As you recall, shortly after the SEC issued the Conflict Minerals Rule, several trade groups challenged the rule in federal court. The trade groups challenged the SECs cost-benefit analysis, questioned the SECs discretionary choices, and claimed that certain requirements in the rule violate the First Amendment. 

Today, in a 2-1 decision, the D.C. Court of Appeals sided with the SEC and rejected all of the trade associations’ arguments – with one exception. After discussing the legal basis for its review of the First Amendment claim, the Court concluded that portions of Section 1502 of the Dodd-Frank Act and the SEC’s conflict minerals rule violated the First Amendment when they required that reporting companies report to the SEC and state on their websites that any of their products have “not been found to be ‘DRC conflict free.’” The Court remanded the case to the district court for further proceedings.

It was the product description requirement that was the focus of the Court’s attention. In what may be the most quoted selection from the opinion, the majority stated “The label “conflict free” is a metaphor that conveys moral responsibility for the Congo war….By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”

Despite today’s decision, uncertainty remains. The Court did not stay the implementation of the Conflict Minerals Rule, and all provisions other than the “not found to be DRC conflict free” product description remain valid. Among the possible next steps – the petitioner trade groups could seek a stay of the Conflict Minerals Rule pending the further proceedings which would delay any required filings beyond the current June 2 deadline, the SEC could challenge the Court of Appeals’ decision, and/or the SEC might indicate that it expects reporting companies to file the required disclosure except for the “not been found to be ‘DRC conflict free’” product description.

Until the full implications of the Court of Appeals decision are known, companies should continue to press forward with their inquiries, diligence and with the drafting of their Form SDs and Conflict Minerals Reports so that they are prepared to make the conflict minerals disclosures that will be required of them 7 short weeks from now.