Yesterday, the U.S. Court of Appeals for the District of Columbia Circuit held that parts of the SEC’s rule on conflict minerals¹ and of Section 1502 of the Dodd-Frank Act² (the “statute”) violate the First Amendment of the U.S. Constitution 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 stated that the “requirement that an issuer use the particular descriptor ‘not been found to be “DRC conflict free” ’ may arise as a result of the Commission’s discretionary choices, and not as a result of the statute itself. We only hold that the statute violates the First Amendment to the extent that it imposes that description requirement. If the description is purely a result of the Commission’s rule, then our First Amendment holding leaves the statute itself unaffected.”

The court rejected the following claims by the appellants regarding the SEC’s rule:³

• The rule should have included an exception for de minimis uses.
• The SEC’s requirement for due diligence is inconsistent with the statute and its due diligence threshold was arbitrary and capricious.
• Applicability to those that contract to manufacture is inconsistent with the statute.
• Temporary phase-in period is arbitrary and capricious.
• The SEC did not adequately analyze the costs and benefits of the rule and failed to determine whether the rule would actually achieve its intended purpose.

The court remanded the case back to the U.S. District Court for the District of Columbia for further proceedings consistent with the appellate court’s opinion. It is uncertain at this point how the court's opinion will affect registrants; for the moment, the rule is still in effect.

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1 The SEC’s conflict minerals rule was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Issued in 2012, the rule requires registrants with conflict minerals that are necessary to the functionality or production of their products to file a report, by May 31 of each year, on a special disclosure form (Form SD) for each calendar year commencing with 2013. In certain situations, a registrant may be required to include, as an exhibit to its Form SD, a Conflict Minerals Report, which provides expanded disclosures, including those that relate to a product or products that “have not been found to be ‘DRC conflict free.’ ” The SEC defines “DRC conflict free” as “does not contain conflict minerals necessary to the functionality or production of that product that directly or indirectly finance or benefit armed groups as defined in [the SEC rule] in the [DRC] or an adjoining country.”