This month, a federal court concluded the National Association of Manufacturers’ (NAM) legal challenge to one problematic provision requiring disclosure of supply chain information about the use of “conflict minerals” in manufactured products.
The NAM has had a long history of defending the rights of manufacturers against government-compelled speech that violates the First Amendment. Restrictions on commercial speech are carefully reviewed by the courts to ensure that they are narrowly tailored to achieve a substantial government interest, such as preventing fraud or deceptive sales campaigns. But the speech that was mandated by the government under this law imposed an additional burden—requiring affirmative research, investigation and analysis, recordkeeping and finally reporting to the Securities and Exchange Commission (SEC).
After several years of litigation, the federal appeals court in the District of Columbia ruled—twice—that the disclosure requirement is unconstitutional. Being forced to label a product as “conflict free” or not ethically taints and stigmatizes companies, many of which simply cannot determine the ultimate source of trace minerals from smelters around the world. Neither the government nor Amnesty International appealed this ruling to the Supreme Court, and on April 3, the trial court closed the case, declaring Sec. 1502 of the Dodd-Frank Act and the SEC regulation on conflict minerals unconstitutional “to the extent that the statute and the rule require regulated entities to report to the Commission and to state on their websites that any of their products have not been found to be ‘DRC conflict free.’”
Our victory in this case has been and will continue to be used to help the NAM challenge other government-mandated speech, such as shop floor poster requirements, misleading product labeling laws and excessive disclosures of third-party allegations. And yet, the closing of this case and the subsequent determination by the SEC Division of Corporation Finance that it will not recommend enforcement action to the SEC if companies file conflict minerals reporting disclosures under certain provisions do not go far enough. The NAM continues to strongly urge the SEC to consider implementing a full suspension of the conflict minerals rule.