-of-origin inquiries and due diligence and the lack of any de minimis exception for reporting under the rule, was upheld by the court, as opponents of the conflict minerals rule were unable to convince the court that it should be invalidated as arbitrary, capricious, an abuse of discretion or in excess of the SEC’s statutory jurisdiction. As the decision remanded the lawsuit back to the lower court for further proceedings, a final decision with respect to the invalidated portion of the rule may be delayed for some time. A copy of the court’s full opinion is available here.
The partial invalidation raises significant questions about how issuers should comply with the conflict minerals rule, and it is possible that the SEC will voluntarily stay the application of the rule until the courts reach a final decision. However, in the absence of a stay from the SEC, issuers should continue their efforts to comply with the conflict minerals rule for the calendar year beginning January 1, 2013 (regardless of the issuer’s fiscal year), as the first filings on Form SD pursuant to the conflict minerals rule will be required to be filed with the SEC no later than May 31, 2014.