(Adds background, comments from trade groups and legal experts)
By Sarah N. Lynch and Lawrence Hurley
WASHINGTON, April 14 A U.S. appeals court on
Monday struck down parts of a regulation that forces public
companies to disclose if their products contain "conflict
minerals" from a war-torn part of Africa, saying it violates
free speech rights.
The ruling by a three-judge panel of the U.S. Court of
Appeals for the District of Columbia Circuit marks a partial
victory for the three business groups that had filed the
original lawsuit, which claimed that the regulation violated
companies' free speech rights under the U.S. Constitution's
First Amendment by in essence forcing them to condemn their own
The appeals court upheld other parts of the U.S. Securities
and Exchange Commission rule, which requires publicly traded
manufacturers to disclose to investors whether any tantalum,
tin, gold or tungsten used in their products may have originated
from the conflict-ridden Democratic Republic of Congo.
The case is one of several in recent years in which industry
groups have, with mixed success, made free speech objections to
government regulations. Others include challenges to meat
labeling requirements and a rule that required extractive
industries to disclose payments to foreign governments.
The same appeals court is due to issue a key ruling on the
free speech issue when it rehears the meat labeling case next
If the federal government requests it, that case could be
consolidated with a rehearing of the conflict minerals case, the
court indicated in Monday's ruling.
Alternatively, the appeals court said the SEC's case could
be remanded back to a lower court for further proceedings. If
the SEC pursued that option, a district court judge would need
to decide whether wording in the SEC's rule itself, or wording
in the actual law, is at the root of the free speech problem.
An SEC spokeswoman said the agency was still reviewing the
The part of the conflict minerals rule that the appeals
court found fault with requires companies to state that their
products are not "DRC conflict free" if their internal
investigations lead to that conclusion.
Human rights groups had worked to persuade Congress to
include the conflict minerals provision in the 2010 Dodd-Frank
Wall Street reform law, saying the disclosures would help
consumers who want to avoid products that encourage mining in
areas gripped by rebel violence and humanitarian conflict.
But the appeals court questioned why the SEC is forcing
companies to make such statements, suggesting it might make more
sense for the government to collect the data on conflict
minerals and publish a list itself.
Senior Circuit Judge A. Raymond Randolph cited both the
Dodd-Frank law and the SEC regulation in his ruling, writing
that they "violate the First Amendment to the extent the statute
and rule require regulated entities to report ... on their
website that any of their products have not been found to be ...
Another judge on the panel, Sri Srinivasan, wrote a separate
opinion stating that the court should have delayed ruling on the
free speech issue until it rehears the meat-labeling case.
Last month, a three-judge panel upheld the regulation
challenged by meat producers on free speech grounds. The rule
specifies labeling requirements for certain meat products.
A week later, in a sign of the importance of the legal
question, the court agreed to rehear the case "en banc," meaning
all the court's judges will participate. Oral arguments are
scheduled for May 19.
Srinivasan wrote on Monday that the conflict minerals
decision could "effectively be undercut by the en banc court in
relatively short order."
Although the future of the regulation on conflict minerals
is in doubt, Monday's ruling marks a partial victory for the
SEC, which has lost a long string of legal challenges to its
"Although the commission adopted an expansive rule, it did
not go as far as it might have," Randolph wrote, noting that the
SEC "exhaustively analyzed" the final rule's costs.
The three groups that filed the lawsuit -- the U.S. Chamber
of Commerce, the Business Roundtable and the National
Association of Manufacturers -- had argued that the SEC
conducted a flawed rulemaking and failed to weigh the costs of
In a joint statement, the three said they were pleased with
the court's finding. "We understand the seriousness of the
humanitarian situation in the Democratic Republic of Congo,"
they said, "but this rule was not the appropriate way to address
Human rights groups said they were disappointed but remained
optimistic the regulation will ultimately survive.
"It's kind of a mixed bag," Jonathan Kaufman, an attorney
with human rights group Earthrights International, said of the
ruling, noting that despite the free speech finding the rest of
the ruling made it clear the SEC can require companies to carry
out due diligence and report findings to the agency.
The ruling places companies in an uncertain position,
because the deadline to begin compliance is June 2.
So far, the groups that filed the lawsuit have not asked for
a stay and the SEC has not voluntarily offered to grant one.
Scott Kimpel, a partner at Hunton & Williams who formerly
worked at the SEC, said he believes the ruling will put pressure
on the regulators to give companies more time.
"I anticipate that in the very near term the SEC will issue
a public clarification of what registrants should do with
respect to the June 2 deadline," Kimpel said.
(Reporting by Sarah N. Lynch and Lawrence Hurley; Additional
reporting by Aruna Viswanatha; Editing by Howard Goller and