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.

In its decision on rehearing, the court confirmed that the SEC’s conflict minerals reporting requirements (and corresponding provisions of the Dodd-Frank Act) violate the First Amendment to the extent that they “require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’” The court also confirmed that the more relaxed standard of review established by the Supreme Court in Zauderer v. Office of Disciplinary Counsel (1985), does not apply to the SEC’s conflict minerals rules on the grounds that they do not involve voluntary commercial advertising. The court found that the SEC’s rule unconstitutionally compels speech when subject to review under either the Central Hudson (intermediate) standard or strict scrutiny. The court concluded that the SEC’s rule (and the underlying statute) do not meet the second prong of the AMI/Central Hudson test because the SEC did not provide evidence that the reporting requirements effectively deter conflict in the Democratic Republic of Congo, which is the law’s stated purpose.

The court’s decision does not immediately change the conflict minerals reporting requirements as currently in effect. Following the court’s originalNAM v. SEC decision, the SEC instructed that, in light of the decision:

  1. Covered companies are not required to state “DRC Conflict Free,” “DRC Conflict Undeterminable,” or “have not been found to be DRC Conflict Free” in relation to their covered products; and
  2. An independent private sector audit is no longer required unless the company voluntarily elects to state that its products are DRC Conflict Free.

The SEC concluded that the remainder of the reporting requirement remained effective. The court subsequently denied NAM’s motion to enjoin the reporting requirement in its entirety.